Swedish Match 2021

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A world without cigarettes

Since its listing in 1996, Swedish Match has created a dynamic and growing business, through significant adjustments in our portfolio of products, brands, and markets. Having long ago left the cigarette business, we now can grow free from that legacy. We have continued to adapt and change, always moving with societal trends, toward a vision of A world without cigarettes. Our efforts in smokefree products and demonstrated growth clearly show that this approach resonates with consumers who are seeking attractive and less harmful alternatives to cigarettes. We endeavor to deliver the highest quality in our products and services and work to actively engage with our stakeholders. We are proud of our history, and consumers trust in our brands. We build on our heritage and work to earn that trust through our continuing drive to evolve and to innovate, to be a pioneer in the marketplace with new products and services, and flexible in our approach – in an effort to be our best in our time, and all times. As society changes, sodo we!

At the end of 2021, in addition to our core markets (the US and Scandinavia) nicotine pouches have been introduced by Swedish Match in over 20 countries 1 , primarily under the ZYN brand.

1) Nicotine pouches are oral products that contain nicotine, but no tobacco. There are certain markets, like Norway, that do not allow nicotine pouches without tobacco. In those markets, nicotine pouches refer to products that contain small amounts of tobacco.

Our world is growing

Having established the market leading position within the rapidly expanding nicotine pouch category in the US, Swedish Match is investing for the future, not only to support the growth for ZYN in the US, but in other areas as well. Today’s portfolio of nicotine pouches includes a variety of brands, formats, strengths and flavors with snus and nicotine pouch products best adapted to consumers wherever they may be. Portfolio strength, product development as well as operational and market investments provide us with the scope to best cater to consumer needs across geographies.

PORTFOLIO TRANSITION

From traditional tobacco products to discrete nicotine enjoyment

Adult consumers who enjoy nicotine are looking for alternatives that not only avoid the harmful effects of cigarettes, but are also accessible, convenient, and enjoyable. Our largest product segment, Smokefree has been the key driver in our efforts to promote positive change. Local currency sales for Smokefree have grown on a compound annual basis by 20 percent over the past two calendar years, with the result being that in 2021 the Smokefree product segment by itself registered sales that were very close to sales for the entire Group as recently as 2018.

ZYN US volumes grew by 52% versus 2020
ZYN nicotine pouch brand in the US #1

Milestones in our transition

ZYN  THE #1 NICOTINE POUCH BRAND IN THE US

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 2021, Swedish Match shipped nearly 198 million cans of nicotine pouches worldwide, primarily under the ZYN brand, making Swedish Match the world’s largest producer of nicotine pouches.

GOTHIATEK ® QUALITY STANDARD FOR SNUS

Swedish Match’s quality standard for the Company’s snus products is based on decades of research and development. Produced according to this standard the high quality of our snus products is ensured, with extremely low levels of undesired compounds, and resulting in a dramatically reduced health risk versus smoking.

	2014	2021	2016	1999	2000
DIVESTS CIGARETTE OPERATIONS
Swedish Match took the bold move to divest its cigarette business.
This reinforced our longstanding commitment to harm reduction,
and was an important step towards concentrating on growing
categories, in line with consumer trends. Swedish Match devoted
resources and product development into other areas, such as
snus and other cigarette alternatives.
ZYN NICOTINE POUCHES GAINS A FOOTHOLD IN THE US
In 2016, when Swedish Match began expanding the availability of
ZYN nicotine pouches in the US, the brand was available in
approximately 4,000 stores in the western United States. By the
end of 2021, ZYN was available in more than 120,000 stores
nationwide, and the clear market leader for nicotine pouches in
the US – the world’s largest nicotine pouch market.
MRTP STATUS IN THE US
Swedish Match became the first tobacco company to be granted
Modified Risk Tobacco Product (MRTP) designations by the FDA
for eight General snus products, permitting Swedish Match to
more accurately communicate to adult consumers the relative
health attributes of the General snus products compared to
cigarettes.
THE POUCH
The first portion snus product, in an easy to use pouch format,
was launched in Sweden.
A WORLD WITHOUT CIGARETTES
Swedish Match has a clear and focused vision. By providing
products that are recognized as safer alternatives to cigarettes,
we can contribute significantly to improved public health.
SCANDINAVIAN TOBACCO GROUP (STG)
Creation of new STG (cigars, pipe tobacco, fine cut tobacco) and
simultaneous divestment of Swedish Match’s premium cigar,
European cigar, and pipe tobacco businesses. Swedish Match sold
its stake in STG in 2017.

Swedish Match 2021 3

CONTENT

The Board of Directors Report and the formal audited part of this document comprises the following sections: financial strategy on page 11, risk management on pages 31–33, share information and dividends on pages 71–72, financial overview and consolidated financial accounts and disclosures, including proposed distribution of earnings on pages 75–126. Definitions are presented on pages 133–135. Sustainability information is found on pages 34–67. The Corporate Governance report is found on pages 136–148. The sustainability and corporate governance reports have been reviewed by the auditors.

THE BOARD OF DIRECTORS REPORT

The sections which form part of the Board of Directors Report are highlighted in light blue in the table of contents above and on the respective page.

P. 514	The Group	6
	This is Swedish Match	7
	2021 in brief	8
	CEO comment	10
	Vision and strategy	10
	Operational strategy	11
	Financial strategy	11
	Sustainability strategy	12
	Organization	13
	Core values	14
P. 1533	Introduction to the Board of Directors Report
	Our business	16
	Market	18
	Smokefree product segment	26
	Cigars product segment	29
	Lights product segment	31
	Risk management	31
P. 73135	Financial reports	74
	Content	75
	Financial overview	79
	Proposed distribution of earnings	80
	Consolidated financial statements	116
	Parent Company financial statements	127
	Auditor’s report	130
	Five year summary 2017–2021	132
	Quarterly data 2020–2021	133
P. 136150	Definitions	133
	Corporate Governance	137
	Chairman’s comment	138
	Governance report	144
	Internal control over financial reporting	145
	Board of Directors	147
	Group Management	149
	Remuneration report	150
P. 3467	Sustainability	35
	Highlights 2021	36
	Our goals	38
	Our contribution to the UN SDGs	41
	Management approach	42
	Materiality assessment	44
	Our value chain	47
	Code of Conduct	48
	Our focus areas	48
	Improve public health	51
	Ensure ethical business practices	54
	Reduce environmental impact	60
	Human rights in our supply chain	65
	Equal opportunity	65
P. 6872	Shareholder information	69
	Shareholder communication	71
	The share	71

Swedish Match 2021 4

The Group

Sustainability

Shareholder information

Financial reports

Corporate Governance

Our business 5

This is Swedish Match

Swedish Match develops, manufactures, and sells quality products with market leading brands. The Group’s product segments are Smokefree, Cigars, and Lights.# This is Swedish Match 2021 in brief

CEO comment

Vision and strategy
Core values
This is Swedish Match 2021 in brief
Introduction to BoD report
Organization
The Group
Sustainability
Shareholder information
Financial reports
Corporate Governance
Our business

2021 in brief

Financials

Record full year sales and operating profit with double-digit growth in both revenues and earnings in local currencies across all product segments.
Impressive performance for the Smokefree product segment with strong growth in both the US and Scandinavia. Growing demand for natural leaf cigars drove the robust full year local currency financial performance for the Cigars product segment. Strong underlying performance for the Lights product segment.
In local currencies, sales increased by 16 percent. Reported sales increased by 11 percent to 18,489 MSEK (16,698).
In local currencies, operating profit from product segments 1) increased by 19 percent. Reported operating profit from product segments increased by 14 percent to 8,136 MSEK (7,160).
Operating profit amounted to 8,286 MSEK (6,991).
Profit after tax amounted to 6,218 MSEK (4,888). Profit after tax of the prior year included a charge of 286 MSEK following an adverse ruling in a tax case.
Earnings per share increased by 31 percent to 3.97 SEK (3.04). Adjusted earnings per share increased by 19 percent to 3.82 SEK (3.22). 2)
The Board proposes to increase the dividend to 1.86 SEK per share, to be paid in two installments; 0.93 SEK per share in May 2022 and 0.93 SEK per share in November 2022.

1) Excludes Other operations and larger one-time items.
2) A share split (10:1) was made in May 2021. Historical share data in this report has been restated in accordance with IAS 33.

KEY DATA

MSEK	2021	2020	2019
Sales	18,489	16,698	14,739
Sales from product segments	18,145	16,332	14,363
Operating profit from product segments	8,136	7,160	5,812
Operating profit, excluding larger one-time items	7,986	6,991	5,675
Operating profit	8,286	6,991	5,307
Operating margin from product segments, %	44.8	43.8	40.5
Operating margin, % 1)	43.2	41.9	38.5
EBITDA from product segments	8,690	7,684	6,296
EBITDA	8,601	7,580	6,222
Profit for the year	6,218	4,888	3,896
Earnings per share, basic and diluted, SEK 2)	3.97	3.04	2.32
Earnings per share, adjusted, basic and diluted, SEK 2)3)	3.82	3.22	2.54
Dividend per share, SEK 2)	1.86 4)	1.50	1.25

1) Excluding larger one-time items.
2) A share slplit (1:10) was made in May 2021. Historical share data in this report has been restated in accordance with IAS 33.
3) Larger one-time items during 2021 amounted to 238 MSEK, during 2020 and 2019 to –286 MSEK and –367 MSEK.
4) Board proposal.

Smokefree Sales
67%
Cigars Sales
26%
Lights Sales
7%
Smokefree Operating Profit
74%
Cigars Operating Profit
23%
Lights Operating Profit
4%

BY PRODUCT SEGMENT
SALES
OPERATING PROFIT

Sustainability

ZYN available in more than 20 countries.
100 percent of significant suppliers of direct materials have committed to the principles of Swedish Match Supplier Code of Conduct.
European operation is 94 percent fossil free.
Recycling of waste has increased by more than 30 percent.
US Division has reduced waste to landfill by more than 80 percent by shifting to incineration of waste for power.
95 percent of our raw tobacco volumes included in STP or in Swedish Match’s due diligence program.
Continued strong Group-wide focus on ensuring diversity among applicants and final candidates in order to find best candidates.

KEY DATA

Metric	Unit	2021	2020	2019
Total emissions (CO 2 e) 1)		209,454	202,387	213,768
Total emissions per MSEK sales 1)2)		11	12	15
Total waste 1)	Metric tons	29,408	26,990	26,164
Total waste per MSEK sales 1)2)		1.6	1.6	1.8
Percent of fossil free energy	%	45	47	44

1) Metric tons.
2) Net sales from product segments in constant currency terms.

CEO comment

As the world around us changes and society adjusts to new ways of living and working, we at Swedish Match adapt in step with societal trends by effectively managing our portfolio of brands and products. We invest to develop and establish platforms for future growth, while at the same time striving to deliver strong financial returns for our shareholders. Swedish Match has a vision of A world without cigarettes, and we are committed to making important contributions on our path towards that vision. When cigarette smokers find attractive and less harmful alternatives, and choose to stop smoking altogether, they benefit, and so does society. Through consumer insight, research and development, capital investments, product quality assurance and improvements, and with a continually evolving portfolio, we offer consumer choices that meet changing demands. We have chosen to focus our efforts on smokefree products, believing that these products can best meet consumer expectations and needs of quality, satisfaction, and harm reduction. Some of our brands and products are over one hundred years in the making, and still going strong, like General or Ettan snus, Oliver Twist tobacco bits, or our chewing tobacco in the US which, at 135 years old, has taken on the brand name, America’s Best Chew, in celebration of its flagship position for taste, quality and category leadership. Snus, and now nicotine pouches, provide adult tobacco consumers with satisfying and socially acceptable alternatives to cigarettes, and consumers have increasingly turned to these varieties. Snus, for example, has enabled an entire generation of adults to practically quit cigarettes altogether. In Norway and in Sweden, the percentage of men and women who smoke has dropped dramatically over the past decade. Many have switched to snus, or, more recently, to nicotine pouches. Today, well below 10 percent of the adult populations in Sweden and Norway smoke cigarettes on a daily basis, among the lowest incident rates in the world. We strive to be a growing, profitable company that makes tangible and meaningful contributions through our sustainability efforts.

Products and brands

SMOKEFREE

In the US, the Company is the biggest participant in the nicotine pouch category with its ZYN brand, as well as the largest producer of chewing tobacco. The Company also holds the third largest position in the moist snuff category and has a long-standing presence with its General snus. In Scandinavia, Swedish Match enjoys the market leading position for snus products, as well as holding the number two position in the Scandinavian market for nicotine pouches 1). In Europe, Swedish Match has a presence with its nicotine pouches in a number of countries. The Company is also present with its niche chewing tobacco products of chew bags and tobacco bits, as well as with snus in select countries. Production of nicotine pouches takes place in the US, Sweden, and Denmark. Production of snus occurs in Sweden and Denmark, while moist snuff is produced in the US. Pouch products with neither tobacco nor nicotine are produced in Sweden. For chewing tobacco, production takes place in the US and chew bags and tobacco bits are produced in Denmark. Read more on page 18

CIGARS

Swedish Match holds the number two position in the US market for mass market cigars (excluding little cigars). Swedish Match has strong positions within both the natural leaf and HTL segment. Production of cigars takes place in the US and the Dominican Republic. Read more on page 26

LIGHTS

Swedish Match is the market leader for matches in many markets throughout the world, with well-known local brands. For lighters, the Group has strong market positions in many countries. Production of matches takes place in Sweden and Brazil. Lighters are produced in the Netherlands, the Philippines and Brazil. In the Netherlands, the Fire-Up business acquired during 2021 manufactures certain products for lighting fireplaces, barbecues, and stoves. Swedish Match also offers a portfolio of externally sourced complementary products (mainly for the Brazilian market), which include for example disposable razors, batteries and light bulbs. Read more on page 29

With its vision of A world without cigarettes, the Group is dedicated to the improvement of public health by offering attractive alternatives to cigarettes with its smokefree products. Swedish Match provides consumers with the best quality products with well-known brands. Some of Swedish Match’s brands include: ZYN (nicotine pouches), General (snus), Longhorn (moist snuff), Onico (pouch products with neither tobacco nor nicotine), America’s Best Chew – formerly Red Man – (chewing tobacco), FundeThunder (chew bags), Oliver Twist (tobacco bits), White Owl (HTL, homogenized tobacco leaf cigars), Game (natural leaf cigars), Fiat Lux (matches), and Cricket (lighters). Production is located in seven countries with the majority of Group sales coming from the US and Scandinavia. Group sales for 2021 amounted to 18,489 MSEK and the average number of employees was 7,523. Swedish Match AB (publ), Reg. No. 556015-0756, is a company registered in Sweden with head office in Stockholm, visiting address Sveavägen 44, postal address: SE-118 85 Stockholm, Sweden. The Swedish Match share is listed on Nasdaq Stockholm (SWMA), ISIN Code: SE0015812219.# In 2021, not only did we deliver yet another year of impressive growth, but we also took notable steps towards Breaking new records, while investing for the future

CEO COMMENT

“ Swedish Match has a vision of A world without cigarettes, and we are committed to making important contributions on our path towards that vision. When cigarette smokers find attractive and less harmful alternatives, and choose to stop smoking altogether, they benefit, and so does society.” expanding our reach and portfolio of smokefree products and engaging with the scientific community and regulators in efforts to contribute to improved public health and a better understanding of the benefits of our smokefree products, like nicotine pouches and snus. We not only work to improve public health in line with our vision, but also to make concerted efforts to reduce our environmental impacts and maintain strong and sound governance and ethical standards. Our commitments to taking a science-based target approach to greenhouse gases, committing to the Paris Treaty on climate change, or our work to ensure that we have a workplace where all feel that they have opportunities to grow and develop, free from discrimination, in an environment that celebrates diversity and gender balance, are further examples of ways we have contributed and will continue to contribute to positive change. We have taken several important steps to improve not only our work within our sustainability focus areas, but also in how we present and communicate our sustainability approach, aspirations and results, much of which is described in our sustainability report on pages 34–67. Our sales performance in 2021 was outstanding, hitting a new all-time high. In local currencies, sales increased by double digits in each of our product segments, with the Smokefree product segment leading the way. Our nicotine pouches made a significant contribution to that growth in the US as well as in Scandinavia and Other markets. Nicotine pouches registered spectacular volume growth of more than 50 percent in both the US and Scandinavia. The total addressable market for nicotine pouches includes cigarette smokers, but also draws from other oral tobacco products, as well as from the growing pool of consumers who currently use vape products but have found our nicotine pouches to have greater appeal. In the US, we continued to add to the number of shops where ZYN can be found, and we broadened the distribution of our assortment across the entire US market. We are seeking long-term engagement with loyal consumers and customers and are prepared to invest appropriately and adequately toward that goal. This past year, we devoted significant efforts toward loyalty Swedish Match 2021 8 CEO comment Vision and strategy Core values This is Swedish Match 2021 in brief Introduction to BoD report Organization The Group Sustainability Shareholder information Financial reports Corporate Governance Our business and engagement with both our customers and our consumers, for example through our ZYN zone merchandising program and ZYN.com consumer loyalty program. Despite aggressive distribution expansion efforts and intense price competition from our main competitors within US nicotine pouches, ZYN stood out with its popularity and high-quality premium offering, demonstrating market share resilience throughout most of 2021. We also see significant opportunities for nicotine pouches outside of the US, where the variety of competitive offerings and the regulatory frameworks are dynamic and diverse. In Scandinavia, we are dedicating resources to strengthen our position in nicotine pouches, and at the same time maintaining leadership with our renowned snus portfolio which in 2021 continued to demonstrate growth. Our Scandinavian nicotine pouch volume growth of 55 percent was impressive, but still somewhat less than the growth rate for the nicotine pouch market. Growing snus volumes reflected continued strong consumer demand for traditional tobacco smokefree varieties. Outside the US and Scandinavia, we believe that nicotine pouches are especially well positioned for meeting evolving consumer demand for reduced risk products, and with planned increased investment levels in current and new geographies we see significant opportunities for long-term growth. Once again in 2021, as the COVID pandemic situation ebbed and flowed, and restrictions grew tighter or looser, we adapted, helping to ensure that products were on shelves and that our capacity plans and development work proceeded smoothly. In Scandinavia, alternating on-sets and reliefs of travel restrictions caused steep variations in consumers’ purchasing patterns which caused logistical challenges, but for the full year, channel and market mix effects yielded a net positive financial impact compared to 2020. Our Scandinavian smokefree business, however, also delivered a solid earnings development on an underlying basis, despite increased market related investments to support growth opportunities within nicotine pouches. For US chewing tobacco and for moist snuff, volumes in the prior year were unusually strong, bolstered by changes in consumer patterns resulting from the COVID pandemic. During the course of 2021 there were reversions to more normal consumption patterns, most notably for chewing tobacco. Despite volume declines for US chewing tobacco reflecting normal historical patterns, operating profit held up well as a result of effective price management and operational efficiencies. For moist snuff, our investments behind pouches and our position in the value segment served us well, as volumes for our Longhorn brand grew notably faster than the moist snuff category development. Improved pricing further contributed to the solid financial performance of our US moist snuff business. Our lights businesses delivered another year of sales growth for both matches and lighters, with sales in local currencies excluding acquisitions increasing by 16 percent. Operating profit grew at an even faster rate, aided by certain asset sales, cost control, and strong price mix impacts. Our match and lighter portfolios include products for many purposes, such as utility lighters, or wood-based fire lighting products that typically sell at attractive prices, provide good profitability, and are exposed to growing consumption patterns. This year we further strengthened our range and assortment of value-added lights products through the acquisition of Fire-Up, with its high-quality range of sustainable fire-lighting products. For cigars, our shipment volumes for the year grew to another record of over 1.9 billion sticks, as we achieved a strong rebound in shipments of natural leaf varieties which were impacted by COVID-related production constraints in the prior year. The growth of natural leaf more than offset the year-on-year declines for our homogenized tobacco leaf (HTL) assortment. In the prior year, Swedish Match benefited from its dual factory footprint when competition faced more severe supply and production issues for HTL. In the second half of 2021, a constraint on raw materials impacted Swedish Match more severely than some of our competitors, resulting in lower levels of our HTL cigar shipments than would have been the case without these supply constraints. With the cigar portfolio focused on the attractive and growing natural leaf segment, a strong segment market share and a broad assortment of high-quality products, Swedish Match’s cigar business is very well positioned for growth. The 2021 delivery of double-digit sales and earnings growth, despite several supply chain related challenges, is a testament to the strength and adaptability of the cigar business of Swedish Match. In the month of September, we announced the intent to separate our US Cigar business and started working towards a spin-off to shareholders with a subsequent listing of the separated business on a US national securities exchange. In March 2022, we took the decision to suspend the preparations for a spin-off until further notice. While the strategic intent remains to separate the US cigar business from the rest of the Group, a step that we believe would further enhance the prospects for Swedish Match’s smokefree business, as well as for our cigar business, the decision to suspend the spin-off preparations was prompted by increased regulatory uncertainties and considered to be in the best interest of shareholders. The success that we experienced over this past year reflects the dedication, commitment, and creative engagement with and by all our stakeholders, with insights from consumers, reflections and conversations with our shareholders, discussions with our customers and suppliers, and most importantly passion and resolve on the part of our employees. We see change, we adapt and create change, and with that we create opportunities for growth, for our employees, our shareholders, and our impactful and purposeful progress toward a vision of A world without cigarettes. Stockholm, March, 2022 Lars Dahlgren President and CEO Swedish Match 2021 9 CEO comment Vision and strategy Core values This is Swedish Match 2021 in brief Introduction to BoD report Organization The Group Sustainability Shareholder information Financial reports Corporate Governance Our business Operational strategy Smokefree businesses To achieve our vision, we leverage our unique smokefree platforms with a focus on product development, quality and consumer satisfaction based on thorough consumer insights.

