Company Announcement
No. 27/2023
Copenhagen, 29 August 2023
Interim Report, 1 January - 30 June 2023
and Revised Outlook
For the second quarter of 2023, Scandinavian Tobacco Group A/S (the âGroupâ or âScandinavian To-
bacco Groupâ) delivered 2.3% negative net sales growth, an EBITDA margin of 23.1% and a free cash
flow before acquisitions of DKK 159 million. The Group reports revised full year guidance as an-
nounced in Company Announcement no. 26/2023 on 29 August 2023 following a more volatile envi-
ronment than expected and reflective of on-going inventory adjustments across customers and distrib-
utors, slower regain of market shares in Europe, delays in new store openings in US and changes in
exchange rates. The expectation for the full year is based on some recovery in net sales growth for
the second half of the year as well as a free cash flow before acquisitions slightly higher than compared
with the second half of 2022. The financial performance for July and early August support the revised
outlook.
The main uncertainties to the expectation for net sales relate to the volume development in Europe
Branded and inventory adjustments with customers. The expectation for the EBITDA margin assumes
a robust supply-chain and stable cost development.
Q2 Highlights
ï· Net sales decreased by 2.3% to DKK 2.2 billion (DKK 2.3 billion).
ï· The EBITDA margin was 23.1% (23.9%).
ï· Free cash flow before acquisitions was DKK 159 million (DKK 143 million).
ï· Adjusted Earnings Per Share (EPS) were DKK 3.5 (DKK 3.6).
ï· Return on Invested Capital (ROIC) was 13.1% (13.6%).
ï· Expansion into Next Generation Products (NGP) includes the completion of the XQS acquisi-
tion and the launch of !act, and the fifth Superstore in Texas, US was opened.
ï· Growth Enablers (NGPs and retail stores) account for slightly above 3% of Group net sales.
ï· In the first 6 months of 2023, net sales decreased by 0.7% to DKK 4.2 billion (DKK 4.2 billion),
the EBITDA margin was 23.6% (25.5%), free cash flow before acquisitions was negative DKK
20 million (DKK 272 million) and Adjusted EPS were DKK 6.7 (DKK 7.2).
CEO Niels Frederiksen commented:
âOn the back of a volatile environment we had to adjust our guidance even though we are continuing
to make good progress on our ambition to grow the size of the company through retail expansion,
acquisitions and portfolio diversification. In the second quarter, we completed the second acquisition
of the year and opened another Cigars International retail Superstore. For the remainder of the year,
we are focusing on leveraging the current strength of our online business and on building a stronger
momentum in our Europe Branded businessâ.
2
Financial guidance 2023
For the financial year 2023, the guidance has been revised to:
ï· Net sales in the range of DKK 8.7-9.0 billion (from DKK 9.0-9.3 billion)
ï· EBITDA margin before special items in the range of 23.5-24.5% (from 24-25%)
ï· Free cash flow before acquisitions in the range DKK 1.1-1.3 billion (from DKK 1.2-1.4 billion)
ï· Adjusted EPS in the range of DKK 14.0-16.0 (from DKK 14.5-16.5)
For further information, please contact:
Torben Sand, Head of IR & Communication, phone +45 5084 7222 or torben.sand@st-group.com
Eliza Dabbagh, IR and Communication, phone +45 5080 7619 or eliza.michael@st-group.com
A conference call will be held on 30 August 2023 at 10.00 CEST. Dial-in information and an accom-
panying presentation will be available at investor.st-group.com/investor around 09:00 CEST.
3
Key Figures
DKK million Q2 2023
Q2 2022
6M 2023
6M 2022
FY2022
INCOME STATEMENT
Net sales 2,225
2,278
4,188
4,215
8,762
Gross profit before special items 1,044
1,074
2,023
2,093
4,307
EBITDA before special items 514
544
987
1,076
2,270
Special items -16 -23 -44 -40 35
EBIT 406
433
764
860
1,953
Net financial items
1
-22 -44 -53 -57 -137
Profit before tax 392
400
727
823
1,856
Income taxes -88 -90 -164 -185 -380
Net profit 304
310
563
638
1,476
BALANCE SHEET
Total assets 16,350 15,582 15,122
Equity 8,994 9,055 9,342
Net interest-bearing debt (NIBD) 5,059 4,268 3,629
Investment in property, plant and equipment 40 59 88 113 264
Total capital expenditures 66 120 146 187 390
CASH FLOW STATEMENT
Cash flow from operating activities 222 258 120 449 1,393
Cash flow from investing activities -132 -119 -722 -180 -132
Free cash flow 90 140 -603 269 1,261
Free cash flow before acquisitions 159 143 -20 272 1,264
KEY RATIOS
2
Net sales growth -2.3% 5.7% -0.7% 4.4% 6.4%
Gross margin before special items 46.9% 47.2% 48.3% 49.7% 49.2%
EBITDA margin before special items 23.1% 23.9% 23.6% 25.5% 25.9%
Effective tax percentage 22.5% 22.5% 22.5% 22.5% 20.5%
Equity ratio 55.0% 58.1% 61.8%
Cash conversion 78.3% 77.2% 42.0% 64.3% 87.2%
Organic net sales growth -1.8% -1.8% -1.3% -1.7% -0.8%
Organic EBITDA growth -2.9% -14.6% -7.5% -9.0% -3.5%
NIBD / EBITDA before special items 2.3 2.0 1.6
ROIC 13.1% 13.6% 14.3%
ROIC ex. Goodwill 21.3% 22.6% 23.6%
Adjusted earnings per share (DKK) 3.5 3.6 6.7 7.2 16.0
Basic earnings per share (DKK) 3.5 3.4 6.5 6.9 16.3
Diluted earnings per share (DKK) 3.5 3.4 6.5 6.9 16.2
Number of shares issued ('000) 87,000
93,000
93,000
Number of treasury shares ('000) 382
2,104
5,751
Number of outstanding shares ('000)
3
86,786 92,250
90,851
Share price at balance date (DKK) 113.50
138.80 122.10
Dividend per share (DKK) 8.3
Pay-out ratio 52.0%
1. Excl. share of profit of associated companies.
2. See definition/explanation of financial ratios in note 5.8 in the Annual Report 2022.
3. Average number of shares outstanding, including dilutive effect of PSUs.
4
Business overview Q2 2023
In the second quarter of 2023, the Groupâs reported net sales decreased by 2% to DKK 2,225 million
with organic net sales being negative also by 2%. Exchange rates developments impacted net sales
negatively by DKK 46 million while the acquisition of Alec Bradley and XQS, impacted net sales posi-
tively by DKK 35 million. The performance was composed of positive organic net sales growth in the
North America Online & Retail division (âNAORâ) and negative organic net sales growth in both the
North America Branded & Rest of World (âNABROWâ) and Europe Branded (âEUBâ) divisions. The
decrease in NABROW was primarily a result of inventory adjustment across several handmade cigar
customers and the change in distribution model in Australia, which impacted net sales positively in the
first half of 2022. The demand for our product categories is still perceived as resilient, although con-
sumption of handmade cigars in the US continues to decrease by more than its structural decline rate.
The balance between the online and retail channels in the US continue to reverse towards the pre-
covid balance, to the benefit of the online business.
The EBITDA margin decreased to 23.1% compared with 23.9% in the same quarter last year primarily
driven by a lower gross margin in Europe Branded and a higher OPEX ratio in North America Branded
& Rest of World. The decrease in the gross margin in Europe Branded is a result of a combination of
changes in market and product mix and lower production efficiency resulting from declining volumes
compared with last year.
EBITDA before special items was DKK 514 million after negative organic growth of 3%. Special items
comprise of an expense of DKK 16 million (DKK 23 million) relating to the ERP implementation project,
OneProcess. Net profit was DKK 304 million (DKK 310 million) with Adjusted Earnings Per Share at
DKK 3.5 (DKK 3.6). The Groupâs free cash flow before acquisitions was DKK 159 million (DKK 143
million) driven by a lower level of CAPEX and payment of special items, partly offset by higher net
financial costs and taxes paid as well as a temporary increase in net working capital. The GroupÂŽs
leverage ratio was 2.3 times versus 2.0 times by the end of the first quarter 2023.
Divisional split Q2 2023
Net sales EBITDA before special items
Group net sales and EBITDA Q2 2023
Table 1: Net sales Table 2: EBITDA before special items
Q
2
Q
2
Change
DKK
million
202
3
202
2
in %
Net sales
2,225
2,278
-
2.3
%
Acquisitions
35
Currency development
46
Organic net sales
2,271
2,312
-
1
.8
%
Q
2
Q
2
Change
DKK million
202
3
202
2
in %
EBITDA
514
544
-
5.6
%
Acquisitions
9
Currency development 23
Organic EBITDA
537
553
-
2.9
%
35%
32%
33%
NA Branded & RoW
Europe Branded
NA Online & Retail
49%
30%
21%
-2.3%
DKK 2,225m
-5.6%
DKK 514m
5
Rolling Towards 2025
The Groupâs ambition to grow through a combination of acquisitions, geographic expansion and ex-
perimentation in Next Generation Products (âNGPsâ) remains on track.
Mergers and acquisitions
In March 2023, the Group completed the acquisition of the Alec Bradley cigar business, and in May
2023, the Group completed the acquisition of XQS International ABs NGP business. The combined
transaction value for the two businesses was at a maximum of DKK 650 million. The integration of
both businesses continues to perform according to plan.
Growth Enablers
In June 2023, Cigars International opened its ninth retail cigar Superstore in Katy, Texas west of Hou-
ston. The Katy Superstore is the fifth store Cigars International has opened in Texas. The retail stores
are expected to continue to deliver valuable contributions to the GroupÂŽs financial performance. Alt-
hough, a few store openings are delayed, the strategy to expand the retail network in the US continues,
with additional openings expected during the coming year.
The Growth Incubator continues to explore opportunities outside the Groupâs core categories. To date,
the Group has launched three products and acquired one brand within the NGP category.
In May 2023, the Group acquired the XQS International ABs NGP business (Modern Whites and Mod-
ern Actives) with net sales primarily in Sweden. The XQS brand continues to deliver strong perfor-
mance with double-digit net sales growth continuing since the brand was integrated in Scandinavian
Tobacco Group. A roll-out of XQS to additional markets is being considered.
In April 2023, the Group launched a new Modern Actives product (without tobacco and without nico-
tine) called !act in the Danish market. The product delivers energy through caffeine. !act has been well
received by consumers in Denmark, though net sales remain immaterial to Group performance. A roll-
out to additional markets is being considered.
Scandinavian Tobacco Group continues to closely monitor these growth opportunities to assess
whether the Groupâs presence in the NGP categories is viable and profitable in the mid to long term.
Net sales from the Growth Enablers (the NGP portfolio and the retail stores), accounted for slightly
above 3% of Group net sales in the second quarter of 2023 compared with less than 2% in the same
quarter last year.
Update on financial key metrics
In the second quarter of 2023, the EBITDA margin decreased to 23.1% (23.9%), and the gross margin
decreased to 46.9% (47.2%). The OPEX ratio increased to 23.8% (23.3%).
The 12 months rolling Return on Invested Capital (ROIC) decreased to 13.1% versus 14.3% by the
end of 2022 driven by the development in EBIT (12 months rolling) and an increase in invested capital
of DKK 0.4 billion to DKK 14.1 billion compared to 31 December 2022.