In the US, we focus on faster growing categories and segments such as nicotine pouches and moist snuff pouches.
In Scandinavia, we lead the development of the smokefree category through product innovation and by complementing our traditional products, brands and sales channels to meet changing consumer demands.
Outside the US and Scandinavia, we will continue to expand our presence with innovative smokefree products.# Swedish Match 2021

CEO comment

Vision and strategy

Core values

This is Swedish Match 2021 in brief

Introduction to BoD report

Organization

The Group

Sustainability

Shareholder information

Financial reports

Corporate Governance

Our business

Swedish Match’s operations are characterized by strong cash flows. The financial strategy is centered on capital efficiency with a focus on financial flexibility and stability requirements.

Net debt

The Board of Directors has determined that the Group will strive to maintain a net debt that does not exceed 3 times EBITA. The actual level of net debt will be assessed against:
* anticipated future profitability and cash flow
* investment and expansion plans
* acquisition opportunities
* development of interest rates and credit markets

The Board of Directors’ long-term goal is to optimize the capital structure of the Group which in the current environment entails maintaining a Standard & Poor’s BBB and a Moody’s Baa2 long-term rating.

Shareholder distribution

Swedish Match has the ambition to continuously grow dividend per share with a payout ratio normally within the range of 40–60 percent of the earnings per share, subject to adjustments for larger one-time items. Excess funds shall be returned to shareholders through dividends and share repurchases.

Financial strategy

TRANSFER OF CAPITAL TO SWEDISH MATCH’S SHAREHOLDERS

	2021	2020	2019	2018	2017
MSEK	0	2,000	4,000	6,000	8,000
Ordinary dividend
Repurchase of own shares
Special dividend

Our vision of A world without cigarettes is central to our sustainability strategy and how we contribute to making the world a better place. For best impact and transparency, our sustainability strategy is founded on two basic principles – focus and organizational ownership. Through our strategy, we emphasize five focus areas – Improve public health, Ensure ethical business practices, Reduce environmental impact, Human rights in our supply chain, and Equal opportunity – areas where we believe we have the ability to directly or indirectly influence meaningful outcomes or where adverse developments could have a negative impact on our businesses. Swedish Match has set a series of tangible commitments and goals for each of the focus areas. Upholding these commitments will enable Swedish Match to contribute to 9 out of the 17 Sustainable Development Goals (SDG) defined by the United Nations in 2015. Through our general business contribution and societal engagement, we also contribute to 7 of the remaining 8 SDGs. Our Code of Conduct forms a foundation for our sustainability approach and efforts throughout the Group. It represents the commitment of Swedish Match and all our employees to conduct business activities in a responsible manner, demonstrating integrity and respect to our stakeholders and society as a whole. This section is part of the Board of Directors Report.

Sustainability strategy

Focus areas

Improve public health
Ensure ethical business practices
Reduce environmental impact
Human rights in our supply chain
Equal opportunity

How we operate

US Division

The US Division, with its head office in Richmond, Virginia, manufactures and markets smokefree products such as nicotine pouches, moist snuff and chewing tobacco – as well as snus, which is manufactured and supplied by the Europe Division. The division also markets cigars, with production in both the US and the Dominican Republic.

Europe Division

The Europe Division, with its head office in Stockholm, Sweden, manufactures and markets snus, nicotine pouches, and other smokefree products destined to Scandinavia and Other markets. Production of its smokefree products takes place in Sweden and Denmark.

Lights Division

Lights Division manufactures and markets matches, lighters and other fire-related products for markets worldwide. The division also sells complementary products sourced from third party manufacturers. Manufacturing locations include Brazil, the Netherlands, the Philippines and Sweden.

Corporate functions

Corporate functions provides services and support to the Parent Company, Swedish Match’s divisions, and SMD Logistics (a separate wholly owned distribution company, serving the Scandinavian market, which is also part of Corporate functions).

PRESIDENT & CEO
US DIVISION
LIGHTS DIVISION
EUROPE DIVISION
CORPORATE FUNCTIONS

The organization comprises three divisions as well as Corporate functions. The average number of employees in the Group was 7,523 in 2021. Swedish Match operates in eleven countries and our products are sold across the globe.

OPERATING LOCATIONS

Norway
- Commercial operations
- 49 employees
Sweden
- Corporate head office
- Europe Division head office
- Lights Division head office
- Production of smokefree products and matches
- SMD Logistics (distribution)
- R&D
- Commercial operations
- 1,352 employees
Denmark
- Production of smokefree products
- Commercial operations
- 121 employees
Turkey
- Commercial operations
- 14 employees
Belgium
- EU representation office
- 2 employees
Netherlands
- Production of lighters and other fire-related products
- Commercial operations
- 109 employees
Switzerland
- Treasury office
- Commercial operations
- 12 employees
US
- US Division head office
- Production of smokefree products and cigars
- R&D
- Commercial operations
- 1,300 employees
Dominican Republic
- Production of cigars
- 3,823 employees
Brazil
- Production of matches and lighters
- Commercial operations
- 476 employees
Philippines
- Production of lighters
- Commercial operations
- 265 employees

The number of employees refers to the average number of employees in specified country during 2021.

Living our core values

Swedish Match promotes a culture in which our employees are actively engaged, demonstrating the Company’s core values of passion, ownership, innovation and quality.

Passion, Ownership, Innovation, Quality

Swedish Match’s core values are central to the Company’s business ethics and, as such, they are demonstrated in all relations with stakeholders and are a natural part of the way the Company conducts business.

Passion
- We are proud and engaged ambassadors for our products and our company
- We are devoted to our consumers and always want to exceed their expectations
- We have a passion to win, will walk the extra mile, and help one another succeed
Ownership
- We take full ownership of our tasks ensuring that all links in the chain, from start to finish, can deliver; we never allow anything to fall between the cracks
- We evaluate our performance and always strive for improved results the next time around
- We work quickly and cost-efficiently, recognizing that the market and competitors never stand still
Innovation
- We continuously search for better solutions and encourage new ideas
- We nurture and develop ideas, carefully selecting those that we will invest time and effort behind to implement
- The ideas that we choose to implement are pursued 100 percent
Quality
- We strive for uncompromised quality in everything we do, our end goal is to have the most satisfied consumers
- We help one another develop through direct and constructive feedback
- We behave responsibly towards customers, consumers, and the environment

Introduction to the Board of Directors Report

The Board of Directors Report comprises descriptions of Swedish Match strategic priorities, financial performance and risk management. The report also includes the Board’s proposal for remuneration and dividend and information concerning the appointment of Board members, notice of Annual General Meeting and Swedish Match financial position. The Board of Directors Report is integrated into the annual report.

Strategic priorities

Swedish Match strives to create value for its shareholders and other stakeholders as a fast moving consumer goods company which delivers both strong cash flows and opportunities for growth. Driven by the vision of A world without cigarettes, Swedish Match offers consumers enjoyable and high quality nicotine-containing products, in a responsible way. By providing products that are recognized as safer alternatives to cigarettes, we also believe that our business can contribute significantly to improved public health. Read more on pages 10–11.# Swedish Match 2021

CEO comment

Vision and strategy
Core values

This is Swedish Match 2021 in brief

Introduction to BoD report
Organization
The Group
Sustainability
Shareholder information
Financial reports
Corporate Governance

Our business
The Group
Sustainability
Shareholder information
Financial reports
Corporate Governance

Our business

Content

Financial overview ....................................................... 75
Proposed distribution of earnings ...................................... 79
Consolidated financial statements
Consolidated income statement ........................................ 80
Consolidated statement of comprehensive income ................... 80
Consolidated balance sheet ............................................. 81
Consolidated statement of changes in equity .......................... 82
Consolidated cash flow statement ...................................... 83
Notes for the Group ....................................................... 84
Note 1 Accounting principles ..................................... 84
Note 2 Critical estimates and judgements ...................... 91
Note 3 Segment information ...................................... 92
Note 4 Other operating income and expenses .................. 93
Note 5 Personnel ................................................... 94
Note 6 Audit fees ................................................... 97
Note 7 Operating expenses classified by nature ................ 97
Note 8 Net finance cost ............................................ 97
Note 9 Income tax .................................................. 98
Note 10 Earnings per share ........................................ 99
Note 11 Intangible assets ........................................... 99
Note 12 Property, plant and equipment ......................... 101
Note 13 Biological assets ......................................... 101
Note 14 Leases .................................................... 102
Note 15 Investments in associated companies ................. 103
Note 16 Other non-current receivables and other current receivables ............................... 103
Note 17 Inventories ................................................ 103
Note 18 Trade receivables ........................................ 104
Note 19 Cash and cash equivalents .............................. 104
Note 20 Assets held for sale ...................................... 104
Note 21 Equity ...................................................... 104
Note 22 Interest bearing liabilities ............................... 105
Note 23 Post-employment benefits ............................. 105
Note 24 Provisions ................................................. 109
Note 25 Other liabilities ........................................... 109
Note 26 Accrued expenses and deferred income .............. 109
Note 27 Financial instruments and financial risks ............. 110
Note 28 Pledged assets ........................................... 113
Note 29 Commitments and contingent liabilities and assets . 113
Note 30 Group companies ........................................ 114
Note 31 Supplementary information to cash flow statement . 115
Note 32 Related parties ........................................... 115
Note 33 Information about the Parent Company ............... 115
Note 34 Subsequent events ....................................... 115
Parent Company financial statements
Parent Company income statement ................................... 116
Parent Company statement of comprehensive income ............. 116
Parent Company balance sheet ........................................ 117
Statement of changes in Parent Company equity .................... 118
Cash flow statement for the Parent Company ........................ 119
Notes for the Parent Company ......................................... 120
Note 1 Sales ....................................................... 120
Note 2 Audit fees .................................................. 120
Note 3 Other operating income and expense ................... 120
Note 4 Financial items ............................................ 120
Note 5 Appropriations ............................................ 120
Note 6 Income tax ................................................. 120
Note 7 Tangible assets ............................................ 121
Note 8 Group companies ......................................... 121
Note 9 Other non-current receivables .......................... 122
Note 10 Other receivables ......................................... 122
Note 11 Prepaid expenses and accrued income ................. 122
Note 12 Equity ....................................................... 122
Note 13 Untaxed reserves ......................................... 122
Note 14 Other provisions ........................................... 123
Note 15 Bond loans ................................................. 123
Note 16 Other liabilities ............................................ 123
Note 17 Accrued expenses and deferred income ............... 123
Note 18 Carrying value and fair value of financial instruments 124
Note 19 Derivatives under netting agreements ................. 125
Note 20 Operating lease agreements ............................ 125
Note 21 Pledged assets and contingent liabilities .............. 125
Note 22 Distribution of earnings .................................. 125
Note 23 Related parties ............................................ 125
Note 24 Supplementary information to cash flow statement .. 126
Note 25 Post-employment benefits .............................. 126
Note 26 Subsequent events ........................................ 126
Auditor’s report .......................................................... 127

Board of Directors Report

To continue to deliver attractive returns to our shareholders, our main strategic priorities are:
• Offer high quality products and build strong brands
• Develop new and improved products to meet consumer needs
• Support profitability through efficient manufacturing with cost control
• Maintain strong cash flows from operations and clear priorities for the use of cash for growth opportunities
• Comply with laws and regulations
• Invest in our employees to ensure a strong and dynamic competence base to meet or exceed both short-term and long-term challenges

Financial strategy, shareholder returns and financial performance

Breaking new records, while investing for the future
As the world around us changes and society adjusts to new ways of living and working, we at Swedish Match adapt in step with societal trends by effectively managing our portfolio of brands and products. We invest to develop and establish platforms for future growth, while at the same time striving to deliver strong financial returns for our shareholders. Read more under the following sections Financial strategy on page 11, The share on pages 71–72 and Financial overview on pages 75–78.

Proposed distribution of earnings See page 79.

Managing risks

A part of conducting business
Swedish Match strives to ensure that the risks taken are deliberate. It is important for us to understand the risks to which our business is exposed and make informed decisions. Risks need to be managed efficiently in order for the Group to be competitive, to operate safely, and to maintain financial stability and growth. Important risks to address arise in the areas of competition, production, regulation, IT security, and finance among other areas. Read more on pages 31–33.

Guidelines for executive remuneration See Financial overview page 75 and Note 5 Personnel pages 94–97.

This page is part of the Board of Directors Report. The Board of Directors Report has undergone audit procedures as described in the auditor’s report on pages 127–129.

Swedish Match has decided, in accordance with the Swedish Annual Accounts Act chapter 6, §11 and §8, to produce a separate Sustainability Report and a separate Corporate Governance Report instead of including these reports in the Board of Directors Report. The Sustainability Report is presented on pages 34–67 and the Corporate Governance Report is presented on pages 136–148 in this publication. The Corporate Governance Report includes information on internal control over financial reporting, see further on page 144. The Sustainability Report and the Corporate Governance Report are also available on the Company’s website www.swedishmatch.com. The Sustainability and Corporate Governance reports have been reviewed by the auditors.

Swedish Match 2021 14

Content

Five year summary
Financial overview
Quarterly data
Proposed distribution of earnings
Definitions
Consolidated statements
Parent Company statements
The Group
Sustainability
Shareholder information
Financial reports
Corporate Governance

Our business

This page is part of the Board of Directors Report. Swedish Match develops, manufactures, and sells quality products with market leading brands. The Group’s product segments for 2021 were Smokefree, Cigars and Lights.

Swedish Match’s performance in 2021 showed strong growth, with record sales and operating profit with double-digit growth in both revenues and earnings in local currencies across all product segments. Both Group sales and sales from product segments increased by 11 percent to 18,489 MSEK (16,698) and 18,145 MSEK (16,332) respectively. Currency translation affected the sales comparison negatively by 885 MSEK. In local currencies, sales from product segments increased by 17 percent with all three product segments contributing with double-digit growth. The largest contributor to the sales increase was the Smokefree product segment, with especially strong growth in the US along with higher sales in both Scandinavia and Other markets. Operating profit from product segments amounted to 8,136 MSEK (7,160). In local currencies, operating profit from product segments increased by 19 percent.# Financial Overview

As for sales, all three product segments contributed with double-digit growth in operating profit in local currencies. Group operating profit, including larger one-time items, amounted to 8,286 MSEK (6,991) and included a settlement income of 300 MSEK relating to a previously ongoing arbitration. Currency translation affected the comparison of the operating profit negatively by 376 MSEK. The Group’s profit for the period amounted to 6,218 MSEK (4,888) and included the above-mentioned settlement income whereas in 2020 a one-time tax charge of 286 MSEK, including interest expense, was included. Operating margin from product segments for the year, was 44.8 percent (43.8). Operating margin excluding larger one-time items for the Group was 43.2 percent (41.9).

Sales and operating profit from product segments

Sales for the Smokefree product segment increased by 14 percent to 12,120 MSEK (10,651). In local currencies, sales and operating profit increased by 18 percent and 21 percent, respectively. Sales and operating profit grew both as reported and in local currencies for Smokefree in Scandinavia and the US as well as in Other markets. In Scandinavia, sales and operating profit in local currencies increased by 11 and 13 percent respectively, benefiting from strong underlying category growth, timing effects on shipments, as well as favorable price/mix that resulted from price changes, product mix effects and channel shifts.

Sales and operating profit by product segment
	MSEK
	2021	2020	2021	2020
Smokefree	12,120	10,651	5,998	5,142
Cigars	4,688	4,533	1,841	1,796
Lights	1,338	1,149	297	222
Sales and operating profit from product segments	18,145	16,332	8,136	7,160
Other operations	344	366	–150	–169
Settlement income	–	–	300	–
Total	18,489	16,698	8,286	6,991

SUMMARY OF CONSOLIDATED INCOME STATEMENT

MSEK	2021	2020
Sales	18,489	16,698
Operating profit	8,286	6,991
Net finance cost	–345	–347
Income tax expense	–1,723	–1,756
Profit for the year	6,218	4,888
Attributable to:
Equity holders of the Parent	6,217	4,888
Non-controlling interest	1	1
Profit for the year	6,218	4,888
Earnings per share, basic and diluted, (SEK) 1)	3.97	3.04
1) In May 2021, a share split (10:1) was made. Historical share data has been restated.

"Swedish Match’s performance in 2021 showed strong growth, with record sales and operating profit with double-digit growth in both revenues and earnings in local currencies across all product segments."
Anders Larsson CFO

Financial overview
(Note: Comments below refer to the comparison between full year 2021 vs. full year 2020).

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In the US, the impressive growth for ZYN nicotine pouches was the key contributor to the increased sales and operating profit growth in local currency of 24 and 28 percent, respectively. Other markets also contributed to the sales growth, with growth for nicotine pouches and snus more than offsetting lower sales of chewing tobacco, principally relating to halted shipments to the German market following adverse regulatory changes in 2020.

For Cigars, total sales for the year amounted to 4,688 MSEK (4,533). The Cigars product segment derives its sales and profit almost exclusively from the US operations. In local currency, sales for the Cigar product segment increased by 11 percent with balanced contributions of higher volumes and improved pricing. While progress was achieved in addressing capacity limitations for natural leaf varieties, the restrictions of certain input materials adversely affected shipments of HTL volumes primarily as a consequence of production planning prioritization of the more attractive natural leaf segment. Despite a higher production cost per cigar, operating profit grew in line with sales.

For Lights, total sales for the year amounted to 1,338 MSEK (1,149). Both reported sales as well as sales excluding currency translation effects and the impact from the Fire-Up acquisition, increased by 16 percent with solid performance for both lighters and matches. Operating profit increased by 34 percent to 297 MSEK (222). Operating profit in the current year benefited from income relating to land sales and the resolution of indirect tax disputes amounting to about 70 MSEK in total, while the prior year period included income of a similar nature of 31 MSEK. Excluding these items and the negative effects from currency translation, operating profit increased by more than 30 percent on the back of a strong performance for lighters.