6
Sustainability
The Groupâs sustainability agenda â Rolling Responsibly â continues to make good progress. New
data collection methods and reporting processes are being implemented to streamline workflow and
ongoing assessments of initiatives for the communities in which we operate are nearing finalisation.
This quarter, the Group has begun investigating Scope 3 emissions categories, in addition to delivering
Scope 1 & 2 reductions. Furthermore, the Group completed the CDP filing for Climate and Water, and
the Center of Excellence is incorporating needed actions into roadmaps that directly correlate to future
CDP filing and Science Based Targets initiatives (SBTi) commitments. This work will assist the Group's
preparation for reporting according to the upcoming Corporate Sustainability Reporting Directive
(CSRD) in 2024.
The actions and initiatives implemented supports our vision to be the undisputed and sustainable
global leader in cigars.
7
Outlook 2023
The full year guidance has been revised down due to a lower net sales outlook.
Net sales are now expected to be DKK 8.7-9.0 billion against the previous expectation of DKK 9.0-9.3
billion, reflecting on-going inventory adjustments across customers and distributors primarily in the US,
a slower regain of market shares in Europe and delays in opening retail stores in the US. Furthermore,
exchange rate developments had a negative impact on the net sales outlook.
Inventory adjustments impacted the second quarter net sales as certain distributors and customers
have reduced stocks of handmade cigars. We expect some additional adjustments for the second half
of the year.
The consumption of products in our categories is perceived as resilient, although the consumption
might deviate from its structural trends in a short to medium term perspective.
The consumption of handmade cigars in the US continued to decline by more than 2% during the first
half of the year, whereas an improving balance between online and retail sales channels have mate-
rialised in recent months.
Overall, the consumption of machine-rolled cigars in our key European markets continues to develop
close to its structural decline rate of 2-3%, though with variations from market to market. Currently,
decline rates are higher in our main markets, and the recovery in our market share performance takes
longer than originally anticipated, entailing a volume decline for the year in our machine-rolled cigar
business.
In most of our product categories price increases are expected to offset the volume decline. The
Growth Enablers are expected to deliver an increasing contribution to net sales driven by the retail
expansion in the US and the NGP portfolio.
The EBITDA margin is assumed to be impacted negatively by the changes in product and market mix.
The expectation for the EBITDA margin before special items has been revised to the range of 23.5-
24.5% from the previous range of 24-25% as result of the lower expectation for net sales in Europe
Branded and inventory adjustments.
The free cash flow before acquisitions will also be impacted by the lower expectation for net sales and
EBITDA margin, though it is still assumed to increase to more than DKK 1.1 billion in the second half
of the year compared with DKK 1.0 billion in the second half of last year. The increase is primarily
expected to be driven by an improvement in the cash flow from changes in working capital primarily
as result of lower inventories.
The largest uncertainties for the outlook are changes in consumer behaviour, the volume development
in Europe Branded, changes in market and product mix and larger inventory adjustments for distribu-
tors. Given these considerations the guidance for 2023 has been revised to:
ï· Reported net sales in the range of DKK 8.7-9.0 billion (from DKK 9.0-9.3 billion).
ï· EBITDA-margin before special items in the range of 23.5-24.5% (from 24-25%).
ï· Free cash flow before acquisitions in the range of DKK 1.1-1.3 billion (from DKK 1.2-1.4 bil-
lion).
ï· Adjusted EPS in the range of DKK 14.0-16.0 (from DKK 14.5-16.5).
8
The guidance rests on several assumptions:
ï· No contribution or expenses related to potential new acquisitions.
ï· The effective tax rate is expected to be in the range of 22-23%
ï· Working capital is expected to deliver a positive contribution.
ï· Capital expenditure, net is expected at up to DKK 400 million (DKK 500 million).
ï· Guidance and assumptions are based on current exchange rates*
* A 10% change in the USD/DKK exchange rate would impact group net sales by approximately 5 percentage points with
EBITDA margins being only marginally impacted.
Events after the reporting period
There are no other events than those mentioned in the above that have occurred after 30 June 2023
and that are expected to have material impact on the financial position of the Group.
Forward-looking statements
This report contains forward-looking statements. Such statements are subject to risk and uncertainties
as various factors, many of which are beyond Scandinavian Tobacco Groupâs control, may cause
actual developments and results to differ materially from the expectations set out in this report.
9
Europe Branded
During the second quarter of 2023 net sales decreased by 1% compared to the second quarter of
2022 and the EBITDA margin decreased to 23.1%. The development in net sales was driven by total
markets, which continue to decline close to their structural decline rates, and a decrease in our market
shares in machine-rolled cigars partly offset by solid pricing across all product categories.
The development in consumer demand for machine-rolled cigars in Europe remains unchanged with
the volume decline rate remaining stable at an annual decline rate of close to 3%, though with varia-
tions across markets. Several of Scandinavian Tobacco Groupâs main markets, like France and the
UK, are impacted by higher decline rates than the European average. Market volumes declined by
more than 5% in France and the UK. Germany was the only market showing volume growth in the
quarter.
According to preliminary data, the market share index for our key markets was 29.8% for the second
quarter 2023 versus 30.7% for the first quarter of 2023 and 31.1% for the full year of 2022. The decline
in the weighted market share index is result of our relatively strong position in markets like France, the
UK and the Netherlands, which experienced higher decline rates, and our strong position in non-fla-
voured cigars, which has lost share to flavoured cigars in these markets.
Second Quarter Development, 2018-2023
Net sales decreased by 1% to DKK 712 million during the quarter driven by the development in organic
net sales. The negative organic growth was driven by machine-rolled cigars and pipe tobacco (within
smoking tobacco), whereas handmade cigars and fine cut, especially in Germany, delivered a positive
contribution to net sales growth. Pricing for all product categories was solid with price/mix impact for
the largest product category, machine-rolled cigars being up by almost 8%.
EBITDA before special items decreased to DKK 164 million (DKK 173 million) with an EBITDA margin
before special items of 23.1% (24.0%). The margin development was driven by a decreasing gross
margin as a result of changes in market and product mix, primarily the decline in net sales in France,
and the adverse scale impact on production efficiency from decline in volumes. The OPEX ratio in-
creased slightly driven by cost inflation and increasing investments in Next Generation Products.
First six months of 2023
Net sales for the first six months of 2023 increased to DKK 1,353 million with an organic growth of 3%.
Gross profit before special items decreased by 3% to DKK 699 million and the gross margin was 51.7%
(54.5%). EBITDA before special items decreased by 7% to DKK 310 million with an EBITDA margin
of 22.9% (25.2%).
10%
15%
20%
25%
30%
400
500
600
700
800
Q2 2018 Q2 2019 Q2 2020 Q2 2021 Q2 2022 Q2 2023
Net sales and EBITDA margin b.s.i.
Net Sales (DKK million) EBITDA margin
10
North America Branded & RoW
During the second quarter of 2023 net sales decreased by 6% compared to the second quarter of
2022 and the EBITDA margin decreased to 34.2%. The second quarter of 2023 has primarily been
impacted by lower contract manufacturing volumes as these customers have been adjusting invento-
ries as well as the lower volumes of handmade cigars in the US, which was partly offset by solid pricing
across product categories and the inclusion of the Alec Bradley brand to the handmade cigar portfolio.
Consumer demand for cigars is still considered resilient, although volumes of handmade cigars in the
US continue to decline by more than the structural decline rate from the exceptionally strong two years
during the pandemic trails off. Additionally, several distributors and customers have been reducing
inventories enforcing the decrease in organic net sales in the quarter. The Alec Bradley business,
which was acquired during the first quarter of the year, constitutes a strong addition to the Groupâs
portfolio of handmade cigars and the integration has met most milestones to date.
Second Quarter Development, 2018-2023
Net sales decreased by 6% to DKK 773 million during the quarter as a result of a 6% decrease in
organic net sales. The development was primarily a result of inventory adjustments across handmade
cigar customers as well as the change in distribution model in Australia, which impacted net sales
positively in the first half of 2022. All product categories delivered solid price/mix impact.
EBITDA before special items decreased to DKK 265 million (DKK 305 million) with an EBITDA margin
before special items of 34.2% (37.2%). The decrease in profitability was driven by an increase in the
OPEX ratio following cost inflation and lower sales in contract manufacturing, which carry little operat-
ing expenses.
First six months of 2023
Net sales for the first six months of 2023 decreased by 6% to DKK 1,493 million and organic growth
was negative by 8%. Gross profit before special items decreased by 8% to DKK 792 million and the
gross margin was 53.1% (54.2%). EBITDA before special items decreased by 15% to DKK 541 million
with an EBITDA margin of 36.2% (39.7%).
25%
30%
35%
40%
45%
500
600
700
800
900
Q2 2018 Q2 2019 Q2 2020 Q2 2021 Q2 2022 Q2 2023
Net sales and EBITDA margin b.s.i.
Net Sales (DKK million) EBITDA margin
11
North America Online & Retail
During the second quarter of 2023 net sales increased by 0.4% compared to the second quarter of
2022 and the EBITDA margin improved to 16.4%. Organic net sales were 2.7% and continued to
improve reversing the declining trend since early 2021 driven by improved performance in the online
business and continued growth in the retail business.
The performance was positively impacted by the online sales channel regaining share from the retail
sales channel. NAORâs high proportion of online sales compared with retail sales implies the division
has started to perform better than the general market development as a result of a more dynamic
promotion strategy having been implemented and the channel mix. Retail accounts for an increasing
share of net sales in NAOR and was above 9% in the second quarter.
Second Quarter Development, 2018-2023
Net sales increased by 0.4% to DKK 740 million during the quarter composed of a 3% organic net
sales growth and a negative exchange rate effect of more than 2%. Both online and retail delivered
positive organic net sales growth in the quarter with the growth in Retail being driven by the opening
of new stores, most recently in Conroe, Texas in the first quarter and Katy, Texas in the second quarter
of the year.
Although, Online continued to experience a decline in the active customer base versus the same quar-
ter last year, it remained broadly unchanged versus the previous quarter for the first time in more than
two years supported by strategic pricing across the different channels. The balance between online
and retail has reversed in recent quarters in favour of online and we expect the balance to reverse
further in favour of online. The increase in net sales was supported by the distribution of ZYN products
which is developing well.
Retail continues to deliver double-digit net sales growth versus last year driven by new store openings.
The Retail business contributes positively to the gross margin in NAOR.
EBITDA before special items increased to DKK 122 million (DKK 101 million) with an EBITDA margin
before special items of 16.4% (13.7%). The margin development is primarily driven by increasing net
sales and efficiency improvements including the impact from the modernisation of our warehouse fa-
cilities.
First six months of 2023
Net sales for the first six months of 2023 increased by 3% to DKK 1,342 million driven by organic net
sales growth of 2.0% and a 1% impact from exchange rate developments. Gross profit before special
items increased by 4% and the gross margin was 39.6% (39.2%). EBITDA before special items in-
creased by 17% to DKK 205 million with an EBITDA margin of 15.3% (13.5%).
5%
10%
15%
20%
25%
300
400
500
600
700
800
Q2 2018 Q2 2019 Q2 2020 Q2 2021 Q2 2022 Q2 2023
Net sales and EBITDA margin b.s.i.