Effects from COVID-19

While longer-term effects from the pandemic are uncertain, the negative commercial, operational and financial consequences to Swedish Match have thus far been limited. Just as in the previous year, the Scandinavian smokefree business has likely benefited financially from favorable channel mix effects that have been brought on by COVID-19 restrictions related to travel. For Cigars, since the on-set of the pandemic, consumer demand is likely to have been elevated as a consequence of changed consumption patterns. However, while it is challenging to identify and quantify any such potential effects, Swedish Match has faced production constraints in its cigar operations, partly as a consequence of the COVID-19 situation, which has led to an inability to fully meet demand. Swedish Match, like many other companies, has experienced higher costs and some difficulties in sourcing certain input materials. These challenges in relation to input materials may have been caused, at least to some extent, by direct or indirect consequences of the pandemic. No material governmental subsidies or concessions related to COVID-19 have been sought or received by Swedish Match. Swedish Match is closely monitoring the current situation including governmental guidelines and advice from public health authorities in every country where we operate. We continue to proactively take the steps that we believe are appropriate to mitigate potential impacts to our employees, our customers and our business, as well as to society.

Significant events during the year

Tax audits in Sweden

During 2017, the Swedish Tax Agency performed tax audits in a number of Swedish Match’s Swedish group companies. After completing the audits, the Swedish Tax Agency decided to deny certain cost deductions in two cases. Both cases were appealed by Swedish Match but the cases were ruled in favor of the Tax Agency by the County Administrative Court in Stockholm in May 2019 and January 2020 respectively. Swedish Match subsequently appealed to the Administrative Court of Appeals in both cases. In August 2020 one of the cases was ruled in favor of the Tax Agency by the Administrative Court of Appeals and the tax charges of in total 270 MSEK and related interest costs of 16 MSEK have been paid and debited in the 2020 accounts. Swedish Match applied for leave to appeal and the leave was granted in June 2021 by the Supreme Administrative Court. In the other case, the Court of Appeal in December 2021 ruled in Swedish Match’s favor, resulting in a positive net tax impact of 50 MSEK.

Larger one-time items

During the first quarter of 2021 a settlement income of 300 MSEK was recognized relating to a previously ongoing arbitration. During the third quarter of 2020 a tax charge of 270 MSEK and related interest costs of 16 MSEK was recognized relating to the above-mentioned adverse ruling.

Taxes

Income tax expense for 2021 amounted to 1,723 MSEK (1,756), corresponding to a corporate tax rate of 21.7 percent (26.4). The higher tax rate for the Group for 2020 was primarily a result of an additional income tax expense of 270 MSEK relating to the above-mentioned tax case. In 2021, a favorable ruling in another tax case in Sweden reduced the income tax expense by 50 MSEK for the Group. When adjusted for income in associated companies

SUMMARY OF CONSOLIDATED BALANCE SHEET

MSEK	2021	2020
Non-current assets	9,123	7,765
Other current assets 1)	4,908	3,979
Cash and cash equivalents	2,121	3,411
Total assets	16,152	15,155
Equity	–6,669	–7,798
Non-current financial liabilities and provisions	3,784	3,680
Non-current loans	14,197	13,514
Current liabilities and provisions	3,850	3,909
Current loans	990	1,850
Total equity and liabilities	16,152	15,155
1) Includes assets held for sale in 2020 of 28 MSEK.

SUMMARY OF CONSOLIDATED CASH FLOW STATEMENT

MSEK	2021	2020
Net cash generated from operating activities	6,336	5,607
Net cash used in investing activities	–1,156	–1,173
Net cash transferred to shareholders	–6,171	–5,119
Net cash used in/from other financing activities	–441	2,001
Net decrease/increase in cash and cash equivalents	–1,431	1,315
Cash and cash equivalents at beginning of the year	3,411	2,370
Effects of exchanges rate fluctuations on cash and cash equivalents	141	–274
Cash and cash equivalents at end of year	2,121	3,411

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This page is part of the Board of Directors Report.

the underlying tax rate excluding items of temporary nature, was 23.0 percent (23.1).

Earnings per share

In May 2021, the number of shares and votes in Swedish Match AB (publ) increased as a result of the share split (ratio 10:1) that was resolved by Swedish Match AB´s Annual General Meeting on April 13, 2021, through which each existing share was divided into ten shares. Accordingly, share data for 2020 has been restated. EPS for the full year amounted to 3.97 SEK (3.04).# Swedish Match AB (publ)

Adjusted EPS increased by 19 percent to 3.82 SEK (3.22) for the full year. Liquid funds Cash and cash equivalents amounted to 2,121 MSEK at the end of the period, compared to 3,411 MSEK at December 31, 2020. As of December 31, 2021, Swedish Match had 1,500 MSEK in an unutilized revolving credit facility (RCF).

Cash flow and financing

Cash flow from operating activities for the full year 2021 amounted to 6,336 MSEK (5,607). The improved cash flow was driven by the stronger EBITDA development, the above-mentioned settlement income of 300 MSEK and lower tax payments, partly offset by negative changes in cash flow from working capital, mainly due to timing effects.

Investments in property, plant and equipment increased to 1,172 MSEK (1,126) principally benefiting the Smokefree product segment. Cash flow used in investing activities reflects the acquisition of Fire-Up, a small European manufacturer of sustainable firelighters and related products.

The Group’s net finance cost amounted to 345 MSEK (347). Excluding interest costs of 16 MSEK relating to the adverse tax ruling in Sweden in the prior year period, net finance cost increased by 15 MSEK reflecting lower financial returns on surplus cash and higher interest costs.

During 2021, new bond loans of 1,813 MSEK were issued, repayments of maturing bond loans amounted to 1,553 MSEK, and early repayment of short-term bond loans amounted to 716 MSEK.

As of December 31, 2021, Swedish Match had 14,851 MSEK of interest-bearing debt excluding retirement benefit obligations but including lease liabilities of 403 MSEK. The Group’s interest-bearing debt at December 31, 2020 amounted to 15,523 MSEK. For further detail on the maturity profile of the debt portfolio, please see the Company’s website.

Net retirement benefit obligations decreased to 1,305 MSEK (1,411) as of December 31, 2021 due to positive remeasurements effects from higher discount rates and higher return on plan assets.

The net debt as of December 31, 2021 amounted to 14,035 MSEK compared to 13,523 MSEK at December 31, 2020.

During the year, Swedish Match paid dividends of 2,369 MSEK to its shareholders and repurchased 52.8 million shares for 3,802 MSEK.

Swedish Match AB (publ)

Swedish Match AB (publ) is the Parent Company of the Swedish Match Group. The main sources of income for the Parent Company are dividends and Group contributions from subsidiaries. Revenue from the Parent Company for the full year of 2021 amounted to 32 MSEK (27). Profit before income tax amounted to 4,905 MSEK (5,347) and net profit for the year amounted to 4,543 MSEK (5,033). The lower profit before income tax compared to previous year was primarily related to participation in Group companies.

Net Group contributions of 2,646 MSEK (2,392) were received during 2021. During the year, the Parent Company also received dividends of 3,436 MSEK (4,185). An impairment loss on shares in a subsidiary amounting to 299 MSEK was recognized during the year corresponding to a dividend received of the same amount.

Part of the Group’s treasury operations are within the operations of the Parent Company, including the major part of the Group’s external borrowings. Substantially all of these loans have been hedged to fixed interest rates. Repayment of bond loans during the year amounted to 2,270 MSEK and new bond loans of 1,813 MSEK were issued.

During the second quarter of 2021 it was resolved to split each of the Company’s shares into ten shares (ratio 10:1). All references to shares and earnings per share in this document have been restated to reflect this split.

During the year, the Parent Company made share repurchases of 52.8 million (48.2) shares for 3,802 MSEK (3,099). A dividend of 2,369 MSEK (2,020) has been paid during the period.

Events after the reporting period

Updated plans for separation of the US cigar business

While the Board of Swedish Match still has the strategic intent to separate the cigar business, and views this as a move that would further enhance the prospects for Swedish Match’s US smokefree business, as well as for its US cigar business, the Board decided on March 14, 2022 to suspend the preparations for the contemplated spin-off until further notice. The Board decision was prompted by information received from US Food and Drug Administration (FDA) that substantial equivalence (SE) designations had been denied for SE applications corresponding to about 3 percent of Swedish Match’s 2021 cigar volume. It cannot be ruled out that additional SE applications for the cigar assortment will be denied in the first instance as FDA continues to work through remaining applications.

Swedish Match plans to appeal the non-SE designations by the FDA by requesting a supervisory review and Swedish Match remains confident that it will be given the opportunity to provide the FDA with sufficient data in order to demonstrate that the cigars in question are substantially equivalent to their predicate products insofar that the changes that have taken place do not raise questions of public health.

Swedish Match 2021 77

Auditor’s report

Content

Five year summary
Financial overview
Quarterly data
Proposed distribution of earnings
Definitions
Consolidated statements
Parent Company statements
The Group
Sustainability
Shareholder information
Financial reports
Corporate Governance

Our business

This page is part of the Board of Directors Report.

Outlook

With its vision of "A world without cigarettes," Swedish Match’s core business is to provide consumers with enjoyable alternatives that are both satisfying and dramatically safer than smoking. Swedish Match expects significant growth in consumer demand for safer alternatives to cigarettes. Swedish Match further expects that nicotine pouches as a category will continue to evolve as the number one choice among even more consumers seeking satisfactory experiences in the reduced risk product landscape. With the highly attractive prospects of the nicotine pouch category, Swedish Match anticipates that competitive activity will remain intense.

In the US, in Scandinavia, as well as in Other markets, Swedish Match plans to further increase investments during 2022 to capitalize on the growth opportunities, especially for nicotine pouches. Within Other markets, Swedish Match notes significant opportunities in existing as well as in certain new markets. Capital expenditures are expected to be of a similar magnitude as in 2021. The effective underlying corporate tax rate in 2022, excluding associated companies, is expected to be around 23 percent. The Company remains committed to returning cash not needed in operations to shareholders.

Organization

The Swedish Match head office, where the CEO and Group staff functions are based, is located in Stockholm in Sweden. The Group operates in eleven countries, with production units in seven countries and the majority of Group sales coming from the US and Scandinavia. The organizational structure is divided among the divisions Europe Division, US Division and Lights Division as well as Corporate functions. The vast majority of the Group’s employees are in the Dominican Republic, Sweden, and the US followed by Brazil and the Philippines.

The Group’s product segments are Smokefree, Cigars, and Lights.

In Scandinavia, Swedish Match enjoys the market leading position for its snus products, as well as holding the number two position in the Scandinavian market for its nicotine pouches. In Europe, Swedish Match has a presence with its nicotine pouches in a number of countries. The Group is also present with its niche chewing tobacco products of chew bags and tobacco bits, as well as with snus in select countries.

Production of nicotine pouches takes place in the US, Sweden, and Denmark. Production of snus occurs in Sweden and Denmark, while moist snuff is produced in the US. Pouch products with neither tobacco nor nicotine are produced in Sweden. For chewing tobacco, production takes place in the US and chew bags and tobacco bits are produced in Denmark.

In the US, the Group is the biggest participant in the nicotine pouch category with its ZYN brand, as well as the largest producer of chewing tobacco. The Group also holds the third largest position in the moist snuff category and has a long-standing presence with its General snus.

Swedish Match also offers a portfolio of externally sourced complementary products (mainly for the Brazilian market), which include for example disposable razors, batteries and light bulbs.

Alternative Performance Measures

Swedish Match frequently presents measures of financial performance which complement measures that are defined or specified in the applicable financial reporting framework. The bases for presenting such measures, referred to as Alternative Performance Measures (APM’s) are that they are used by management to evaluate the financial performance and believed to give analysts and other stakeholders valuable information.# Proposed distribution of earnings

As shown in the balance sheet of the parent company the following funds are available for appropriation by the Annual General Meeting:

Item	Amount (SEK)
Retained earnings including Hedge reserve	5,347,920,938
Profit for the year	4,542,895,317
Total	9,890,816,255

The Board of Directors propose that these earnings be appropriated as follows:

Item	Amount (SEK)
To the shareholders, a dividend of 1.86 SEK per share based on 1,531,235,190 shares outstanding at the end of 2021	2,848,097,453
Retained earnings to be carried forward	7,042,718,802
Total	9,890,816,255

The proposed dividend is proposed to be paid in two installments, with SEK 0.93 per share in May, 2022 and SEK 0.93 per share in November, 2022.

The income statements and balance sheets will be presented to the Annual General Meeting on April 27, 2022 for adoption.

The Board of Directors and the President declare that the annual report was prepared in accordance with generally accepted accounting principles in Sweden and that the consolidated accounts have been prepared in accordance with accounting standards referred to in Regulation (EG) No 1606/2002 of the European Parliament and of the Council of 19 July 2002 on the application of international accounting standards. The annual report and the consolidated accounts give a true and fair view of the position and earnings of the Parent Company and the Group. The Board of Directors report for the Parent Company and the Group gives a true and fair view of the operations, position and earnings and describes significant risks and uncertainties facing the Parent Company and companies included in the Group.

Stockholm, March 24, 2022

Conny Karlsson
Chairman of the Board

Charles A. Blixt
Board member

Andrew Cripps
Deputy Chairman

Patrik Engelbrektsson
Board member

Jacqueline Hoogerbrugge
Board member

Alexander Lacik
Board member

Pauline Lindwall
Board member

Pär-Ola Olausson
Board member

Dragan Popovic
Board member

Wenche Rolfsen
Board member

Joakim Westh
Board member

Lars Dahlgren
President and CEO

Our auditor’s report was submitted on March 24, 2022

Deloitte AB
Peter Ekberg
Authorized Public Accountant

Swedish Match 2021 79

Consolidated income statement

	Note	2021	2020
MSEK
Sales	3	18,489	16,698
Cost of goods sold		–6,249	–5,751
Gross profit		12,240	10,947
Selling expenses		–3,236	–2,866
Administrative expenses		–1,075	–1,116
Other operating income and expenses	4	44	14
Share of profit in associated companies	15	13	13
Settlement income		300	–
Operating profit	3, 5, 6, 7, 14, 23	8,286	6,991
Finance income		36	49
Finance costs		–381	–396
Net finance cost	8	–345	–347
Profit before income tax		7,941	6,644
Income tax expense	9	–1,723	–1,756
Profit for the year		6,218	4,888
Attributable to:
Equity holders of the Parent		6,217	4,888
Non-controlling interests		1	1
Profit for the year		6,218	4,888
Earnings per share, basic and diluted, SEK ¹)	10	3.97	3.04

¹) In May 2021, a share split (10:1) was made. Historical share data in this report has been restated in accordance with IAS 33.

Consolidated statement of comprehensive income

MSEK	Note	2021	2020
Profit for the year		6,218	4,888
Other comprehensive income that may be reclassified to the income statement
Translation differences related to foreign operations	21	740	–1,120
Translation differences included in profit and loss	21	0	–
Effective portion of changes in fair value of cash flow hedges	21	82	–51
Income tax relating to reclassifiable components of other comprehensive income	9	–17	11
Subtotal, net of tax		805	–1,160
Other comprehensive income that will not be reclassified to the income statement
Actuarial gains and losses attributable to pensions, incl. payroll tax	23	369	–132
Income tax relating to non-reclassifiable components of other comprehensive income	9	–91	33
Subtotal, net of tax		278	–99
Other comprehensive income, net of tax		1,083	–1,260
Total comprehensive income for the year		7,300	3,629
Attributable to:
Equity holders of the Parent		7,299	3,628
Non-controlling interests		1	0
Total comprehensive income for the year		7,300	3,629

Swedish Match 2021 80

Consolidated balance sheet

MSEK	Note	December 31, 2021	December 31, 2020
Assets
Intangible assets	11	2,281	2,237
Property, plant and equipment	12	4,518	3,589
Biological assets	13	38	44
Right-of-use assets	14	388	278
Investments in associated companies	15	41	42
Other non-current receivables	16	1,337	935
Deferred income tax assets	9	520	640
Total non-current assets		9,123	7,765
Inventories	17	2,267	1,824
Trade receivables	18	1,843	1,577
Prepaid expenses and accrued income		155	117
Income tax receivables		167	119
Other current receivables	16	476	315
Cash and cash equivalents	19	2,121	3,411
Total current assets		7,029	7,362
Assets held for sale	20	–	28
TOTAL ASSETS		16,152	15,155
Equity	21
Share capital		390	390
Reserves		573	–232
Retained earnings including profit for the year		–7,648	–7,972
Equity attributable to equity holders of the Parent		–6,686	–7,814
Non-controlling interests		17	16
TOTAL EQUITY		–6,669	–7,798
Liabilities
Non-current loans and borrowings	22, 27	14,197	13,514
Other non-current liabilities	25	169	258
Non-current lease liabilities	14, 22	307	208
Provision for pensions and similar obligations	23	1,445	1,503
Non-current provisions	24	466	443
Deferred income tax liabilities	9	1,397	1,268
Total non-current liabilities		17,981	17,194
Current loans and borrowings	22, 27	990	1,850
Trade payables		464	409
Income tax liabilities		88	149
Other current liabilities	25	1,603	1,875
Current lease liabilities	14, 22	96	77
Accrued expenses and deferred income	26	1,063	1,018
Current provisions	24	535	381
Total current liabilities		4,840	5,759
TOTAL LIABILITIES		22,821	22,953
TOTAL EQUITY AND LIABILITIES		16,152	15,155

For information on the Group’s pledged assets and contingent liabilities, see Note 28 Pledged assets and Note 29 Commitments and contingent liabilities and assets.

Swedish Match 2021 81

Consolidated statement of changes in equity

2020

MSEK	Note	Share capital	Reserves	Accumulated deficit	Total	Non-controlling interest	Total equity
Equity at beginning of year	21	390	928	–7,641	–6,324	16	–6,308
Profit for the year		–	–	4,888	4,888	1	4,888
Other comprehensive income, net of tax ¹)		–	–1,160	–99	–1,259	0	–1,260
Total comprehensive income for the year		–	–1,160	4,788	3,628	0	3,629
Dividend		–	–	–2,020	–2,020	0	–2,020
Repurchase of own shares		–	–	–3,099	–3,099	–	–3,099
Cancellation of shares		–18	–	18	–	–	–
Bonus issue		18	–18	–	–	–	–
Equity at end of year		390	–232	–7,972	–7,814	16	–7,798

2021

MSEK	Note	Share capital	Reserves	Accumulated deficit	Total	Non-controlling interest	Total equity
Equity at beginning of year	21	390	–232	–7,972	–7,814	16	–7,798
Profit for the year		–	–	6,217	6,217	1	6,218
Other comprehensive income, net of tax ¹)		–	805	278	1,083	0	1,083
Total comprehensive income for the year		–	805	6,495	7,299	0	7,300
Dividend		–	–	–2,369	–2,369	0	–2,369
Repurchase of own shares		–	–	–3,802	–3,802	–	–3,802
Cancellation of shares		–10	–	10	–	–	–
Bonus issue		10	-10	–	–	–	–
Equity at end of year		390	573	–7,648	–6,686	17	–6,669

¹) Other comprehensive income included in accumulated deficit consists of actuarial gains and losses attributable to the Group’s defined pension plans, net after payroll and income taxes. For further information on objectives, policies and processes for managing capital see Note 21 Equity.# Swedish Match 2021

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MSEK	Note	2021	2020
Operating activities
Profit before income tax		7,941	6,644
Share of net profit in associated companies		–	13
Dividend received from associated companies		13	10
Depreciations, amortizations and write-downs		615	588
Adjustments for other non-cash items		– 42	72
Income tax paid		–1,682	–2,006
Cash flow from operating activities before changes in working capital		6,833	5,296
Changes in working capital
Increase (–)/ Decrease (+) in inventories		– 299	–182
Increase (–)/ Decrease (+) in operating receivables		– 276	71
Increase (+)/ Decrease (–) in operating liabilities		78	422
Net cash generated from operating activities		6,336	5,607
Investing activities
Purchase of property, plant and equipment	12, 13	–1,172	–1,126
Proceeds from sale of property, plant and equipment	60	39
Purchase of intangible assets	11	– 8	–63
Acquisition of subsidiaries		– 39	–32
Repayment of financial receivables from associated companies	15	11	9
Changes in financial receivables, etc.		– 7	–0
Net cash used in investing activities		–1,156	–1,173
Financing activities
Proceeds from non-current borrowing		1,813	3,702
Repayment of borrowings		–2,270	–1,300
Dividend paid to equity holders of the Parent		–2,369	–2,020
Repurchase of own shares		–3,802	–3,099
Lease payments		– 89	–81
Realized exchange gain/losses on financial instruments		98	–320
Other		7	0
Net cash used in financing activities		–6,612	–3,118
Net decrease/increase in cash and cash equivalents		–1,431	1,315
Cash and cash equivalents at the beginning of the year		3,411	2,370
Effect of exchange rate fluctuations on cash and cash equivalents		141	–274
Cash and cash equivalent at end of year		2,121	3,411

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Swedish Match 2021

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Notes for the Group

1 Accounting principles

All amounts referred to in the notes of the Group financial statements are in millions of Swedish kronor (MSEK) unless otherwise stated. The amounts within brackets refer to the preceding year, 2020.

Compliance with standards and legislation

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee, approved by the European Commission for application within the EU. In addition, RFR 1 Supplementary Accounting Rules for Groups, issued by the Swedish Financial Reporting Board, has been applied. The Parent Company applies the same accounting principles as the Group, except in those instances described below in the section Parent Company accounting principles. The annual report and the consolidated financial statements were authorized for issue by the Board of Directors and the Group’s CEO on March 25, 2022.

Basis for the preparation of the financial reports for the Parent Company and the Group

The financial reports are presented in Swedish kronor (SEK), which is the functional currency of the Parent Company. Unless otherwise stated, all amounts are rounded to the nearest million. Figures in the reports are based on a consolidation system in SEK thousands. By rounding the numbers in tables, totals may not always equal the sum of the included rounded numbers.

Assets and liabilities are reported at their historical acquisition value, except for certain financial assets and liabilities and biological assets that are reported at fair value recognized directly in profit and loss. Financial assets and liabilities reported at fair value comprise derivative instruments classified as financial assets reported at fair value through profit and loss or other comprehensive income at hedge accounting. Provisions for post-employment benefits, are reported at fair values based on actuarial valuations, with remeasurement effects recognized in other comprehensive income. Provisions for post-employment benefits are recognized on the balance sheet as a net of any attributable plan assets, which are measured at fair value at each period end. Lease liabilities and the related right of use assets are measured at the present value of future lease payments.

Use of the assessments in the financial reports

Preparing financial reports in accordance with IFRS requires that management make assessments and assumptions that affect the accounting principles and reported amounts for assets, liabilities, revenues, and costs. The assessments and assumptions are based on historical experience and other factors that may be considered relevant under the prevailing conditions. The actual outcome may deviate from these assessments and assumptions. Assessments and assumptions are reviewed on a regular basis with changes in assessments recognized in the applicable period. Assessments made by management on the application of IFRS that have a significant impact on financial reports, and estimations made that could entail material adjustments in subsequent years’ financial reports, are further described in Note 2 Critical estimates and judgements.

Accounting principles applied

The below described accounting principles have been applied consistently in all periods that are presented in the Group’s financial statements. Any exceptions to the accounting principles outlined below are clearly described in the relevant disclosure to the financial statements.

New standards, amendments and interpretations

Swedish Match has adopted Phase 1 and Phase 2 of Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39, and IFRS 7), which allows for hedge accounting to continue for affected hedges during the period of uncertainty before the effects of the amendment of the interest rate benchmark reform become clear. The Group early adopted these amendments of IFRS 9 from 2019. The financial reports for 2021 have not been impacted by the amendment to IFRS 9. For further details, see Note 27 Financial Instruments. No other amendments or interpretations applicable for the Group’s financial reporting for 2021 have had any material effect on the Group’s financial result or position.

New IFRSs and interpretations which have not yet been applied

There are no changes in IFRS standards, amendments and interpretations of existing standards applicable as of January 1, 2022, that are deemed as having a significant effect on the Group’s financial result or position.

Consolidation principles

Note 15, 30 and 31

The consolidated accounts are prepared in accordance with the Group’s accounting principles and include the accounts of the Parent Company and all subsidiaries and associated companies in accordance with the definitions below.

Subsidiaries

Swedish Match Group has a number of subsidiaries in various countries for the production and sale of Swedish Match products. A subsidiary is defined as an entity that is controlled by the Swedish Match Group. There are no subsidiaries where Swedish Match Group has any significant restriction to access or use of assets from its subsidiaries. Furthermore, Swedish Match does not hold any unconsolidated entities. Consolidated financial statements in this report include all subsidiaries which Swedish Match Group controls. Acquired companies are included in the consolidated accounts from the date of acquisition and divested companies are included in the consolidated accounts until the date of divestment. All acquisitions of subsidiaries are reported in accordance with the acquisition method where assets and liabilities in companies acquired during the year are included in the consolidated financial statements at fair value from the date of acquisition. Transaction costs relating to acquisition of subsidiaries are not included in the value of the acquired assets. All acquisition-related costs are expensed in the period when incurred. Contingent considerations are recognized in the balance sheet at fair value at the date of the acquisition, with any contingent payment classified as debt subsequently remeasured through the income statement.

Non-controlling interest

Non-controlling interest can be reported as the non-controlling interests’ share of proportional net assets or alternatively at fair value, which means that non-controlling interests have a share in any acquisition goodwill. Reporting method can be chosen differently for each acquisition. Swedish Match Group has two subsidiaries with non-controlling interests, a Swedish subsidiary in which Swedish Match owns 95 percent and an immaterial non-controlling interest in a foreign subsidiary.

Associated companies

Associated companies are companies in which the Group exercises a significant influence but does not control the company. This normally means that the Group holds 20-50 percent of total voting rights. Holdings in associated companies are reported in accordance with the equity method and are initially measured at cost. The acquisition cost amounts to the purchase price and the valuation of acquired assets and liabilities is performed as for subsidiaries. The carrying amount for associates includes any goodwill, transaction costs and other group adjustments. The Group’s share of associates post-acquisition is recognized on one line in the consolidated income statement, after tax profits or after tax losses, and its share of post-acquisition movements in other comprehensive income, net of tax in the associates is recognized to the respective item in the Group’s statement of other comprehensive income.## NOTE 1 Continued

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Swedish Match 2021 84

Disposal of subsidiaries and shares in associated companies

Results from disposal of subsidiaries when the control is lost are recognized in the income statement. Any remaining interests in divested entities are remeasured to fair value, with the gain or loss recognized in the income statement.

If the ownership in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognized in other comprehensive income are reclassified to profit or loss where appropriate. Results from disposal of an associate when the control is lost are recognized in the income statement. Any remaining interests in divested associates are remeasured to fair value, with the gain or loss recognized in the income statement to the extent disposed externally.

Assets and liabilities held for sale

Non-current assets or a group of assets and liabilities (a disposal group) that management intends to sell to a third party are reclassified and reported separately in the consolidated balance sheet as assets and liabilities held for sale. A reclassification is made when the sale is highly probable and is expected to be sold within 12 months and that the asset (or the disposal group) is available for immediate sale in its current condition. To be classified as an asset or a disposal group held for sale, management must have decided that the asset or the disposal group is to be sold and there is an active program to locate buyers.

Assets that are reclassified as held for sale are measured at the lower of carrying value and fair value less costs to sell. If the fair value, net of deduction for selling expenses, is expected to be less than the carrying value, an impairment loss for the asset is recognized in the income statement at the time of reclassification.

Discontinued operations

Divested operations, or operations classified as held for sale, are reported as discontinued operations if they represent a separate major line of business or geographical area of operations with operations and cash flow that can be clearly distinguished, operationally and for reporting purposes, from the rest of the Group. Classification as a discontinued operation takes place upon disposal or at an earlier date when operation meets the criterions for being classified as a held for sale.

The post-tax profit or loss from discontinued operations and the gain or loss from the sale is presented in a single amount in the income statement as of the transaction date or as of the date when the criterions are meet for being classified as held for sale. When a business operation is discontinued or classified as held for sale and reported as such prior period income statements are restated. Prior period balance sheets are not restated.

Foreign currencies

Transactions in foreign currencies are translated into the functional currency according to the exchange rates applicable on the transaction date. Monetary assets and liabilities in foreign currencies are translated to the functional currency at the exchange rate applicable on the reporting date. Non-monetary assets and liabilities reported at their historical acquisition values are translated at the exchange rate in effect at the transaction date. Non-monetary assets and liabilities reported at their fair value are converted to the functional currency at the applicable rate at the time of the valuation. Exchange rate differences are then reported in the same manner as other changes in value relating to the asset or liability. Exchange rate differences arising from translation are reported in the income statement, with exchange differences on non-monetary assets and liabilities reported as operating income and expenses and exchange differences on monetary assets and liabilities are reported in the net finance.

Financial reports of foreign operations

Assets and liabilities in foreign operations, including goodwill and other Group surplus and deficit values, are translated into SEK at the exchange rate on the reporting date. Revenues and expenses from foreign operations are translated to SEK at an average exchange rate for the year. Translation differences arising from currency translation of foreign operations are reported as a translation reserve in equity through other comprehensive income. The cumulative translation difference relating to a specific subsidiary is recycled through the income statement when the subsidiary is divested.

The Group’s most significant currencies are shown in the table below:

Country	Currency	Average exchange rate January–December	Exchange rate on December 31
		2021	2020
USA	USD	8.58	9.20
Euro zone	EUR	10.15	10.49
Denmark	DKK	1.36	1.41
Brazil	BRL	1.59	1.81
Norway	NOK	1.00	0.98

Reporting by segment

The Group’s reportable segments are based on the internal reporting structure. Swedish Match’s chief operating decision maker is the Group’s President and CEO, who monitors and makes decisions about operating matters based on product segments. The Group’s reportable segments in 2021 were three product segments: Smokefree, Cigars and Lights. The reportable segments represent all Swedish Match products which are produced and sold by the Group’s business units.

Reportable segments have been aggregated when there are similarities in the segments’ economic characteristics, such as gross profit margins, level of capital investments and impact from variations in the business cycle. Also, similarities in the type of product, manufacturing process, customers, distribution process and regulatory environment have been considered to determine the appropriate aggregation of reportable segments.

There are no internal sales between reportable segments and the Group’s financial costs as well as taxes are not allocated to reportable segments. Operating assets and liabilities are not monitored on a segment basis.

Other operations consist of corporate functions and the Swedish distribution function. Corporate functions include, among others, regulatory affairs, legal and financial services. The distribution function provides services to Swedish Match in Sweden and Norway as well as to other manufacturers within the Swedish distribution network. The revenues from Other operations are attributable to the distribution service for the delivery of third-party tobacco products on the Swedish market. The revenues from sales of Swedish Match’s products on the Swedish and the Norwegian markets are reported as part of the product segment Smokefree. Revenue in Other operations are not seen as an important performance indicator and are not considered for resource allocation within the Group. The result from Other operations consists of the consolidated result for the corporate functions, of which the distribution function is making a profit from the immaterial distribution fee and the other functions are normally making losses.

Revenue

Revenue for Swedish Match refers to sale of goods manufactured, sale of third-party products where Swedish Match is acting as a principal and income from distribution service for delivery of third-party products where Swedish Match is acting as an agent. The sales of goods or services are recognized based on the amount expected to be received relating to the sales transactions and when the transfer of control of the goods or services has passed to the customers. The expected consideration recognized reflects estimates of potential outcome of variable considerations as well as expected reimbursements for product returns. Refund liabilities for returned goods and variable considerations are recognized on the balance sheet as operating provisions.

The main revenue streams for the Group’s reportable segments arise from sale of goods manufactured by the Group. Within Lights, a minority part of the revenue also come from the sale of third-party products. Revenue within Other operations are mainly derived from income of logistics services for delivery of third-party products to retail customers. For further information on the assessment of the classification of principal or agent refer to Note 2 Critical estimates and judgements.

Revenue for the sale of goods and logistics services are recognized at the point when the control of the promised good or service is transferred to the customer at the expected consideration to be received for such delivery. The Group has no material unconditional rights to receive considerations and no material payments are received in advance. Based on this no contract assets have been recognized in the Group balance sheet.

NOTE 1 Continued
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Swedish Match 2021 85

The timing of transfer of control of the goods or services to the customer is determined for each revenue transaction.# Indications of transfer of control

are being considered when Swedish Match has a present right to payment or when the customer has legal title, a physical possession, the significant risks and rewards of ownership or has accepted the asset. If control is retained and the promised obligations are not satisfied, revenue is not recognized. A majority part of Swedish Match customers are retailers and distributers. Within Smokefree and Cigars, customer credit terms are on average 10 days. Within Lights, customer credit terms are on average 70 days, with credit terms to customer could be in the range of pre-payment up to 90 days. Uncollected amounts billed to customers at period end are recognized as trade receivable in the Group’s balance sheet. The risk for impairment losses on trade receivable are relatively low. Allowances for impairment losses on accounts receivable are assessed in accordance with IFRS 9, for more information refer to below section Impairment of financial assets. Any incremental costs for obtaining a customer contract and/or costs to fulfil a customer contract are capitalized as assets if such costs meet the criteria for capitalization in IFRS 15. Currently, the Group does not have any significant incremental costs for obtaining or fulfilling a customer contract to be recognized on the balance sheet. For further information on the Group’s sales for reportable segments and disaggregation of revenue streams, see Note 3 Segment information.

Intangible assets

Goodwill

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill that has arisen from the acquisition of associated companies is included in the carrying amount for participations in associated companies. Goodwill is valued at acquisition value less any accumulated impairments. Goodwill is allocated to cash-generating units and is tested annually, or upon indication, for impairment.

Trademarks and other intangible assets

Trademarks and other intangible assets acquired by the Group are reported at acquisition value less accumulated amortization and impairments. Acquired trademarks defined with indefinite useful life have been assessed having no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group. Trademarks with indefinite useful life refer to well-established trademarks within their respective areas, which the Group intends to retain and further develop. Indefinite-lived intangible assets are not amortized but instead tested for impairment annually or when there is an indication of impairment. In case there are borrowing costs that are directly attributable to the acquisition, construction or production of intangible assets that take substantial time to complete, such costs are included in the acquisition value. Research costs for obtaining new technical expertise are expensed when incurred. Development costs in the case of which the research or other knowledge are applied in order to achieve new or improved products or processes are reported as other intangible asset in the balance sheet, provided the product or process is technically and commercially usable. Other costs are recognized in the income statement as they arise. Other intangible assets primarily include software, licenses, etc.

Amortization

Amortization is recognized in the income statement straight-line over the estimated economic useful life of the intangible assets, unless the useful life is indefinite. Assessment of an intangible asset’s residual value and useful life is performed at least annually. Goodwill and trademarks with indefinite useful life are tested for impairment annually or if indications arise of a decline in the value of the asset. Amortizable intangible assets are amortized from the date that they are available for use. The estimated useful life periods are individually assessed but normally in the range as indicated below:

trademarks and patents 10–20 years
other intangible assets and capitalized development expenditures 5–7 years

Property, plant and equipment

Property, plant and equipment are reported in the Group at their acquisition value, less accumulated depreciation and impairments, if applicable. The acquisition value includes the purchase price and costs directly attributable to the asset in order to transport it to its place of use in the appropriate condition for being used in accordance with the purpose of the acquisition. Borrowing costs directly attributable to acquisition, construction or production of an asset that takes a substantial time to complete are included in the acquisition value.

Depreciation

Depreciation is applied straight-line over the asset’s estimated economic useful life. Land and construction in progress are not depreciated. Larger machineries and buildings are depreciated based on the economical useful life of significant components. The depreciation time for larger fixed assets and buildings could therefore differ due to different expected economic life of the asset’s different components. The estimated useful life periods are normally:

buildings, owner-occupied properties 12–50 years (applied on the acquisition cost of the assets allocated to applicable components)
machinery and other technical equipment 5–12 years
equipment, tools and fixtures 5–10 years

Assessment of a tangible asset’s residual value and useful life is performed at least annually.

Impairment

The carrying amounts for the Group’s intangible and tangible assets, including right of use assets and investments in associated companies are tested at least annually to evaluate whether there is an indication of an impairment. Should such an indication exist, the asset’s recoverable amount is assessed. An impairment charge is recognized in the income statement when the carrying amount exceeds the calculated recoverable amount. For goodwill and other intangible assets with an indefinite useful life and intangible assets that are not yet ready for use, their recoverable amount is calculated at least annually, or when an impairment is indicated. The recoverable amounts, defined as the higher of value in use and fair value less cost of disposal, are normally determined on the basis of value in use, applying discounted cash flow calculations. An impairment charge against the income statement is made when the carrying amount exceeds the recoverable amount. For the purpose of impairment testing, goodwill and trademarks with indefinite life are allocated to the lowest level of groups of cash generating units based on product groups and geographical markets, at which it is monitored by management.

Biological assets

The Group has forest plantations to secure its raw material needs for match manufacturing. Biological assets in the Group’s balance sheet are measured at fair value less estimated selling expenses. The biological assets are regularly measured to fair value based on estimated market values. Estimated selling expenses includes all costs that would be incurred in relation to disposal of the biological assets, with the exception of cost for providing the biological asset to market.

Leases

Real estate leases, such as rental of office and factory premises, warehouses and storages, represent the major part of the total value of leases within the Group. The duration of real estate leases is typically 3–5 years, excluding assessments of the likelihood of utilizing extension and termination options. The Group also hold lease contracts for machinery, equipment and vehicles. The lease liabilities are measured at the present value of future non-cancelable lease payments, including other expected future payments relating to the lease if such are deemed reasonably certain (for example expected payments for optional periods relating to lease term extension options, purchase options etc.). The present value of the future lease payments is discounted using the interest rate observed in the period when the lease contract commences or is modified. In most cases, the measurement of the right-of-use assets equal the lease liabilities. Any additional costs directly attributable to get the access to the asset are also included in the measurement of the right of use assets as well as any replacement costs to remove or restore the asset after the lease term as required by the contract. Non-lease component payments and variable lease payments, that do not depend on an index or rate attributable to the fixed lease payment, are not included in the measurement of the lease liabilities and are expensed directly when incurred.

A lease contract is initially recognized on the balance sheet at the date when the underlying asset is available for use, i.e. at the commencement date. The depreciation of the right-of-use asset is usually on a straight-line basis over the lease term. In subsequent periods, if the lease payments or the lease term changes for an existing contract, the lease liability will be revalued to reflect the changes in the future lease payments. The right-of-use asset will be adjusted for any remeasurement effects of the lease liability in the same period. Assessment of key parameters of lease contracts that could have an impact to the reported amounts are performed regularly.

NOTE 1 Continued
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Swedish Match 2021 86# NOTE 1 Continued

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Exemptions

In the accounting for right-of-use assets and lease liabilities, Swedish Match apply the practical expedients for short-term leases (contracts with a lease term of 12 months or less) and leases for which the underlying asset is of low value. The Group’s lease contracts of low value are mainly leasing of office equipment, water dispensers, coffee machines and IT equipment for individual use. Such lease contracts are not included in the Group’s lease liabilities and related right-of-use assets and are reported with the lease payments expensed in the income statement when incurred. In addition, leases of intangible assets, such as software, licenses, etc., are also excluded. The practical relief for rent concession relating to the outbreak of COVID-19 pandemic has not been applied as Swedish Match has not received any significant COVID-19 related rent reductions during 2021.

Discount rate

The key parameters for determining the discount rates are the type of the underlying asset of the lease contract, the lease term and the economic environment where the asset will operate. The Group’s policy for determining the discount rates is based on the incremental borrowing rate for lease contracts. The incremental borrowing rate is the rate of interest that Swedish Match would have to pay to obtain an asset of similar value to the right-of-use asset, adjusted for a risk premium relating to the economic environment where the asset operates at the given time in relation to the lease term of the contract.

Inventory

Note 17

Inventories are recognized at the lower of cost and net realizable value on the balance sheet date. Cost is calculated using the first-in, first-out (FIFO), or weighted average cost formula. The cost of finished goods and work in progress includes raw material, direct labor, other direct expenses and production-related overheads, based on a normal production level. Expenses arising from the transport of items to their present location and condition are included in the acquisition value of inventories. Interest expenses are not included in the measurement of inventories. The acquisition value for cut timber in inventory is determined in accordance with the accounting principles for biological assets and is reported at the fair value with deductions for estimated selling expenses at the time of the trees were harvested.