Net Sales (DKK million) EBITDA margin
12
Quarterly Financial Data
2023
DKK million
Q2 Q1 Q4 Q3 Q2 6M 6M 12M
Reported data
Net sales 2,225 1,963 2,185 2,362 2,278 4,188 4,215 8,762
Gross profit before special items 1,044 979 1,042 1,172 1,074 2,023 2,093 4,307
EBITDA before special items 514 474 563 631 544 987 1,076 2,270
Special items -16 -27 103 -27 -23 -44 -40 35
EBIT 406 358 579 514 433 764 860 1,953
Net financial items -22 -31 -47 -32 -44 -53 -57 -137
Profit before tax 392 335 541 492 400 727 823 1,856
Income taxes -88 -76 -84 -111 -90 -164 -185 -380
Net profit 304 260 457 382 310 563 638 1,476
Other financial key data
Organic EBITDA growth -2.9% -12.1% 13.3% -6.2% -14.6% -7.5% -9.0% -3.5%
Organic net sales growth -1.8% -0.8% 1.7% -1.4% -1.8% -1.3% -1.7% -0.8%
Gross margin before special items 46.9% 49.9% 47.7% 49.6% 47.2% 48.3% 49.7% 49.2%
EBITDA margin before special items 23.1% 24.1% 25.8% 26.7% 23.9% 23.6% 25.5% 25.9%
Free cash flow before acquisitions 159 -179 530 462 143 -20 272 1,264
North America Online & Retail
Net sales 740 602 703 770 737 1,342 1,305 2,778
Gross profit before special items 290 242 278 308 285 532 512 1,098
EBITDA before special items 122 83 117 110 101 205 176 403
Net sales growth 0.4% 5.9% 6.9% 10.5% 4.9% 2.8% 3.1% 6.0%
Organic net sales growth 2.7% 1.3% -4.8% -5.6% -7.5% 2.1% -7.0% -6.1%
Gross margin before special items 39.2% 40.2% 39.5% 40.1% 38.7% 39.6% 39.2% 39.5%
EBITDA margin before special items 16.4% 13.9% 16.7% 14.3% 13.7% 15.3% 13.5% 14.5%
North America Branded & RoW
Net sales 773 720 751 851 819 1,493 1,593 3,194
Gross profit before special items 397 396 385 450 416 792 864 1,698
EBITDA before special items 265 280 267 326 305 541 633 1,226
Net sales growth -5.7% -6.9% 14.5% 10.7% 7.7% -6.3% 9.6% 11.0%
Organic net sales growth -6.1% -9.2% 7.4% -0.2% -0.5% -7.6% 2.9% 3.1%
Gross margin before special items 51.3% 55.1% 51.2% 52.9% 50.8% 53.1% 54.2% 53.2%
EBITDA margin before special items 34.2% 38.8% 35.5% 38.3% 37.2% 36.2% 39.7% 38.4%
Europe Branded
Net sales 712 641 731 742 721 1,353 1,317 2,790
Gross profit before special items 357 341 380 414 373 699 717 1,511
EBITDA before special items 164 143 209 231 173 310 332 772
Net sales growth -1.3% 7.6% 4.6% 3.4% 4.2% 2.7% -0.1% 2.0%
Organic net sales growth -1.4% 8.3% 2.4% 1.4% 2.4% 3.0% -1.9% 0.1%
Gross margin before special items 50.1% 53.2% 51.9% 55.8% 51.7% 51.7% 54.5% 54.2%
EBITDA margin before special items 23.1% 22.3% 28.6% 31.1% 24.0% 22.9% 25.2% 27.7%
Group costs
EBITDA before special items -37 -32 -30 -36 -34 -68 -65 -131
2023 2022 2022
13
MANAGEMENT STATEMENT
EXECUTIVE MANAGEMENT
BOARD OF DIRECTORS
14
STATEMENT OF COMPREHENSIVE INCOME
1 JANUARY
-
30 JUNE
CONSOLIDATED INCOME STATEMENT
DKK million
Q2 2023
Q2 2022
6M 2023
6M 2022
Net sales
1, 2
Cost of goods sold 1, 2
-1,181.0
-1,203.7
-2,164.7
-2,122.1
Gross profit before special items 1, 2
Other external costs 1, 2
-307.6
-296.5
-569.7
-561.9
Staff costs 2
-222.6
-233.3
-466.1
-455.7
Earnings before interest, tax, depreciation, amortisation
and special items (EBITDA before special items)
2
Depreciation and impairment
-48.5
-47.1
-94.8
-93.1
Earnings before interest, tax, amortisation and special
items (EBITA before special items)
Amortisation and impairment
-42.9
-41.6
-84.6
-82.3
Earnings before interest, tax and special items
(EBIT before special items)
Special items, costs and impairment 3
-16.4
-22.7
-43.6
-40.4
Earnings before interest and tax (EBIT)
Share of profit of associated companies, net of tax
Financial income
Financial costs
-65.4
-74.5
-153.5
-130.2
Profit before tax
Income taxes
-88.0
-90.0
-163.5
-185.2
Net profit for the period
Earnings per share
Basic earnings per share (DKK)
Diluted earnings per share (DKK)
OTHER COMPREHENSIVE INCOME
Items that will be recycled subsequently to the Consolidated Income Statement, when specific conditions are met:
Cash flow hedges, deferred gains/losses incurred during the
period
Tax of cash flow hedges
-0.6
-1.9
Foreign exchange adjustments on net investments in foreign
operations
-98.9
Other comprehensive income for the period, net of tax
-98.9
Total comprehensive income for the period
15
Net sales
In the second quarter of 2023, net sales were DKK 2,225 million (DKK 2,278 million). Adjusted for a
negative exchange rate impact of DKK 46 million and acquisitions of DKK 35 million, the organic growth
in net sales was negative by 1.8%. For the first six months of 2022, net sales came to DKK 4,188
million (DKK 4,215 million) with organic net sales growth being negative by 1.3%.
Profit
Gross profit before special items for the second quarter of 2023 was DKK 1,044 million (DKK 1,074
million) explained by a slight decrease in the gross margin before special items to 46.9% (47.2%). The
gross margin declined in Europe Branded but was partly offset by a margin increase in North America
Online & Retail and North America Branded & Rest of World.
Operating expenses for the first quarter were flat compared to same quarter last year and stood at
DKK 530 million (DKK 530 million). The OPEX ratio increased to 23.8% (23.3%).
EBITDA before special items for the second quarter of 2023 amounted to DKK 514 million (DKK 544
million). The development is explained by the decreased gross margin as well as the increased OPEX-
ratio. Organic EBITDA growth was negative by 3%.
EBITDA margin before special items for the second quarter of 2023 was 23.1% (23.9%).
During the quarter DKK 16 million (DKK 23 million) have been expensed as special items, all relating
to OneProcess.
Net profit was DKK 304 million (DKK 310 million). Earnings Per Share (EPS) were DKK 3.5 (DKK
3.4). Earnings Per Share adjusted for special items, fair value adjustments and currency
gains/losses, net of tax decreased to DKK 3.5 (DKK 3.6).
In the first six months of 2023, gross profit before special items was DKK 2,023 million (DKK 2,093
million) with a gross margin of 48.3% (49.7%). EBITDA before special items was DKK 987 million (DKK
1,076 million) with an EBITDA margin of 23.6% (25.5%). Special items were DKK -44 million (DKK -
40 million), net profit was DKK 563 million (DKK 638 million) with EPS adjusted for special items, fair
value adjustments and currency gains/losses, net of tax decreased to DKK 6.7 (DKK 7.2).
Second Quarter Development, 2018-2023
10%
14%
18%
22%
26%
30%
1000
1300
1600
1900
2200
2500
Q2 2018 Q2 2019 Q2 2020 Q2 2021 Q2 2022 Q2 2023
Net sales and EBITDA margin b.s.i.
Net Sales (DKK million) EBITDA margin
16
CONSOLIDATED BALANCE SHEET
ASSETS
DKK million
30 June 2023
30 June 2022
31 Dec 2022
INTANGIBLE ASSETS
Goodwill
Trademarks
IT software
Other intangible assets
Intangible assets under development
Total intangible assets
Property, plant and equipment
Investments in associated companies
Deferred income tax assets
Total non-current assets
Inventories
Trade receivables
Other receivables
Corporate tax
Prepayments
Cash and cash equivalents
Assets classified as held for sale
Total current assets
Total assets
17
CONSOLIDATED BALANCE SHEET
EQUITY AND LIABILITIES
DKK million
30 June 2023
30 June 2022
31 Dec 2022
Share capital
Reserve for hedging
-0.1
Reserve for currency translation
Treasury shares
-56.2
-307.5
-748.1
Retained earnings
Total equity
Borrowings
Deferred income tax liabilities
Pension obligations
Other provisions
Leasing liabilities
Other liabilities
Total non-current liabilities
Trade payables
Corporate tax
Other provisions
Leasing liabilities
Other liabilities
Total current liabilities
Total liabilities
Total equity and liabilities
Net interest-bearing debt
Net interest-bearing debt increased by DKK 1,430 million to DKK 5,059 million versus the end of 2022.
The development is explained mainly by the acquisition of the Alec Bradley cigar business and XQS
as well as purchase of own shares in the first quarter of the year and dividend payment in April 2023.
The leverage ratio (net interest-bearing debt to LTM EBITDA before special items) increased to 2.3x
(1.6x on 31 December 2022).
Return on Invested Capital
The return on invested capital (ROIC) decreased to 13.1% versus 14.3% by the end of 2022, explained
by a DKK 96 million decrease in EBIT (12 months rolling), driven by the operational performance, and
a slightly increased invested capital of DKK 14.1 billion (DKK 13.7 billion).
18
CONSOLIDATED CASH FLOW STATEMENT
1 JANUARY - 30 JUNE
DKK million
Q2 2023
Q2 2022
6M 2023
6M 2022
Net profit for the period 303.5
Depreciation, amortisation and impairment 91.4
Adjustments 141.9
Changes in working capital -141.5
-123.9
-594.0
-393.2
Special items, paid -19.0
-35.9
-47.2
-76.1
Cash flow from operating activities before financial
items
Financial income received 10.6
Financial costs paid -36.8
-35.1
-92.9
-58.8
Cash flow from operating activities before tax 350.1
Tax payments -127.8
-94.6
-184.0
-128.2
Cash flow from operating activities 222.3
Acquisitions -68.9
-3.7
-582.5
-3.7
Investment in intangible assets -26.2
-61.1
-58.3
-73.9
Investment in property, plant and equipment -40.0
-58.9
-87.8
-112.7
Sale of property, plant and equipment 0.1
Dividend from associated companies 2.7
Cash flow from investing activities -132.3
-118.6
-722.4
-179.8
Free cash flow 90.0
-602.8
Repayment of lease liabilities -15.9
-16.5
-31.7
-31.4
RCF 771.7
Repayment bank loans -1.1
-0.9
-2.2
-2.1
Dividend payment -714.6
-692.0
-714.6
-692.0
Purchase of treasury shares -
-194.3
-103.8
-327.7
Cash flow from financing activities 40.1
-181.5
-364.7
Net cash flow for the period 130.1
-42.0
-96.0
Cash and cash equivalents, net at 1 April / 1 January -17.6
Exchange gains/losses on cash and cash equivalents -0.4
-1.3
-6.0
-2.9
Net cash flow for the period 130.1
-42.0
-96.0
Cash and cash equivalents, net at 30 June 112.1
Cash flows
Cash flow from operations before changes in working capital in the second quarter of 2023 was DKK
364 million (DKK 382 million). The development was driven by the operational result, higher net finan-
cial costs paid, as well as higher tax payments.