Employee benefits

Note 5 and 26

Short term employee benefits

Short term employee benefits are recognized as expenses in the income statement when the services are received. Costs for the profit-sharing program and incentive plans (variable salary) are recognized on a pro-rata basis during the financial year when the compensation is earned based on an estimated outcome. In connection with the annual accounts, a final calculation of the year’s cost is performed based on the actual outcome for the year. Any adjustments of previously reported costs for incentive programs are also recognized in the period when there is a change in the estimated outcome for each program.

Long term employee benefits

A long term incentive program is introduced by the Board of Directors to certain executives, where the executives may, after a three-year performance period, receive a cash bonus based on the established performance targets for the performance period. Costs for the long term incentive plan are expensed during the service year including social security fees applicable for each country where the executives work. Costs for the incentive plan are reported as personnel costs with corresponding amount reported as a long term deferred compensation provision on the balance sheet. The accrual is subject to review based on actual performance during the performance period with any changes in the estimate taken through the income statement.

Termination benefits

The Group recognizes termination benefits when there is an event that gives rise to an obligation to an employee when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognizes termination benefits at the earlier of the following dates: (a) when the group can no longer withdraw the offer of those benefits; and (b) when the entity recognizes costs for a restructuring that involves the payment of termination benefits. In the case of an offer made to encourage voluntary redundancy, the termination benefits are measured based on the number of employees expected to accept the offer.

Post-employment benefits

Note 2 and 23

Within the Group there are a number of defined contribution and defined benefit pension plans, some of them with plan assets in special foundations or similar institutions. The pension plans are financed by payments from the Group company concerned and its employees. Independent actuaries compute the size of the commitments attached to each plan and reevaluate the pension plan assumptions each year. Pension fees for defined contribution plans are reported as an expense in the income statement as incurred. Pension costs for defined benefit plans are calculated according to the Projected Unit Credit Method in a manner that distributes the cost over the employee’s remaining active working life. These costs are valued at the present value of the expected future disbursements using a discount rate that corresponds to the interest rate on high quality corporate bonds or government bonds with a remaining maturity that approximates the particular commitments. Service cost, past service cost and any administration costs relating to post-employment defined benefit plans are classified as operating cost. A finance component calculated based on the discount rate on the net liability or net asset is recognized in the net finance cost. The finance component is recognized as interest expense or interest income net by plan. For the US defined benefit plans Swedish Match determine the obligation effective discount rate based on the single equivalent rate such that the present value of the plan’s obligation cash flows using the single rate equals the present value of those cash flows using the corresponding spot rate along the yield curve for high quality corporate bonds. The effective rates for interest on the defined benefit obligation and service cost are the single equivalent rates that result in the same value when applied to the defined benefit obligation and service cost, respectively. For the larger US post-employment defined benefit plans the same process is applied to the plan’s service cost cash flows to determine the effective discount rate associated with the service cost. For the other plans, Swedish Match applies the single weighted average discount rate based on the yield curve for high quality corporate bonds used to measure the obligation and pension expense. In the Swedish Match consolidated balance sheet, the pension commitments for funded plans are reported net after deductions for the fair value of plan assets. Funded plans with net assets, that is, assets in excess of obligations, are reported as non-current receivables. When the calculation leads to a net asset and there is no minimum funding requirement, the carrying value of the net asset is limited to the lower of the surplus in the plan and the present value of future service cost to be borne by the Company. Calculating the discounted value of defined benefit obligations and the fair value of plan assets can give rise to remeasurement gains and losses. These arise when actual outcome deviates from projected outcome or when assumptions made earlier are changed. Measurement differences that arise from the revaluation of the post-employment benefit plans are recognized in other comprehensive income as actuarial gains and losses in the period as they occur. When there is a difference between how pension costs are determined for a legal entity and the Group, a provision or claim relating to a special employer’s salary tax based on this difference is recorded. The provision or claim for special employer’s salary tax is included in the net present value of the net obligation or net asset. Special employer’s salary tax refers to pension plans in Sweden. In Sweden, the Group has post-employment defined benefit obligations for salaried personnel which are insured by Alecta. Alecta is the largest Swedish

life insurance company and safeguards the majority of the private sector’s defined benefit pension plans, i.e., the ITP-plan. Alecta is not able to provide specific information for each customer’s obligations and fair value of related assets which is necessary information for Swedish Match in order to account for the obligations in accordance with the rules for defined benefit plans. Therefore, all obligations relating to the Swedish ITP-plan are accounted for as defined contribution plans in accordance with the rules for multi- employer plans.

Provisions

Note 24

A provision is reported in the balance sheet when the Group has an existing legal or informal obligation as a result of an event that has occurred, it is probable that expenditure will be required to settle the obligation and when a reliable estimate of the amount can be made. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, considering the risks and uncertainties surrounding the obligation.When a provision is measured using cash flows estimated to settle the present obligation, the carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

Note 8 Financial income and expenses

Financial income and expenses consist of interest income on bank balances, receivables, interest-bearing securities and dividend income, interest expense on loans, leases, benefit obligations, exchange rate differences, unrealized and realized gains on financial investments and derivative instruments used in financial activities. Exchange rate differences arising from operating assets and liabilities are reported in operating profit. The effective interest method is used when calculating the amortized cost of the financial asset or the financial liability and when allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that discounts estimated future cash flows. Interest income or expense include accrued amounts of transaction costs and, if applicable, discounts, premiums and other differences between the original value of the receivable or liability and the amount received or paid at maturity.

Note 16, 18, 19, 22, 25 and 27 Financial instruments

Financial instruments reported in the balance sheet include, on the asset side, cash and cash equivalents, trade receivables, shares and other equity instruments, loans receivable, and derivatives. Financial instruments on the liabilities and equity side are trade payables, lease liabilities, issued liability and equity instruments, loans and derivatives. Financial assets and liabilities are offset only when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. A financial asset (or a part of a financial asset) is derecognized from the balance sheet when the risk and the right to receive cash flow from the instrument has ceased or been transferred to another party. A financial liability (or a part of a financial liability) is derecognized from the balance sheet when the obligation is settled or discharged. Financial assets and liabilities are recognized and derecognized applying settlement date accounting. Financial instruments are reported initially at their acquisition value, corresponding to the instruments fair value, except for trade receivables, which are initially measured at their transaction price. Subsequent reporting depends on how they are held and classified in accordance with the criteria below.

Financial assets

Financial assets which are debt instruments, are classified depending on the business model for managing the financial assets and the asset’s contractual terms of the cash flows. Financial assets are classified at the initial recognition, and subsequently measured, at either amortized cost or fair value. The classification of financial assets depends on the business model for managing the financial assets and whether the contractual terms of the cash flows are solely payments of principal and interest. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial asset, or both. There are two business models into which the Group classifies its financial assets.

Financial assets measured at amortized cost
Financial assets measured at fair value through profit and loss (FVTPL)

Financial assets measured at amortized cost

Financial assets that are held for collection of contractual cash flows which represent solely payments of principal and interest are measured at amortized cost. Included in this category are cash and cash equivalents, along with loan receivables and trade receivables. Interest income from these assets are reported in the income statement using the effective interest rate method. Cash and cash equivalents consist of cash and immediately available balances with banks and similar institutions, as well as short-term liquid investments with a maturity of less than three months from acquisition, which are exposed to only an insignificant risk of value fluctuations. Trade receivables have an anticipated short duration and are reported at the amount expected to be received after deductions for expected credit losses.

Financial assets measured at fair value through profit and loss (FVTPL)

Financial assets in this category do not meet the criteria for amortized cost or fair value through other comprehensive income and are measured at fair value through profit and loss. The financial assets in this category are held for trading and reported as other current receivables, measured at fair value. They include the Group’s currency derivatives that are not used for hedge accounting.

Impairment of financial assets

The Group recognizes a loss for expected credit losses for financial assets that are measured at amortized cost. Currently, financial assets measured at amortized cost refer mainly to accounts receivables and cash and cash equivalents. Changes in expected credit losses are recognized in profit and loss as of the initial recognition at each balance sheet date. Swedish Match applies the simplified approach to measure expected credit losses, which means that expected credit losses are measured on the remaining lifetime of the financial asset. Historical information is used to assess expected credit losses. In addition, current and forward-looking information available is also considered to reflect current and future conditions, including discounting factor for time if relevant. Customers’ credit risks are regularly assessed, and accounts receivables are written off when it is deemed that the customer has no ability to pay the outstanding invoice. Cash and cash equivalents are covered in the general approach for credit risk allowances, which means that if there have been significant changes in the credit risk since initial recognition, the expected credit loss is measured on the assets’ lifetime expected credit loss. The general approach is based on the rating of the counterparty, and due to high ratings of the Group’s main counterparties, and short duration of the assets, the total amount of credit risk is immaterial. For cash and cash equivalents, low credit risk simplification is applied. In addition, receivables on Group companies and associated companies as well as other receivables and accrued income are covered by the general approach.

Financial liabilities

The Group classifies financial liabilities, at initial recognition, into two categories:

Other financial liabilities measured at amortized cost
Financial liabilities measured at fair value through profit and loss (FVTPL)

Other financial liabilities measured at amortized cost

Financial liabilities measured at amortized cost include trade payables, lease liabilities, loans and borrowings, and accrued interest, which are not held for trading. These liabilities are classified as other financial liabilities, which means that they are initially reported at the amount received after deductions for transaction costs. After the date of acquisition, loans are measured at amortized cost in accordance with the effective interest rate method. The financial liability is derecognized when the obligation under the liability is discharged or expires.

Financial liabilities measured at fair value through profit and loss (FVTPL)

Financial liabilities in this category are reported as current financial liabilities, measured at fair value. These financial liabilities are held for trading and include the Group’s currency derivatives that are not used for hedge accounting. Changes in fair value of the financial liabilities are recognized in the income statement as profit or loss. Financial liabilities relating to contingent considerations on acquisitions, for which IFRS 3 is applied, are measured at fair value with any changes recognized in profit and loss.

NOTE 1 Continued

CFO comment

Auditor’s report

Content

Five year summary
Financial overview
Quarterly data
Proposed distribution of earnings
Definitions
Consolidated statements
Parent Company statements
The Group
Sustainability
Shareholder information
Financial reports
Corporate Governance

Our business

Swedish Match 2021 88

NOTE 1 Continued

Derivatives and hedge accounting

The Group uses derivative financial instruments, such as interest rate swaps and forward currency contracts to cover the exposure of interest rate and foreign exchange risks. These derivatives are initially recognized at fair value on the date of inception of the contract and are subsequently remeasured to their fair value at each reporting date. Transaction costs for derivative instruments at fair value are reported in the income statement at initial recognition. Derivatives are carried as financial receivables when the fair value is positive and financial liabilities when the fair value is negative. The components consist of the derivatives’ fair value according to market conditions and the exchange rate differences between inception and reporting date. The derivatives used are mainly cross currency interest rate swaps (a combination of interest and currency swap) to hedge funding in foreign currencies to SEK. These derivatives have a fully matched cash flow to the underlying issued bonds.

Derivatives used for hedge accounting

Swedish Match applies hedge accounting in which derivatives were entered into in order to manage interest rate risk. Changes in fair value affecting derivative instruments are reported as fair value in the income statement depending on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.When hedge accounting is applied, hedges are classified into:
• Cash flow hedges when hedging the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability.
• Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment.

At the inception of a hedge relationship, the Group determines the economic relationship to which it wishes to apply hedge accounting by identifying the critical terms, such as nominal amount, currency, settlement and maturity dates, and interest and repayment dates. The Group also documents its risk-management objectives and strategy for undertaking the hedge transactions. The documentation includes identification of the hedged item, the hedging instrument, the nature of the risk being hedged and how the Group assesses the prospective effectiveness of changes in the hedged instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. The hedges are matched in all critical terms, are expected to be highly effective, and are assessed on an ongoing basis based on requirements documented in IFRS 9.

Any ineffectiveness is measured by the hypothetical derivatives method if the critical terms would be different. The hypothetical derivative method is a model that estimates the effectiveness of a cash flow hedge relation which means that the risks of the hedged item (the loans) are mirrored in a hypothetical instrument which is only used to be compared to the actual derivative. The method is a way to quantify the part of the fair value of the actual instrument that is effective in the hedge. The method results in two amounts disclosed, one to quantify the effectiveness and one that is accounted for as ineffectiveness. The latter is nil in a theoretical perfect hedge. Sources of ineffectiveness could be the impact of credit risk on the fair value of the derivatives or differences in valuation input. The Group assesses that existing hedging relationships all qualify as continuing hedging relationships and continue to be effective. The full fair value of a hedging derivative is classified as non-current receivable or liability when the remaining hedged item is more than 12 months and as current receivable or liability if the maturity is equal to or shorter than 12 months.

Cash flow hedges

The Group uses derivatives in order to convert its debt payments in foreign currency or floating rate debt in SEK into fixed interest payments in SEK, by which hedge accounting according to the cash flow hedge technique is applied. The hedging relationship consists of eligible hedging instruments and items, with the principle that the critical terms and the economic relationship of the hedged item and the hedging instrument are identical and match with a hedge ratio of 100 percent, meaning that they are effective and no rebalancing is expected to occur.

Fair value changes arising from the revaluation of derivatives that are part of a cash flow hedge relationship and are considered to be effective according to the definition in IFRS 9, are measured at fair value in other comprehensive income (FVOCI) and are accumulated in the cash flow hedge reserve within equity, and any ineffective portion is recognized directly in the statement of profit and loss. Reclassification from the hedge reserve through other comprehensive income into the income statement is made either when the hedged item affects the income statement or when the hedged item has ceased to exist, for instance when issued debt is repurchased.

Fair value hedges

In cases where fixed interest rate obligations are converted into floating interest rate obligations, hedge accounting according to the fair value hedge technique is applied. The fair value changes arising from revaluation of derivatives are measured at fair value through profit and loss, and the related value change from the hedged item is similarly recognized in profit and loss thus offsetting the effective portion in the hedge relationship. Swedish Match had no fair value hedges at December 31, 2021.

Derivatives in foreign currency not used for hedge accounting

To reduce the risk of exposure of assets or liabilities against exchange rate risks, forwards are used to convert foreign currencies into SEK. Forwards are also used for certain binding contracts. For those derivatives to which hedge accounting cannot be applied, changes in fair value are measured at fair value through profit and loss and reported in net finance cost. Changes in value relating to operations-related receivables and liabilities are reported in operating profit.

Income taxes

Note 9 Income taxes, consisting of current tax and deferred tax, are reported in the income statement except when the underlying transactions are reported in other comprehensive income, in which case the related tax effect is also reported in other comprehensive income. Current tax is tax that shall be paid or is received for the current year, with application of tax rates that are enacted on the reporting date. Adjustments of current tax attributable to earlier periods are also reported as current tax.

Deferred tax is calculated using the balance sheet method, using temporary differences between reported and taxable values of assets and liabilities as the starting point. The following temporary differences are not taken into account: temporary differences from first reporting of goodwill, first reporting of assets and liabilities that are not the result of business combinations and which, at the time of the transaction, do not affect either the reported or the taxable earnings, or temporary differences attributable to shares in subsidiaries and associated companies that are not expected to be reversed in the foreseeable future.

Valuation of deferred tax is based on how the carrying amounts for assets or liabilities are expected to be realized or regulated. Deferred tax is calculated by applying tax rates or tax regulations that are enacted or substantively enacted on the reporting date. Deferred tax assets related to deductible temporary differences and tax loss carryforwards are only reported to the extent that it is likely that they will be utilized.

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Swedish Match 2021
89
NOTE 1 Continued

Share capital

Note 21 Repurchases of own shares are reported as a reduction directly in equity. Proceeds from disposal of own shares are reported as an increase directly in equity. Any transaction costs attributable to purchases or disposal of own shares is reported directly in equity.

Earnings per share

Note 10 The computation of earnings per share is based on net profit for the year attributable to the shareholders of the Parent Company and on the weighted number of shares outstanding during the year. There are no potential dilution effects of shares at December 31, 2021.

Contingent liabilities

Note 29 A contingent liability is reported when there is a potential commitment from previous events and whose occurrence is confirmed only by one or more uncertain future events or when there is a commitment that is not reported, as a liability or provision, because it is unlikely that an outflow of resources will be required.

Parent Company accounting principles

The annual report of the Parent Company has been prepared in accordance with the Annual Accounts Act (1995:1554) and RFR 2 Accounting for Legal Entities issued by the Swedish Financial Reporting Board. RFR 2 states that in the annual report for the legal entity, the Parent Company shall apply all IFRS standards and statements approved by the EU as far as this is possible within the framework of the Annual Accounts Act and with respect to the connection between accounting and taxation.

There are no new or changed accounting principles to be adopted for the Parent Company as of January 1, 2021. Differences in the accounting principles between the Parent Company and the Group are described below.

Subsidiaries and associated companies

Shares in subsidiaries and associated companies are valued at cost. This means that transaction costs relating to acquisitions are included in the acquisition value. The Parent Company held no investments in associated companies at December 31, 2021.

Post-employment benefits

The Parent Company applies different principles for computing defined benefit plans than those specified in IAS 19. The Parent Company follows the provisions of the Pension Security Act and the regulations of the Swedish Financial Supervisory Authority, since that is a prerequisite for tax deductibility. For the foreign pension plan local regulations are used when calculating the benefit. Key differences compared to Group principles are how the discount rate is determined, that computation of the defined benefit obligations occurs according to current salary levels without assumptions regarding future wage increases, and that all actuarial gains and losses are reported in the income statement as they are incurred. Another difference is that no asset is recognized if the plan assets, valued at market value, exceed the defined benefit obligations. However, if the value of the plan assets is less than the defined benefit obligations, a provision is recognized.

Taxes

In the Parent Company, untaxed reserves are reported including deferred tax liabilities.

Group and shareholder contributions

Shareholder contributions are transferred directly to the recipient’s equity and are capitalized in shares and participations by the contributor, to the extent that an impairment loss is not required.# Swedish Match 2021

2 Critical estimates and judgements

The preparation of the financial statements in accordance with IFRS requires management to make assessments, estimates and assumptions that affect the application of accounting principles and the amounts recognized as assets, liabilities, income and expenses. The actual outcome could differ from these estimates. Assessments and assumptions are reviewed on a regular basis with changes in assessments recognized in the applicable period. Below are the most important estimates and assumptions made by management:

Classification as principal or agent Note 3

The most significant impact on the Group’s revenue recognition is the assessment of control indicators for the sale transactions to determine whether Swedish Match is acting as a principal or as an agent. Such judgements impact the amount of reported revenue and operating expenses, but do not impact net income or cash flows. Revenue relating to sales transactions where Swedish Match is acting as a principal are recognized as gross revenue with the related cost of the goods sold as operating costs. If the Group sells goods or services as an agent sales and payments to suppliers are recorded in revenue on a net basis, representing the margin/commission earned.

Given the control indicators, Swedish Match has assessed that for the sale of goods from the Group’s reportable segments, Swedish Match is acting as a principal with the revenue and the operating costs recognized as gross amounts (net after allowances for estimates of potential outcome of variable considerations as well as expected reimbursements for product returns). Furthermore, it has been assessed that sale of goods in the Swedish distribution function relating to the delivery of third party tobacco products should be reported as if it acts as an agent. For most of Swedish Match transactions for the delivery of third party tobacco products in Sweden, Swedish Match does not have exposure to significant risks and rewards associated with the third party products from delivery to the Swedish distribution function’s warehouse until delivery to retail. Swedish Match’s distribution function does not provide any marketing nor any sales activities related to such products. Consequently, the distribution function recognizes revenues equaling the net commission earned, i.e., the distribution fee for the delivery service of third party tobacco products. Accordingly, inventory relating to the third party tobacco products for which the Swedish distribution function is acting as an agent, and has limited control over such inventory, is not recognized in Swedish Match’s balance sheet.