19
Changes in working capital in the second quarter of 2023 had a negative impact on the cash flow of
DKK 142 million (negative DKK 124 million) mainly due to increased trade receivables and lower level
of other liabilities and trade payables partly offset by a reduction in inventory.
Cash flow from investing activities amounted to DKK -132 million (DKK -119 million). The increase was
driven by the acquisition of XQS partly offset by a lower level of CAPEX.
Free cash flow before acquisitions in the second quarter of 2023 was positive by DKK 159 million
(positive DKK 143 million). The cash conversion ratio was 78% (77%).
For the first six months of 2023 cash flow from operations before changes in working capital was
DKK 714 million (DKK 842 million). Working capital had a negative impact of DKK 594 million (DKK
-393 million) with a significant impact from a higher level of inventories, increase in trade receivables
and a lower level of trade payables. Free cash flow before acquisitions was negative DKK 20 million
(positive DKK 272 million) and the cash conversion ratio was 42% (64%).
20
STATEMENT OF CHANGES IN GROUP EQUITY
1 JANUARY - 30 JUNE 2023
DKK million
Share
capital
Reserve
for cur-
rency
transla-
tion
Treasury
shares
Retained
earnings
Total
Equity at 1 January 2023 93.0 963.8 -748.1 9,032.9 9,341.6
Comprehensive income for the period
Net profit for the period -
Other comprehensive income
Foreign exchange adjustments on net invest-
ments in foreign operations
-98.9 -
-98.9
Total other comprehensive income -
-98.9 -
-98.9
Total comprehensive income for the period -
-98.9 -
Transactions with shareholders
Capital reduction -6.0
-756.7
Purchase of treasury shares -
-95.9
Share-based payments -
Settlement of vested PSUs -
-25.1 -
Settlement in cash of vested PSU's -
-7.0 -7.0
Dividend paid to shareholders -
-767.3 -767.3
Dividend, treasury shares
-
Total transactions with shareholders -6.0 -
Equity at 30 June 2023 87.0 864.9 -56.2 8,098.6 8,994.3
Equity
Total shareholdersâ equity as at 30 June 2023 amounted to DKK 8,994 million (DKK 9,342 million at
31 December 2022). The equity was positively impacted by profit for the period partly offset by a
negative impact from foreign exchange adjustments on net investments in foreign operations, pur-
chase of treasury shares and dividend payment to shareholders. As of 30 June 2022, the equity ratio
was 55.0% (61.8% at 31 December 2022).
At the Annual General Meeting held on 13 April 2023 the shareholders approved to reduce the share
capital by nominally DKK 6,000,000 by cancelling treasury shares. After the reduction, which took
place 25 May 2023, the nominal value of the Companyâs share capital is DKK 87,000,000. Please
refer to Company Announcement 21/2023.
21
STATEMENT OF CHANGES IN GROUP EQUITY
1 JANUARY - 30 JUNE 2022
DKK million
Share
capital
Reserve
for
hedging
Reserve
for
currency
translation
Treasury
shares
Retained
earnings
Total
Equity at 1 January 2022
-6.9
-570.5
Comprehensive income for the period
Net profit for the period
Other comprehensive income
Cash flow hedges
Tax of cash flow hedges
-1.9
-1.9
Foreign exchange adjustments on net investments
in foreign operations
Total other comprehensive income -
Total comprehensive income for the period -
Transactions with shareholders
Capital reduction
-4.5
-565.0
Purchase of treasury shares
-336.0
-336.0
Share-based payments
Settlement of vested PSUs
-29.6
Settlement in cash of vested PSU's -
-6.2
-6.2
Dividend paid to shareholders -
-731.3
-731.3
Dividend, treasury shares
Total transactions with shareholders -4.5
-1,287.2
-1,028.6
Equity at 30 June 2022
-0.1
-307.5
22
NOTES
NOTE 1
BASIS OF PREPARATION
This unaudited report has been prepared in accordance with IAS 34 and additional Danish disclosure
requirements for listed companies.
Significant accounting estimates
The estimates made by STG in the determination of the carrying amounts of assets and liabilities are
based on assumptions that are subject to future events. For a description of risks and accounting es-
timates, see the Annual Report for 2022.
Accounting policies
This report has been prepared in accordance with the accounting policies set out in the Annual Re-
port for 2022.
Based on an assessment of new or amended and revised accounting standards and interpretations
(âIFRSâ) issued by the International Accounting Standards Board (IASB) and IFRS, endorsed by the
European Union, effective on or after 1 January 2023, it has been assessed that the application of
these new IFRS has not had a material impact on the Consolidated Financial Statements for the first
quarter of 2023, and the Group does not anticipate any significant impact on future periods from the
adoption of these new IFRS. The Group has adopted all new, amended, and revised standards and
interpretations.