Intangible assets Note 11

Intangible assets within Swedish Match essentially consists of goodwill and trademarks. Assessments are made on an ongoing basis to ensure that the book value of goodwill and trademarks does not exceed their recoverable amount. Intangible assets with indefinite useful lives are not amortized, but instead tested for impairment at least annually or when circumstances indicate that the value of the intangible assets is impaired. Impairment tests include significant judgements made by management, such as assumption of projected future cash flows used in the valuation of the assets. Also, climate related matters have been considered but assessed to have no significant impact. Future events could cause management to conclude that impairment indicators exist and that an intangible asset should be impaired. An impairment loss could have a material impact on the financial condition and result of operations.

During 2021 no impairment loss on intangible assets has been recognized. The Group’s intangible assets as of December 31, 2021 amounted to 2,281 MSEK, amortizations amounted to –75 MSEK. The amount for goodwill, which has been included in intangible assets, amounted to 1,301 MSEK.

Post employment defined benefits Note 23

Costs and liabilities attributable to post-employment defined benefit plans are recognized in the Group’s financial statements based on actuarial calculations. Actuarial calculations are based on assumptions on the discount rate, future mortality, rate of compensation increases etc., often for a long time period. The actual outcome could differ from the assumptions made which can lead to an adjustment to the amount recognized in the balance sheet. The benefit obligations of the Group’s defined benefit pension plans and post-employment medical benefit plans as of December 31, 2021 were estimated to exceed the fair value of plan assets by 1,305 MSEK.

Lease contracts Note 14

Most of the Group’s lease contracts are recognized as right-of-use assets and lease liabilities on the consolidated balance sheet and are affected by management’s judgement and estimates of certain variables that have a direct impact on the reported balances. The most significant is the assumption on the discount rates applied in the measurement of the lease liabilities and the corresponding right-of-use assets. Other judgements that may have a significant impact on the reported balances are assessments of the likelihood of using or not using extension and termination options in lease contracts. In assessing whether an extension or a termination option is reasonably certain to be exercised or not, all relevant facts and circumstances that create an economic incentive are considered. For example the leased assets relevance to the operation, cost of substitute the leased asset, the availability of similar assets, investments or customizations to the leased assets, economic incentives regarding the contract terms, etc.

During 2021, revaluation of lease contracts has been made to an amount of 18 MSEK, mainly attributable to reassessment for utilization of extension options for rental agreements of stores. As per December 31, 2021, the Group’s lease liabilities amounted to 403 MSEK and corresponding balance for the right-of-use assets amounted to 388 MSEK.

Legal disputes Note 29

Swedish Match is involved in a number of legal proceedings. Although the Group is convinced that it has a strong position in these disputes, an unfavorable outcome cannot be ruled out, and this could have an adverse effect on the Group’s earnings.

Assets held for sale and Discontinued operations Note 20

The intension and the work to prepare for listing requirements and operational readiness of the cigar business has continuously given rise to judgement by management primarily related to the timing of when to present the business as held for sale and discontinued operations. Conditions evaluated include Swedish Match commitment to the distribution, whether the distribution is highly probable and available for immediate distribution in its current form. As per December 31, 2021 management made the assessment that conditions to present the cigar business as discontinued operations were not met.

3 Segment information

Swedish Match’s product segments are based on the internal reporting structure. Swedish Match’s chief operating decision maker is the Group’s President and CEO, who monitors and makes decisions about operating matters based on product segments. The Group’s product segments as per December 31, 2021 were Smokefree, Cigars and Lights. The reportable segments represent all Swedish Match products that are produced and sold by the Group’s business units.

Smokefree

Smokefree represent smokeless tobacco products and nicotine pouches as well as pouch products with neither tobacco nor nicotine. Smokefree products are primarily sold in US, Sweden, Norway, Denmark as well as in other markets, mostly in Europe. Production takes place in US, Sweden and Denmark. Nicotine pouches is a strong growing category and the products are sold in US, Sweden, Norway, Denmark as well as in other markets, mostly in Europe.

In the US, the Group has a leading position in the nicotine pouch category and is the third largest player in the moist snuff category, and is also present with snus. The US is the world’s largest moist snuff market measured in number of cans. In Sweden and Norway, Swedish Match has a leading position for snus and is also present with nicotine pouches. Sweden is the world’s largest snus market measured in number of cans. The Norwegian market for smokefree products has experienced strong volume growth in recent years. In Sweden, some of the best known brands include General, Göteborgs Rapé, Kaliber, Kronan, Ettan, Grov, ZYN and VOLT and Swave and in Norway the best known brands are General, G.3, The Lab, Nick & Johnny, G.4 and ZYN.

Swedish Match 2021

In the US, ZYN, Longhorn and Timber Wolf as well as General are the best known brands. The ZYN brand for nicotine pouches is also sold in markets outside of the US and Scandinavia – primarily in Europe. Swedish Match is the leading producer of chewing tobacco in the US where the product is mainly sold in the southern states of the country. Swedish Match’s best known brands for chewing tobacco in the US are America’s Best Chew (formerly Red Man), and Big Duke. Chew bags and tobacco bits are manufactured in Denmark and sold in certain European markets. The Group’s brands for chewing tobacco in Europe include Thunder, Göteborgs Rapé and Oliver Twist. Cigars are manufactured in the US and the Dominican Republic, and are almost exclusively sold in the US. Swedish Match is a major player in the US mass market cigar market, with such well known brands as Garcia y Vega, Game by Garcia y Vega, 1882, White Owl, and Jackpot. Lights include manufacturing and distribution of matches and lighters as well as distribution of complementary products. Swedish Match is the market leader in a number of markets for matches. The match brands are mostly local, with leading positions in their home countries. Larger brands include Solstickan, Nitedals, Fiat Lux and Redheads. The Group’s main brand for disposable lighters is Cricket. Swedish Match’s largest markets for lighters are in Asia and Europe as well as in North America and Brazil. Complementary products include externally sourced razors, batteries and high efficiency light bulbs offered within the Brazilian market under the Fiat Lux brand. There are no internal sales between product segments and the Group’s financial costs as well as taxes are not allocated to product segments. Operating assets and liabilities are not monitored on a segment basis. Segment reporting for internal purposes is prepared in accordance with IFRS. Other operations consist of corporate functions providing services to the Swedish Match’s operating divisions and the Swedish distribution function. Services provided include, among others, regulatory affairs, legal and financial services. The distribution function provides services to Swedish Match in Sweden and Norway as well as to other manufacturers within the Swedish distribution network. The revenues from sales of Swedish Match’s products on the Swedish and the Norwegian markets are reported as part of the product segment Smokefree. The result from Other operations consists of the consolidated result for the corporate functions, of which the distribution function is making a profit from the distribution fee from the distribution of third party tobacco products and the other functions are normally making losses.

	Smokefree		Cigars		Lights		Total segments		Other operations		Swedish Match Group
	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020
External sales	12,120	10,651	4,688	4,533	1,338	1,149	18,145	16,332	344	366	18,489	16,698
Depreciation,amortization and write-down 1)	–425	–397	–86	–87	–43	–39	–554	–523	–61	–65	–615	–588
Income from associated companies	4	4	1	–	1	1	6	5	6	8	13	13
Operating profit	5,998	5,142	1,841	1,796	297	222	8,136	7,160	–150	–169	7,986	6,991
Larger one-time items
Settlement income	–	–	–	–	–	–	–	–	300	–	300	–
Operating profit, including larger one-time items	5,998	5,142	1,841	1,796	297	222	8,136	7,160	150	–169	8,286	6,991
Finance income	36	49
Finance costs	–381	–396
Profit before income tax	7,941	6,644

1) Write-down of tangible assets amounted to 3 MSEK (0) for Smokefree. There were no write-down of intangible assets in 2021 and 2020.

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Swedish Match 2021

92 NOTE 3 Continued

	Smokefree		Cigars		Lights		Total segments		Other operations		Swedish Match Group
	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020
Restructuring costs and results from sale of fixed assets
Restructuring costs	–	–	–	–	–8	–	–8	–	–1	–	–9	–
Gains/losses from sale of fixed assets	–1	–0	–1	0	35	18	32	18	–0	1	32	19
Investments
Property, plant and equipment 1)	1,000	1,003	94	74	51	29	1,146	1,107	26	19	1,172	1,126
Intangible assets	–	0	0	–	1	1	1	1	7	62	8	63

1) Investments in property, plant and equipment for Lights operations include investments in biological assets.

Geographical information

The table below refers to sales to external customers and fixed assets based on the geographical area where the Group operates. Sales to external customers during 2021 attributable to Sweden, which is the Group´s country of domicile, amounted to 3,688 MSEK (3 509). Fixed assets as of December 31, 2021 in Sweden amounted to 2,641 MSEK (2,547). Sweden is included in Scandinavia in the table below.

External sales and fixed assets are distributed per significant geographical areas as follows:

	Sales to external customers				Fixed assets 1)
	2021	2020	2021	2020	2021	2020	2021	2020
	MSEK	Percent	MSEK	Percent	MSEK	Percent	MSEK	Percent
The US	11,633	63	10,451	63	3,216	42	2,345	36
Scandinavia	5,607	30	5,092	30	3,709	48	3,537	55
Other markets	1,249	7	1,155	7	800	10	605	9
Total	18,489	100	16,698	100	7,725	100	6,487	100

1) Non-current assets other than financial instruments, deferred tax assets and pension assets.

Information about major customers

Swedish Match generates its sales from a diverse customer portfolio and thereliance on individual customers is therefore limited. Sales from the Group’s largest single external customer constituted 12percent (11) of the Group’s total sales, and referred to to sales from the product segments Smokefree and Cigars.

Revenue from contracts with customers

The main revenue streams for the Swedish Match Group arise from sale of goods manufactured by the Group. Within Lights, a minority part of the revenue also refers to the distribution of third party products. Revenue within Other operations mainly refers to income from logistics services for delivery of third party products to retail customers. Revenue for the sale of goods and logistics services are recognized at the point in time when the control of the promised good or service is transferred to the customer at the expected consideration to be received for such delivery. The expected consideration recognized reflects estimates of potential outcome of variable considerations as well as expected reimbursements for product returns. Refund liabilities relating to these obligations are recognized as operating provisions in the Group balance sheet. The majority of Swedish Match’s customers are retailers and distributors.

Disaggregation of revenue

	Smokefree		Cigars		Lights		Total segments		Other operations		Swedish Match Group
	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020	2021	2020
Primary geographical markets
The US	6,754	5,818	4,688	4,533	191	100	11,633	10,451	–	–	11,633	10,451
Scandinavia	5,203	4,675	–	–	61	51	5,264	4,726	344	366	5,607	5,092
Other markets	163	158	–	–	1,085	997	1,249	1,155	–	–	1,249	1,155
Total sales	12,120	10,651	4,688	4,533	1,338	1,149	18,145	16,332	344	366	18,489	16,698

4 Other operating income and expenses

Other operating income and expenses are specified below:

	2021	2020
Foreign exchanges gains	72	69
Foreign exchanges losses	–66	–76
Result from sale of fixed assets	32	19
Other	6	3
Total	44	14

Our business

Swedish Match 2021

93 5 Personnel

The average number of employees, including temporary employees, inthe Parent Company during 2021 was 54, and in the Group 7,523. Thecorresponding numbers in 2020 were 56 and 6,733, respectively. Theincrease in the average number of employees primarily relates to the expansion of cigar production in the Dominican Republic and the ZYNproduction in the US.

Average number of employees by gender and country:

	2021 Average number of employees (of whom men, %)	2020 Average number of employees (of whom men, %)
Parent Company
Sweden	52	54
	52%	50%
Belgium	2	2
	50%	50%
Subsidiaries
Brazil	476	475
	72%	72%
Denmark	121	110
	68%	65%
Dominican Republic	3,823	3,236
	54%	53%
Netherlands	109	95
	87%	94%
Norway	49	46
	65%	68%
Philippines	265	190
	56%	73%
Sweden	1,300	1,323
	58%	61%
Switzerland	12	8
	75%	75%
Turkey	14	14
	79%	76%
United States	1,300	1,182
	69%	70%
Total	7,523	6,733
	59%	60%

Board members, Presidents and management by gender 1):

	2021 At end of period (of whom men, %)	2020 At end of period (of whom men, %)
Parent Company
Board members elected by the AGM	8	8
	63%	63%
Board members, employee representatives	3	3
	100%	100%
Board members	11	11
	73%	73%
President and other management 2)	7	8
	86%	88%
Group
Board members	119	118
	73%	73%
President and other management 2)	56	48
	79%	77%

1) Deputy Board members are not included in the table. Presidents who are part of the Board are included in both categories; Board members and President and other management.
2) During first seven months of 2020 one member of the Group Management Team was partly employed by the Parent Company and partly employed by a US subsidiary.

Wages, salaries, other remunerations and social costs are summarized below:

	2021 Wages, salaries and other remunerations 2)	2021 Social costs	2021 of which, pension costs 1)	2020 Wages, salaries and other remunerations 2)	2020 Social costs	2020 of which, pension costs 1)
Parent Company	107	59	19	98	52	17
Subsidiaries	1,985	795	286	1,982	781	278
Total	2,092	854	305	2,081	833	295

1) Defined as service cost for defined benefit pension plans and contributions for defined contribution pension plans (excluding special employer contributions).# NOTE 5 Continued

2) Remuneration related to the Group Management Team member that was partly employed by the Parent Company and partly by a US subsidiary during 2020, has been reported by the US subsidiary and invoiced to the Parent Company as consultancy services. The pension costs for the Parent Company included 6 MSEK (5) attributable to the President and other management consisting on average of four persons during 2021 and 2020. The pension costs for the subsidiaries included 15 MSEK (15) attributable to Presidents and other management consisting on average of 26 persons in 2021 (24 persons in 2020). The defined benefit obligations related to Presidents and other management as of December 31, 2021 amounted to 142 MSEK (181). During 2021, government grants for compensation of employee sick leave expenses have been received to an immaterial amount attributable to the COVID-19 pandemic. Wages, salaries and other remunerations split by Board members, President and other management and other employees, are summarized below:

	2021	2020		2021	2020
Board, President and other management 1)	50	46	Board, President and other management 1)	52	52
of which, variable salaries	20	20	of which, variable salaries	20	20
Other employees	57	52	Other employees	48	48
Parent Company
Total in Parent Company	50	46		52	52
Subsidiaries
Total in subsidiaries	97	108		1,889	1,874
Total	146	154		1,946	1,927

1) The Board, President and other management employed by the Parent Company consisted on average of 15 persons (15). Presidents and other management employed by the subsidiaries consisted on average of 26 persons (24), whereof three persons were members of the Group Management Team. For further information about remunerations to Group Management Team members see table “Remuneration and other benefits to Group Management Team”. During 2021, 73 MSEK (71) was charged to the income statement, relating to a profit-sharing foundation on behalf of Group personnel in Sweden.

NOTE 5 Continued

Remuneration to Swedish Match AB’s Board of Directors

The Annual General Meeting on April 13, 2021 decided, for the period up to and including April 27, 2022 when the next Annual General Meeting is held that the Chairman of the Board shall receive a fee of 2,252,000 SEK, the deputy Chairman shall receive 1,040,000 SEK, that other members of the Board elected by the General Meeting shall each receive a fee of 900,000 SEK. As Remuneration for committee work the Chairman of the Remuneration Committee shall receive 291,000 SEK and the other members of committee shall each receive 146,000 SEK and the Chairman of the Audit Committee shall receive 364,000 SEK and the other members of the committee shall each receive 156,000 SEK. Members of the Board employed by the Group shall not receive any Directors’ fees. There are no variable salaries or other benefits paid to the Board members for Board work during 2021. In 2021 a study fee in the amount of 61,281 SEK was paid to each of the three employee representatives on the Board, and in the amount of 45,868 SEK to each of the three deputy members. The study fees were paid by each employee representative´s respective company. The fees to Board members elected by the Annual General Meeting for Board work during 2021 and 2020 are shown in the tables below:

Fees to Board members

	2021 TSEK
	Board fee	Remuneration Committee	Audit Committee	Total remuneration for Board work
Conny Karlsson	2,252	291	–	2,543
Andrew Cripps	1,040	–	156	1,196
Charles Blixt	900	146	–	1,046
Jacqueline Hoogerbrugge	900	146	–	1,046
Pauline Lindwall	900	–	–	900
Wenche Rolfsen	900	–	156	1,056
Joakim Westh	900	–	364	1,264
Alexander Lacik	900	–	–	900
Total	8,692	583	676	9,951

	2020 TSEK
	Board fee	Remuneration Committee	Audit Committee	Total remuneration for Board work
Conny Karlsson	2,165	280	–	2,445
Andrew Cripps	1,000	–	150	1,150
Charles Blixt	865	140	–	1,005
Jacqueline Hoogerbrugge	865	140	–	1,005
Pauline Lindwall	865	–	–	865
Wenche Rolfsen	865	–	150	1,015
Joakim Westh	865	–	350	1,215
Alexander Lacik	865	–	–	865
Total	8,355	560	650	9,565

Remuneration and other benefits to Group Management Team

The Annual General Meeting on April 2, 2020 adopted the following guidelines for executive remuneration. The guidelines govern the remuneration of the President and other members of the Group Management Team (GMT). The guidelines are applicable to remuneration agreed, and amendments to remuneration already agreed, after adoption of the guidelines by the Annual General Meeting 2020. These guidelines do not apply to any remuneration decided or approved by the General Meeting.

The guidelines’ promotion of the Company’s business strategy, long-term interests and sustainability

For information regarding the Company’s business strategy, see https://www.swedishmatch.com/Our-company/Vision-and-strategy/. A prerequisite for the successful implementation of the Company’s business strategy and safeguarding of its long-term interests, including its sustainability, is that the Company can recruit and retain qualified personnel. To this end, it is necessary that the Company offers competitive remuneration. The remuneration structures shall encourage employees to do their utmost to safeguard shareholders’ interests and thereby the Company’s sustainability and long-term value creation.

The types of remuneration to GMT

The total remuneration to the GMT consists of fixed cash salary, variable cash remuneration, pension benefits, other benefits and terms related to termination of employment. Additionally, the General Meeting may – irrespective of these guidelines – resolve on, among other things, share- related or share price-related remuneration. Remuneration under employments subject to other rules than Swedish may be duly adjusted to comply with mandatory rules or established local practice, taking into account, to the extent and reasonably possible, the overall purpose of these guidelines.

Fixed salary
The fixed salary for the GMT shall be in cash, correspond with market practice and be based on each individual’s competence, country of residence, area of responsibility and performance.
Variable salary
GMT may be entitled to a variable salary in addition to the fixed salary. The variable salary shall be capped in relation to the fixed salary and reflect the market practice in the country of residence of the member of the GMT. The variable salary may include both a short-term (annual) cash incentive program (2a below), a long-term cash incentive program with a performance period which shall not be shorter than three years (2b below), and profit sharing (2c below). To correspond with local market practice and to be able to attract and retain members of the GMT resident outside of Sweden, such members may participate in an additional incentive program (2d below).

The variable cash salary shall be linked to specified performance criteria. Performance criteria, their weight, thresholds and targets will be established at the beginning of each respective program. The performance criteria will be established by the Board of Directors in relation to the President and by the Renumeration Committee in relation to all other members of GMT. The criteria shall be designed to contribute to the Company’s business strategy and long-term interests, including its sustainability. A majority of the criteria shall be linked to clear and measurable financial performance measures (e.g. operating profit and net sales). There may also be non-financial criteria (e.g. operational criteria or criteria linked to sustainability).

To which extent the criteria for awarding variable cash remuneration has been satisfied shall be determined when the measurement period has ended. The Remuneration Committee is responsible for the evaluation of variable remuneration to be awarded the President as well as the other members of the GMT. For financial performance criteria, the evaluation shall be based on financial information made public by the Company. By the end of a program, either the Board of Directors or the Remuneration Committee will have the right to adjust the outcome in case conditions have changed during the performance period. However, such potential adjustment(s) must have the primary purpose of strengthening the link between remuneration and the value creation for the shareholders, and to ensure that the level of remuneration is a fair reflection of the Company’s and the individual’s performance during the performance period for each individual program. The Board of Directors shall have the possibility, subject to the restrictions that may apply under law, to in whole or in part reclaim variable remuneration paid on incorrect grounds (claw-back).

a. Short-term incentive program: The Board of Directors and the Remuneration Committee can annually resolve to implement an annual incentive program (STI). The maximum variable salary of such short-term incentive shall be 70 percent of the base salary.# NOTE 5 Continued

50 percent of the received cash award net of income tax and to retain such shares for a period of not less than three years. A 20 percentage points reduction in maximum variable salary shall apply to any GMT member who does not commit to such purchase and retention of shares.

b. Long-term incentive program: The Board of Directors and the Remuneration Committee can annually resolve to implement a long-term cash incentive program (LTI) where the maximum variable salary shall be 45 percent of the base salary. The LTI-program, with a performance period which shall not be shorter than three years, includes an obligation to purchase Company shares for the full cash award net of income tax and to retain such shares for a period of not less than two years.

c. Profit-Sharing System: In some countries employees, including members of the GMT, can participate in profit-sharing systems. The Profit-Sharing System is not connected to a position and shall compose a small part of the remuneration for the member of GMT. The maximum award to members of GMT resident in Sweden shall not exceed 5 percent of the base salary.

d. Additional incentive program: To correspond with local market practice, GMT members resident outside Sweden may participate in an additional incentive program capped over time at 50 percent of the base salary. Performance criteria shall be set at the beginning of each program whilst the thresholds and targets can be set at the beginning of the performance period or yearly.

Pensions

Old age pension shall be designed to reflect the practices in the country where a member of the GMT is resident. The retirement age of a member of GMT shall normally be 65 years. With regard to employments in Sweden, the GMT may have a defined contribution plan applicable to the part of the salary which is not covered by the ITP-plan. Such pension contributions shall amount to not more than 40 percent of the part of the base salary which is not covered by another pension plan. Pension for new members of the GMT shall preferably be covered by defined contribution plans, which can amount to a maximum of 40 percent of the salary which qualifies for pension. Variable cash remuneration shall not qualify for pension benefits unless it is stated in mandatory rules or collective bargaining agreements.

Other benefits

Other benefits may include a company car, disability and sickness benefits, medical insurance and life insurance. Other benefits to members of the GMT shall be payable in accordance with local practice. The combined value of these benefits shall normally constitute a limited value in relation to the total remuneration package and shall correspond to market practice. GMT members, who are expatriates to another country than their country of origin, may receive additional remuneration and other benefits to the extent reasonable in light of the special circumstances associated with the expatriate arrangement, taking into account the overall purpose of these guidelines. Such additional benefits will be payable under the same conditions as for other employees during expatriate arrangement.

Termination of employment

The notice period may not exceed six months. Upon termination of employment by the Company, severance pay amounting to a maximum of 18 months fixed salary is paid. Notice of termination given by a GMT member due to significant structural changes, or other events that in a determining manner affect the content of work or the conditions for the position, is equated with of notice of termination given by the Company. Fixed cash salary during the period of notice and severance pay may together not exceed an amount equivalent to the fixed cash salary for two years. Additionally, remuneration may be paid for non-compete undertakings. Such remuneration shall compensate for loss of income and shall only be paid in so far as the previously employed executive is not entitled to severance pay. The remuneration shall amount to not more than 60 percent of the fixed cash salary at the time of termination of employment, unless otherwise provided by mandatory collective bargaining agreements, and be paid during the time the non-compete undertaking applies, however not for more than nine months following termination of employment.

Salary and employment conditions for employees

In the preparation of the Board of Directors’ proposal for these guidelines and when evaluating whether the guidelines and the limitations set out herein are reasonable, the Remuneration Committee and the Board of Directors have taken into account salary and employment conditions for other employees in the Company. This typically include remuneration levels and elements, including changes in remuneration levels, as well as other employment conditions for employees in the Company that are not members of the GMT. The Committee regularly consults with the HR function of the Company in order to stay up to date with employee pay and conditions across the broader employee population.

The decision-making process to determine, review and implement the guidelines

The Board of Directors has established a Remuneration Committee. The Committee’s tasks include preparing the Board of Directors’ decision to propose guidelines for executive remuneration. The Board of Directors shall prepare a proposal for new guidelines at least every fourth year and submit it to the Annual General Meeting. The guidelines shall be in force until new guidelines are adopted by the General Meeting. The Remuneration Committee shall also monitor and evaluate programs for variable remuneration for the GMT, the application of the guidelines for executive remuneration as well as the current remuneration structures and compensation levels in the Company. The President and other members of the GMT do not participate in the Board of Directors’ deliberations or resolutions regarding remuneration- related matters in so far as they are affected by such matters.

The Board of Directors’ right to derogate from the guidelines

The Board of Directors may temporarily resolve to derogate from the guidelines, in whole or in part, if in a specific case there is special cause for the derogation and a derogation is necessary to serve the Company’s long-term interests, including its sustainability, or to ensure the Company’s financial viability. As set out above, the Remuneration Committee’s tasks include preparing the Board of Directors’ resolutions in remuneration-related matters. This includes any resolutions to derogate from the guidelines.

Remuneration and other benefits to Group Management Team
TSEK

	Fixed salary	Variable salary	Other benefits	Pension costs	Total	Defined benefit obligations
President
2021	7,666	9,103	159	2,813	19,742	–
2020	7,446	8,921	140	2,667	19,174	–
Other members of Group Management Team
2021	21,422	22,890	1,940	7,054	53,307	28,415
2020	24,671	30,363	2,021	7,765	64,820	61,456
Total
2021	29,088	31,993	2,099	9,868	73,048	28,415
2020	32,117	39,284	2,161	10,432	83,994	61,456

Comments to the table

At the end of 2021, the Group Management Team consisted of seven persons including the President. The President and three other members of the Group Management Team were employed by the Parent Company and three members were employed by a subsidiary.
At the end of 2020, the Group Management Team consisted of eight persons including the President. The President and three other members of the Group Management Team were employed by the Parent Company and four members were employed by a subsidiary.
Variable salary refers to accruals charged to the consolidated income statement during the year for short term and long term incentive programs.
Other benefits refers to company cars, medical insurance, dental plan, life insurance, club membership and other benefits.
Reported pension costs correspond to service costs for defined benefit pension plans and fees relating to defined contribution pension plans (excluding payroll taxes).
During 2021 and 2020 no earnings-related compensation (tantiem) has been paid to the Group Management Team.
During 2021 and 2020 no severance has been paid to the Group Management Team.

Variable salary

In 2021, the Group Management Team (“GMT”) participated in short and long term incentive programs (variable salary) described under the presentation of the remuneration and other benefits to Group Management Team. Performance targets for the short-term incentive are determined in the beginning of each year. For 2021, the CEO and heads of corporate functions of the GMT had the same criteria, Group operating profit (weight 75 percent) and Net sales from product segments (weight 25 percent). The Division Presidents had partly the same Group criteria as the CEO and partly criteria linked to the division. In the three year long incentive program that started in 2019 and ended in 2021, the performance criteria for the CEO and other members of group management were based on Group operating profit (weight 75 precent) and net sales from product segments (weight 25 percent).# 9 Income tax

The major components of income tax expense/income for the years ended December 31, 2021 and 2020 are:

Income tax expense reported in the Income statement

	2021	2020
Current tax:
Current tax on earnings for the year	-1,590	-1,503
Adjustments in respect of prior years	16	-243
Total current tax	-1,574	-1,746
Deferred tax:
Origination and reversal of temporary differences	-159	-2
Adjustments in respect of prior years	-6	-6
Impact of change in tax rate	16	-1
Total deferred tax	-149	-10
Income tax expense	-1,723	-1,756

Income tax reported outside of the Income statement

	2021	2020
Current tax	–	–
Deferred tax	-108	44
Total	-108	44

This comprises:

Tax reported in other comprehensive income

	2021	2020
Actuarial net gains/losses attributable to pensions	-91	33
Revaluation of cash flow hedges net gain/loss	-17	11
Total tax reported in other comprehensive income	-108	44

Total tax reported outside of the income statement

	2021	2020
	-108	44

The deductible and taxable temporary differences in the balance sheet for the years ended December 31, 2021 and 2020 are summarized below:

	2021			2020
	Deferred tax assets	Deferred tax liabilities	Net balance	Deferred tax assets	Deferred tax liabilities	Net balance
Tax loss carry forwards	–	–	–	100	–	100
Trade receivables	–	–	–	1	1	1
Pensions and other post-employment benefits	361	2	359	371	-6	378
Employment benefits	112	–	112	107	–	107
Intangible assets	–	294	-294	–	302	-302
Fixed assets	-1	354	-355	1	286	-285
Right of use assets/lease liabilities	2	–	2	2	–	2
Tax allocation reserve	–	642	-642	–	582	-582
Inventory	9	20	-12	5	23	-17
Unremitted earnings in foreign subsidiaries	–	91	-91	–	87	-87
Financial assets	-6	–	-6	23	–	23
Other	43	-5	48	30	-6	36
Net deferred tax balances	520	1,397	-877	640	1,268	-628

The net of deferred tax liabilities and assets for the years ended December 31, 2021 and 2020 are summarized below:

Movement in deferred tax liabilities, net

	2021	2020
Opening balance, net	628	634
Deferred tax expense/income in the income statement	149	10
Deferred tax in other comprehensive income	108	-44
Companies acquired externally	7	–
Translation differences	-14	27
Closing balance, net	877	628

As of December 31, 2021 the Group’s non-recognized deductible temporary differences are in total 3 MSEK (5). There are no unrecognized tax losses in the Group at year end 2021.

A reconciliation between tax expense and the product of accounting profit multiplied by Sweden’s statutory tax rate for the years ended December 31, 2021 and 2020 is as follows:

Reconciliation of effective tax rate


	2021			2020
	%	MSEK	%	%	MSEK	%
Profit before income tax		7,941			6,644
Swedish statutory tax rate	20.6	-1,636		21.4	-1,422
Effect of tax rates in foreign jurisdictions 1)	2.1	-164		1.7	-111
Results from associated companies reported net of tax	0.0	2		0.0	2
Income tax in respect of prior years 2)	–0.2	12		3.7	-243
Utilization of previously unrecognized tax losses 3)	–0.6	50		–	–
Income not subject to tax	–0.4	31		–0.5	32
Expenses not deductible for tax purposes	0.3	-22		0.2	-15
No benefit available for loss	0.0	-2		0.0	-1
Effect of enacted change of tax rate 4)	–0.3	21		0.0	3
Withholding tax in foreign subsidiaries 5)	0.2	-18		0.1	-7
Tax allocation reserve in Sweden	0.1	-6		0.1	-7
Tax credit of machinery and equipment in Sweden 6)	–0.1	6		–	–
Other items	–0.1	4		–0,2	12
Reported effective tax	21.7	-1,723		26.4	-1,756

1) The negative effect in “tax rates in foreign jurisdictions” in 2020 and 2021 is largely a result of the increase in the contribution to earnings from the US business where the corporate tax rate is higher than the Swedish tax rate.
2) The negative effect of “income tax in respect of prior years” in 2020 is mainly a result of the non recurring income tax expense of 270 MSEK from a Swedish tax case.
3) The positive effect of “utilization of previously unrecognized tax losses” in 2021 is the result of a favorable ruling in a tax case in Sweden.
4) The positive effect of “enacted change of tax rate” in 2021 is mainly a result of state tax rate and apportionment methodology changes in the US.
5) The negative impact of “withholding tax in foreign subsidiaries” in 2021 is largely a result of increased income in the Phillipines.# Swedish Match 2021

10 Earnings per share

Basic and diluted

	2021	2020
Profit for the year attributable to equity holders of the Parent, MSEK	6,217	4,888
Profit for the year attributable to equity holders of the Parent, excl. larger one-time items, MSEK	5,979	5,174
Weighted average number of shares outstanding, basic and diluted 1)	1,565,379,185	1,608,665,372

1) In May 2021, a share split (10:1) was made. Historical share data in this report has been restated in accordance with IAS 33.

Earnings per share, basic and diluted, SEK	2021	2020
Earnings per share	3.97	3.04
Adjusted earnings per share	3.82	3.22

The Company had no outstanding options and no dilution.

11 Intangible assets

Intangible assets at December 31 comprised the following:

	Goodwill	Trademarks	Other intangible assets 1)	Total
	2021 2020	2021 2020	2021 2020	2021 2020
Cost at beginning of year	1,620 1,714	1,611 1,676	516 462	3,747 3,852
Purchases/investments	– –	0 –	7 63	8 63
Acquisitions	11 –	27 –	– –	38 –
Sales/Disposals	– –	– –	–2 –9	–3 –9
Reclassifications	– –	– –	0 1	0 1
Translation differences, etc.	66 –95	46 –65	0 –0	113 –160
Cost at end of year	1,697 1,620	1,684 1,611	522 516	3,903 3,747
Accumulated amortization and write-down at beginning of year	–388 –401	–855 –856	–266 –240	–1,510 –1,496
Amortization for the year	– –	–42 –42	–32 –35	–75 –77
Sales/Disposals	– –	– 2	2 9	2 9
Translation differences, etc.	–7 12	–33 43	–0 0	–39 55
Accumulated amortization and write-down at end of year	–395 –388	–931 –855	–296 –266	–1,622 –1,510
Net carrying value at end of year	1,301 1,231	754 756	226 250	2,281 2,237

1) Other intangible assets mainly consist of software, licenses and patent rights. No borrowing costs have been capitalized during 2021 nor 2020 for intangible assets. The Group’s intangible assets are deemed to have definite useful lives, except for goodwill and the trademark Jakobsson’s, which according to the IFRS definition has an indefinite useful life. Jakobsson’s has been assessed having indefinite useful life based on that the trademark is well established in the market and has a loyal and growing consumer base within a unique niche segment. Trademarks with indefinite useful lives are reviewed annually and are included in the impairment testing. In the beginning of 2020, Swedish Match reassessed the estimated economical useful life of the Thunder trademark. The updated assessment indicated that the Thunder trademark’s economical useful life has changed from indefinite to a definite economical useful life of 20 years. Amortization have been charged to the income statement as stated below:

Amortization and write-down	2021	2020
Cost of goods sold	–2	–2
Selling expenses	–19	–19
Administrative expenses	–54	–56
Total	–75	–77

Impairment test

The Group’s goodwill and trademarks with indefinite useful life are tested for impairment on an annual basis or whenever there is an indication of impairment. Goodwill and trademarks with indefinite useful life are, for the purpose of impairment testing, allocated to the lowest level of groups of cash generating units (CGUs) based on product groups and geographical markets, at which they are monitored within the Group. A group of CGUs is not larger than an operating segment. Taking into account that an assessment has been made that the cash flow attributable to trademarks cannot be distinguished from other cash flows within each CGU, impairment testing is performed for both goodwill and trademarks jointly. The Group’s goodwill and trademarks with indefinite useful life relate to the following CGUs: Other tobacco products operations in US, which includes chewing tobacco and moist snuff in US, Cigar operations in US, Smokefree operations in Europe, which includes all smokefree products sold in Europe, and Lights operations. The carrying values of the assets relating to respective CGU are compared to the recoverable amount for the CGU. In the impairment testing, the carrying values of the assets relating to respective CGU are compared to the recoverable amount for the CGU. If the carrying value is higher, the difference will be charged to the income statement as an impairment loss. The recoverable amount for all CGUs has been determined based on value in use calculations. The value in use of a CGU is calculated using a valuation model based on discounted expected future cash flows (DCF). The cash flows are explicitly forecasted for a period of five years. The cash flows beyond the five year period are extrapolated using a terminal growth rate. The cash flows used in the valuation model are projected considering historical performance and forecasts, and are based on what management believes are reasonable assumptions according to the best information available. The forecasts are based on previous results, industry experience and expectations for market trends and has been approved by management. Forecasts are drawn up separately for each CGU and include assumptions on sales growth, EBITDA margin, working capital and investment needs, and the terminal growth rate of free cash flow. The forecasted cash flows are discounted by a discount rate specifically determined for each CGU. The discount rates are calculated by weighting cost of capital (WACC) for each CGU. The calculation of cost of debt is based on local risk-free interest rates, specific risk premium (if applicable), local tax rates and a Swedish Match specific interest margin. Cost of equity is calculated using the Capital Asset Pricing Model, applying average beta for the industry adjusted for capital structure, local risk-free interest rates, specific risk premium (if applicable) and an equity risk premium. As local interest rates are included in the calculation of discount rates, the value in use calculations are sensitive to changes in market conditions. The result from the impairment testing in 2021 and 2020 of goodwill and trademarks with indefinite useful life showed that the value in use exceeded the carrying values for all CGUs. No reasonable possible change in any of the key assumptions would result in an impairment.

NOTE 11 Continued

The table below presents the composition of the Group’s CGUs, terminal growth rate and WACC used in the impairment testing for 2021 and 2020 as well as the carrying value of goodwill and trademarks with indefinite life as of December 31.

Goodwill and trademarks with indefinite life in cash generating units

Cash generating units	Terminal growth rate 2021, %	Post-tax WACC 2021, %	Pre-tax WACC 2021, %	Carrying value 2021	Terminal growth rate 2020, %	Post-tax WACC 2020, %	Pre-tax WACC 2020, %	Carrying value 2020
Smokefree traditional tobacco products operations in US	0.2	6.4	8.7	156	0.0	5.7	8.2	167
Cigar operations in US	0.7	6.4	8.6	383	0.8	5.7	7.9	321
Smokefree operations in Europe 1)	1.5	5.7	6.9	733	1.5	5.2	6.2	725
Lights operations	0.8	7.9	10.2	181	0.9	8.8	11.4	170
Total				1,453				1,382

1) Includes the trademark with indefinite useful life of 151 MSEK (151).

12 Property, plant and equipment

Property, plant and equipment at December 31, comprised the following:

	Buildings and land 1)	Plant and machinery	Equipment, tools and fixtures	Construction in progress	Total 2)
	2021 2020	2021 2020	2021 2020	2021 2020	2021 2020
Cost at beginning of year	1,603 1,561	4,854 4,977	933 954	797 389	8,187 7,882
Purchases/investments	16 54	87 76	157 97	904 892	1,165 1,120
Acquisitions	– –	1 –	1 –	– –	2 –
Sales/disposals	–3 –6	–44 –95	–28 –97	– –	–76 –198
Reclassifications	377 111	476 302	3 3	–859 –417	–3 –1
Translation differences, etc.	88 –118	284 –406	8 –24	53 –67	433 –615
Cost at end of year	2,080 1,603	5,657 4,854	1,074 933	896 797	9,707 8,187
Accumulated depreciation and write-down at beginning of year	–667 –674	–3,319 –3,388	–611 –652	0 –1	–4,598 –4,714
Depreciation for the year	–65 –54	–297 –290	–79 –76	0 –	–441 –419
Write-down for the year	0 –	–1 0	0 –	–1 –	–3 0
Sales/disposals	0 1	43 90	26 97	– –	69 188
Translation differences, etc.	–37 58	–173 269	–6 20	0 0	–216 348
Accumulated depreciation and write-down at end of year	–770 –667	–3,747 –3,319	–670 –611	–2 0	–5,189 –4,598
Net carrying value at end of year	1,311 936	1,910 1,534	404 323	894 796	4,518 3,589

1) Buildings and land include land and land improvements at a book value of 131 MSEK (92).
2) Total property, plant and equipment exclude forest plantation. Construction in progress primarily relates to investments in production facilities. No borrowing costs have been capitalized during 2021 or 2020 for property, plant or equipment. Depreciation and write-downs for the year totaling 444 MSEK (420) was charged to cost of goods sold in the income statement in an amount of 371 MSEK (343), to administrative expenses of 15 MSEK (19), and to selling expenses of 58 MSEK (58).## 14 Leases

The Group is lessee for a number of assets where real estate leases, such as rental of office and factory premises, warehouses and storages, represent the major part of the total value of leases. The Group’s leases also include vehicles, IT equipment, machinery etc. With the exception of short-term leases and leases of low-value, each lease is reflected on the balance sheet as a right-of-use asset and a lease liability. Lease payments are generally fixed, but a limited number of real estate leases are linked to periodic changes in an index. Variable lease payments, which do not depend on an index or a rate, are excluded from the initial measurement of the lease liabilities and assets. Swedish Match has not received any significant COVID-19 related rent concessions during neither 2020 or 2021 that have resulted in any changes to the valuation and reporting of lease contracts. Some leases contain options to extend the lease for one or more terms or to terminate the lease. The likelihood of utilizing or not utilizing extension and termination options are assessed for each lease contract, as applicable. The amount of optional lease payment not included in the lease liabilities at December 31, 2021 amounted to 144 MSEK (129). The average duration of the Group’s leases was 1.4 years (1.9), including assessments of the likelihood of utilizing extension and termination options.