NOTE 2
SEGMENT INFORMATION AND NET SALES
6M 2023
North
America
Online &
Retail
North
America
Branded
& RoW
Europe
Branded
Group
costs /
not
allocated
Total
DKK million
Net sales
1,341.6
1,492.8
1,353.3
-
4,187.7
Cost of goods sold
-809.8
-700.8
-654.1
-
-2,164.7
Gross profit before special items
531.8
792.0
699.2
-
2,023.0
Staff and other external costs
-327.0
-251.3
-389.0
-68.5
-1,035.8
EBITDA before special items
204.8
540.7
310.2
-68.5
987.2
Depreciation and impairment
-94.8
-94.8
Amortisation and impairment
-84.6
-84.6
EBIT before special items
-247.9
807.8
Special items, costs and impairment
-43.6
-43.6
EBIT
-291.5
764.2
Share of profit of associated
companies, net of tax
16.1
16.1
Financial income
57.7
57.7
Financial costs
-111.1
-111.1
Profit before tax
-328.8
726.9
23
SEGMENT INFORMATION AND NET SALES (continued)
6M 2022
North
America
Online &
Retail
North
America
Branded
& RoW
Europe
Branded
Group
costs /
not
allocated
Total
DKK million
Net sales
1,305.4
1,592.7
1,317.3
-
4,215.4
Cost of goods sold
-793.2
-729.0
-599.9
-
-2,122.1
Gross profit before special items
512.2
863.7
717.4
-
2,093.3
Staff and other external costs
-336.5
-230.6
-385.6
-64.9
-1,017.6
EBITDA before special items
175.7
633.1
331.8
-64.9
1,075.7
Depreciation and impairment
-93.1
-93.1
Amortisation and impairment
-82.3
-82.3
EBIT before special items
-240.3
900.3
Special items, costs and impairment
-40.4
-40.4
EBIT
-280.7
859.9
Share of profit of associated
companies, net of tax
20.4
20.4
Financial income
72.9
72.9
Financial costs
-130.2
-130.2
Profit before tax
-317.6
823.0
DKK million
6M 2023
6M 2022
Category split, net sales
Handmade cigars
1,534.7
1,548.6
Machine-rolled cigars
1,488.9
1,451.0
Smoking tobacco
635.2
611.8
Accessories and CMA
528.9
604.0
Total net sales
4,187.7
4,215.4
Licence income and other sales of DKK 40.0 million (DKK 32.1 million) are included in the category 'Accessories
and Contract Manufacturing'.
DKK million
6M 2023
6M 2022
Geographical split, net sales
Americas
2,290.0
2,253.5
Europe
1,640.4
1,621.3
Rest of World
257.3
340.6
Total net sales
4,187.7
4,215.4
24
NOTE 3
SPECIAL ITEMS
DKK million
6M 2023
6M 2022
Integration and transactions costs (Agio Cigars)
-
5.0
Production footprint, incl. sale of
building
-
13.5
OneProcess
43.6
21.9
Total special items
43.6
40.4
NOTE 4
BUSINESS COMBINATIONS
Alec Bradley Cigar Distributors Inc. and associated companies
With effect from 1 March 2023, Scandinavian Tobacco Group A/S acquired, substantially all assets
of Alec Bradley Cigar Distributors Inc. and associated companies (âAlec Bradleyâ). The total consid-
eration of USD 72.5 million was paid in cash.
The below disclosure for the business combination is considered provisional as the figures are based
on the unaudited balance of Alec Bradley.
The provisional figures can be changed up until 29 February 2024.
Alec Bradley
Alec Bradley is a family-owned business established in 1996 by entrepreneur Alan Rubin and is
based in Fort Lauderdale, Florida.
The business model is asset-light with outsourcing of the cigar production and with approximately 30
full-time employees in the US and Canada.
Alec Bradley reported annual net sales in 2021 of USD 25 million and an EBITDA margin before spe-
cial items of 24%. Both net sales and EBITDA margin improved during 2022 where Alec Bradley sold
almost 10 million cigars â an increase of 5% versus 2021 â primarily in the US and Canada, but also
in international markets.
Brands within the Alec Bradley portfolio include among others Prensado, Kintsugi, Alec Bradley Dou-
ble Broadleaf, Fine and Rare and Black Market.
Fair value of acquired net assets
Net assets are provisional and may be adjusted and off-balance sheet items may be recorded within
12 months of the acquisition date in compliance with IFRS 3.
Transaction costs
Total transaction costs related to the acquisition are considered immaterial and therefore not dis-
closed.
25
BUSINESS COMBINATIONS (continued)
DKK million
Provisional
fair value at
date of
acquisition
Trademarks 294.6
Other Intangible assets 196.4
Inventories 14.3
Trade receivables 18.7
Prepayments 0.8
Total assets 524.8
Trade payables 10.7
Other liabilities 0.5
Total liabilities 11.2
Acquired net assets 513.6
Consideration transferred 513.6
XQS International AB ("XQS")
With effect from 31 May 2023, Scandinavian Tobacco Group A/S acquired, substantially all assets of
XQS International AB ("XQS"). The transaction value consists of an upfront payment in cash as well
as an earn-out agreement.
The below disclosure for the business combination is considered provisional as the figures are based
on the unaudited balance of XQS.
The provisional figures can be changed up until 31 May 2024.
XQS
XQS is active in smoke-free products and its products are primarily sold in Sweden.
XQS reported annual net sales in 2022 of DKK 50 million with a low single-digit EBITDA margin and
a total volume of 3 million cans.
Fair value of acquired net assets
Net assets are provisional and may be adjusted and off-balance sheet items may be recorded within
12 months of the acquisition date in compliance with IFRS 3.
Transaction costs
Total transaction costs related to the acquisition are considered immaterial and therefore not dis-
closed.
26
BUSINESS COMBINATIONS (continued)
Provisional
fair value at
date of
acquisition
DKK million
Trademarks 80.1
Other Intangible assets 53.4
Fixed assets 0.3
Inventories 4.9
Trade receivables 13.6
Other receivables 1.4
Total assets 153.7
Trade payables 12.0
Other liabilities 2.6
Total liabilities 14.5
Acquired net assets 139.1
Total consideration transferred including value of earn-out 139.1