Amounts recognized in the income statement are summarized below:

	2021	2020
Depreciation right-of-use assets	–97	–92
Variable lease payments not included in the lease liabilities	–23	–21
Expenses for short term leases	–18	–15
Expenses for low value leases	–4	–2
Interest expense on lease liabilities	–15	–11
Result sale or cancellation of right-of-use assets	1	–0
Total	–155	–140

Variable lease payments not included in the related lease liability are expensed as incurred and mainly include usage payments on vehicles and for office and factory premisis.

The Group’s lease liabilities at December 31 comprised the following:

	2021	2020
Current lease liabilities	96	77
Non-current lease liabilities	307	208
Total	403	285

The maturity structure for future lease expenses included in the lease liabilities, with remaining terms of one year or more, is as follows:

	2021	2020
Undiscounted future lease expenses included in the lease liabilities
First year after period	109	86
Second year after period	94	77
Third year after period	48	60
Fourth year after period	42	25
Fifth year after period	41	23
Sixth year after period and beyond	132	64
Total	466	334

Total cash flow from leases, including interest component, variable lease payments and payments for short-term and low value leases in 2021, amounted to 145 MSEK (133). Future variable lease payments not included in the measurement of the lease liabilities, in relation to the fixed lease payments are expected to remain at a similar level in all material aspects. The relative magnitude of variable lease payments related to the fixed payments for 2021 was 21 percent (20). At December 31, 2021 the Group had committed to leases amounting to 14 MSEK (15) which had not commenced. The commitments refer to rental of production facilities under construction in Dominican Republic with expected access and completion 2022.

Leases at December 31, comprised the following:

	Real estate		Cars		Other		Total
	2021	2020	2021	2020	2021	2020	2021	2020
Right-of-use assets
Carrying value at beginning of year	216	168	60	83	3	4	278	255
Additions 1)	143	50	30	28	3	2	176	80
Terminations	–3	–2	–2	–4	–	–1	–5	–6
Depreciation for the year	–56	–49	–38	–40	–2	–2	–96	–92
Revaluations 2)	18	64	–	–	0	–	18	64
Translation differences, etc.	13	–15	5	–8	0	0	18	–23
Carrying value at end of year	331	216	55	59	2	3	388	278

1) Additions in 2021 mainly relate to new rental agreements of office premisess and stores.
2) Revaluations in 2021 mainly relate to reassesments of extensions options of rental agreements of stores and 2020 relate to reassesments of office premisess.

15 Investments in associated companies

Swedish Match investments in associated companies are a 32 percent ownership interest in Malaysian Match Co. SDN. BHD. and a 49 percent interest in OTP. Malaysian Match is a Malaysian sales distributor for primarily matches and lighters in the Asia region. OTP is a tobacco distribution company with subsidiaries in Slovenia and Croatia. During December 2021, Swedish Match divested its shareholding of 25 percent in EB Road Cargo AB. During the year, Swedish Match received dividends of 13 MSEK from EB Road Cargo.

The numbers in the tables below represent the change in carrying value:

	2021	2020
Associates
Carrying value at beginning of year	42	42
Divestment of EB Road Cargo AB	–2	–
Share of profit	13	13
Dividends received	–13	–10
Translation differences, etc	1	–3
Carrying value at end of year	41	42

The tables below specify the summary financial position of the associated companies and the corresponding carrying values. Operating results of investments in associated companies have been recognized for a 12-month period but with a time lag of one month, based on the investee’s internal financial reporting. Adjustments resulting from annual audits of investee results are thereby reflected in the subsequent reporting periods in Swedish Match consolidated financial statements.

	2021	2020
Associated companies
Sales	230	670
Operating profit	23	46
Net profit/loss (excluding other comprehensive income)	18	37
Total comprehensive income	18	37
Total current assets	161	249
Total fixed assets	15	110
Total current liabilities	86	172
Total non-current liabilities	7	81
Equity	83	106
Equity interest	33	34
Goodwill	8	8
Carrying value at end of year	41	42

Transactions with associated companies

In the normal course of business, Swedish Match conducts various transactions with associated companies. Transactions are conducted at an arms-length basis. At December 31, 2021, receivables from these companies amounted to 16 MSEK (15). Total sales during the year to associated companies amounted to 75 MSEK (82). Payables to and purchases from associated companies amounted to immaterial amounts. In addition, as per December 31, 2021, Swedish Match had a financial receivable on OTP amounting of 36 MSEK (46).

16 Other non-current receivables and other current receivables

Non-current receivables at December 31 comprised the following items:

	2021	2020
Other non-current receivables
Non-current financial receivables	1,182	833
Net assets in pension plans	140	92
Other non-current receivables	15	10
Total	1,337	935

Non-current financial receivables included foreign exchange derivatives used to hedge the bond loans denominated in foreign currencies amounting to 700 MSEK (460). Most of the remaining value of the non-current financial receivables consisted of life insurance policies in a non-Swedish subsidiary.

Other current receivables at December 31 comprised the following items:

	2021	2020
Other current receivables
Current financial receivables	205	99
VAT receivables	31	22
Other current receivables	240	194
Total	476	315

The assessed impairment on the Group’s non-current and current receivables is deemed immaterial.# 17 Inventories

Inventories at December 31, net of allowances for obsolescence, comprised the following items:

Inventories	2021 Current	2021 Non-current	2021 Total	2020 Current	2020 Non-current	2020 Total
Finished goods	701	–	701	527	–	527
Work in progress	96	–	96	94	–	94
Leaf tobacco	694	232	926	597	216	813
Other input materials and consumables	544	–	544	390	–	390
Total	2,035	232	2,267	1,608	216	1,824

During 2021, 35 MSEK (18) of inventory write-downs, net of adjustments of allowances for inventory obsolescence, have been expensed. Other input materials and consumables included harvested trees which are reported at fair value less estimated point-of-sale cost. Harvested trees constituted an immaterial part of other input materials and consumables.

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18 Trade receivables

Trade receivables at December 31 comprised the following:

	2021	2020
Trade receivables	1,854	1,588
Less provision for impairment of trade receivables	–11	–11
Net trade receivables	1,843	1,577

Movements, due to the changes in expectations, on the group provision for impairment of trade receivables are as follows:

Trade receivable provision	2021	2020
Carrying value at beginning of year	–11	–14
Provision	–3	–2
Recovery	1	2
Write-down	3	2
Translation differences, other deductions or additions, etc.	0	1
Carrying value at end of year	–11	–11

As of December 2021, net trade receivables of 50 MSEK (74) were past due. The aging of trade receivables is as follows:

Aging of trade receivables	2021	2020
Current	1,793	1,502
Overdue < 31 days	31	53
Overdue 31–60 days	6	10
Overdue > 60 days	13	11
Total	1,843	1,577

Swedish Match does not generally hold collateral against trade receivable. The ten largest customers represent 43 percent (42) of total net sales. Trade receivables are generally held in domestic currencies, which have an insignificant impact on the foreign currency risk. The provision for account receivables mainly pertain to doubtful customer account receivables that have the potential risk for not being collected. As the time to maturity is short and the credit risk is low the impairment for trade receivables is assessed to be immaterial. Credit risks are regularly reviewed, and there has been no indications of any significant changes, due to COVID-19, in customers’ credit terms or to customers’ ability to pay outstanding invoices when they fall due. For more information, see Note 27 Financial instruments and financial risks.

19 Cash and cash equivalents

Cash and cash equivalents	2021	2020
Cash and bank	1,018	1,972
Other current investments	1,103	1,440
Total	2,121	3,411

Other current investments consist of short term deposits with banks and other institutions.

20 Assets held for sale

At December 31, 2021 the Group had no assets classified as held for sale. At December 31, 2020 the Group had assets held for sale amounting to 28 MSEK which referred to land and forestry assets in Brazil and tangible fixed assets to an immaterial amount. There were no corresponding liabilities to these assets.

21 Equity

Objectives, policies and processes for managing capital

The basis for determining dividends and repurchasing of own shares is the equity of the Parent Company. Total equity in the Parent Company as per December 31, 2021 amounted to 10,280 MSEK and distributable earnings amounted to 9,891 MSEK. In addition, before any distribution of capital to shareholders is determined, the financial position of the Group is carefully analyzed. As part of this analysis, the Board of Directors of Swedish Match has adopted certain financial guidelines and risk management procedures to ensure that the Parent Company and the Group maintain adequate liquidity to meet reasonably foreseeable requirements taking into account the maturity profile of debt obligations.

The dividend policy of the Company is a pay-out ratio of 40 to 60 percent of the earnings per share, subject to adjustments for larger one-time items. The Board has further determined that the financial policy should be, for the Group, to strive to maintain a net debt that does not exceed 3 times EBITA. The Board continually reviews the financial position of the Company, and the actual level of net debt is assessed against anticipated future profitability and cash flow, investment and expansion plans, acquisition opportunities as well as the development of interest rates and credit markets. Excess funds are returned to shareholders through dividends and share repurchases.

Proposed dividend per share

The Board of Directors proposes to the Annual General Meeting an increased dividend, amounting to 1.86 SEK per share (1.50), proposed to be paid in two installments of 0.93 SEK per share in May 2022 and 0.93 SEK per share in November 2022. The proposed dividend is in line with Swedish Match’s ambition to continually grow dividend per share with a payout ratio normally within 40-60 percent of earnings per share, subject to adjustment for larger one-time items. The proposed dividend represents an increase of 24 percent from the prior year’s dividend, and equals a payout ratio of 49 percent (47) of the adjusted earnings per share for the year. The proposed dividend amounts to 2,848 MSEK based on the 1.531 billion shares outstanding at the end of the year. Dividend for 2020, paid in 2021, amounted to 2,369 MSEK.

Shareholder distributions and the share

The Annual General Meeting on April 13, 2021 renewed the mandate to repurchase up to 10 percent of the shares of the Company. In addition, a decision was made to cancel 42 million shares held in treasury, with a simultaneous bonus issue, without issuing new shares, of an amount equivalent to the amount represented by the cancelled shares of 10 MSEK. The total number of outstanding shares of the Company, including treasury shares, after the cancellations, is 1.580 billion shares.

In May 2021, the number of shares and votes in Swedish Match AB (publ) increased as a result of the share split (ratio 10:1) that was resolved by Swedish Match AB´s Annual General Meeting on April 13, 2021, through which each existing share was divided into ten shares. The record date for the share split was May 10, 2021. Following the share split , the total number of shares in the company amounts to 1,580,000,000 shares (previously 158,000,000 shares). All references to shares and earnings per share in this document have been restated to reflect this split.

During the year 52.8 million shares were repurchased for 3,802 MSEK at an average price of 71.96 SEK. As at December 31, 2021 Swedish Match held 48.8 million shares in its treasury, corresponding to 3.09 percent of the total number of shares. The number of shares outstanding, net as per December 31, 2021, amounted to 1.531 billion.

Number of shares held in treasury and cumulative repurchases of own shares included in retained earnings are detailed below:

	Number of shares (thousands)	Cumulative effect on equity (MSEK)
	2021	2020
Balance at beginning of year	37,929	67,217
Repurchase of own shares during the year	52,836	48,212
Allocated to retained earnings by cancellation of treasury shares	–42,000	–77,500
Bonus issue	–	–
Balance at end of year	48,765	37,929

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Since the buyback program started in June 2000 the total number of shares repurchased amounts to 2,655 million and the total number of shares cancelled amounts to 2,459 million shares. The total number of shares sold as a result of option holders exercising options amounts to 146 million shares. Total shares bought back since the buyback program started have been repurchased at an average price of 15.95 SEK. For information regarding number of registered shares in the Parent Company and outstanding shares quota value, see Note 12 Equity to the Parent Company financial statements.

Changes in reserves of cumulative other comprehensive income and non-controlling interest

	Hedge reserve	Translation reserve	Non-controlling interest
2020
Balance at beginning of year	–66	995	1
Profit for the year relating to non-controlling interest	–	–	–1
Translation differences related to foreign operations for the year	–	–1,120	0
Effective portion of changes in fair value cash flow hedges	–51	–	–
Income tax relating to components of other comprehensive income 1)	11	–	–
Balance at end of year	–107	–125	1

1) For further details on tax components relating to the various other comprehensive income items, see Note 9 Income tax.

	Hedge reserve	Translation reserve	Non-controlling interest
2021
Balance at beginning of year	–107	–125	1
Profit for the year relating to non-controlling interest	–	–	–1
Translation differences related to foreign operations for the year	–	740	0
Translation differences included in profit and loss	–	0	–
Effective portion of changes in fair value cash flow hedges	82	–	–
Income tax relating to components of other comprehensive income 1)	–17	–	–
Balance at end of year	–42	615	–1

1) For further details on tax components relating to the various other comprehensive income items, see Note 9 Income tax.

Hedge reserve

The hedge reserve includes the accumulated effective portion of changes in fair value of cashflow hedges attributable to interest rate hedges measured at FVOCI.# NOTE 21 Continued

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Translation reserve

The translation reserve includes all exchange rate differences that arise in translation of the financial reports of foreign operations that have prepared their financial statements in a different currency from that which is used to present the consolidated financial reports. The Parent Company and the Group present their reports in Swedish krona (SEK).

22 Interest bearing liabilities

The Group’s interest bearing liabilities consist of bond loans and lease liabilities. The maturity structure of the Group’s non-current interest- bearing liabilities is as follows:

Year	2021	2020
2022	1,467
2023	2,316	2,224
2024	3,104	3,026
2025	3,122	2,539
2026	2,031	1,053
2027 and later	3,932	3,412
Total	14,504	13,722

The Group’s current interest-bearing liabilities at December 31 comprised the following items:

Current interest-bearing liabilities	2021	2020
Current portion of non-current loans	989	1,849
Current lease liabilities	96	77
Bank overdraft facilities utilized	1	0
Total	1,086	1,927

See further information on interest-bearing liabilities in Note 27 Financial instruments and financial risks.

23 Post-employment benefits

The Group has defined benefit pension plans in a number of subsidiaries, through which the employees are entitled to post-employment benefits based on their pensionable income and the number of service years. Obligations related to post-employment employee benefits as of December 31 are reported in the balance sheet under the following balance sheet items:

Post-employment defined benefits	2021	2020
Defined benefit plans, net liabilities	296	461
Post-employment medical benefits, net liabilities	1,137	1,032
Other long term employee benefits, net liabilities	12	10
Provision for pensions and similar obligations	1,445	1,503
Defined benefit plans, net assets	–140	–92
Included in other non-current receivables	–140	–92
Net post-employment liability	1,305	1,411

The net defined pension benefit liability decreased during the year, as a result of net positive actuarial remeasurements, mainly due to higher discount rates and higher return on plan assets. In addition, the Group’s net pension benefit obligation was affected by negative currency translation effects.

Overview of the Group’s post-employment defined benefit plans

Post-employment defined benefit plans in the US represents the majority of the Group’s total defined benefit obligation. In the US, Swedish Match provides two qualifying pension plans, a post retirement medical plan, a supplemental pension plan covering certain executives, and a long term disability plan. The qualifying pension plans are funded, where benefit payments are made from a trustee-administered fund. The other plans are generally unfunded, where Swedish Match pays benefits as they come due, although the Group did establish two Voluntary Employee Beneficiary Association (VEBA) trusts for certain of its obligations under the US post retirement medical plan in 2017. The largest qualified pension plan covers non-collectively bargained US employees and was closed for new entrants beginning in 2008. The plan is a final average pay pension plan, which provides benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on members’ length of service and their salary in the final years pre retirement. The second qualifying pension plan covers collectively bargained US employees and is open for new entrants. The plan is a dollars times service NOTE 21 Continued

pension plan, which provides benefits to members in the form of a guaranteed level of pension payable for life. The level of benefits provided depends on members’ length of service and dollar multipliers specified by the plan. Normal retirement age for the US qualifying pensions is 65 years and beneficiaries do not receive inflationary increases. Plan assets are held in trusts and there are pension plan fiduciaries as required under US pension law. The fiduciaries, jointly with Swedish Match, are responsible for the governance of the plans. Plan assets are invested in accordance with the plans’ Statement of Investment Guidelines. Investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level of assets. The asset allocation strategy is to gradually move toward a higher fixed income allocation, following an interest rate matching strategy specifically referred to as a Liability Responsive Asset Allocation. As the funded status improves, the allocation to liability-oriented long duration bonds, or hedging assets, will increase, with a corresponding decrease to return-seeking assets, including equities, real estate, and hedge funds. The US post-retirement medical plan offers heavily subsidized health care coverage for employees and their beneficiaries after retirement. For noncollectively bargained employees, the plan was closed for new entrants beginning in 2008. The plan is still open for collectively bargained new entrants. In addition to retiree medical benefits, retiree life insurance benefits are also provided under the plan. Actuarial valuations are completed annually for the US plans, and historically contributions have been made to satisfy minimum funding requirements and any additional discretionary amounts to avoid benefit restrictions, and to maintain a funded ratio of at least 80 percent under USpension law.

In the UK, Swedish Match provides a funded pension plan for former employees of Swedish Match UK Limited, providing benefits based on final pay. Approximately 70 percent of the liabilities relate to retired members already in receipt of pensions, and their dependents, with the remaining part of the balance relating to members with deferred pensions. There are no active members accruing further benefits, and no new members are able tojoin. The plan is set up as a separate legal entity, and a separate trustee company, Swedish Match UK Pension Trustee Limited, responsible for its governance. One third of the directors of the trustee company are nominated by the membership and two thirds are nominated by the employer. The strategic asset allocation is determined from time to time by the directors of the trustee company, after consulting with Swedish Match, based on professional advice and having regard to the level of risk. In 2011, the trustee undertook a significant exercise to reduce risk by purchasing a bulk annuity contract covering all of the liabilities for pensions in payment at that time. The trustee is currently following a largely growth based strategy for the remaining assets but is actively searching for opportunities to de-risk further as and when the funding position allows.

The other pension plans, representing a minority part of the Group’s total pension plans, are final salary pension plans that provide benefits to members in the form of a guaranteed level of pension payable for life, or in a lump-sum at the date for retirement. The majority of benefit payments are from trustee administered funds. Also, there are a number of unfunded plans where the Group meets the benefit payment obligation as it falls due. Plan assets held in trusts are governed by local regulations and practices in each country, as is the nature of relationship between Swedish Match and the trustees (or equivalent) and their composition. Responsibility for governance of the plans, including investment decisions and contribution schedules, lies jointly with Swedish Match and the board of trustees. The board of trustees is composed of representatives of Swedish Match and plan participants in accordance with the plans’ regulations. Actuarial valuations are completed annually for all material post-employment benefit plans.

The table below specifies the net liability for defined benefit post-employment obligations:

	Defined benefit pension plans	Post-employment medical benefits
	2021	2020
Present value of funded obligations	3,750	3,600
Fair value of plan assets	–3,857	–3,425
Surplus(-)/Deficit(+), net	–107	175
Present value of unfunded obligations	259	194
Assets ceiling	4
Net liability(+) in the balance sheet	156	369

Amounts in the balance sheet
Liabilities	296	461
Assets	–140	–92
Net liability(+) in the balance sheet	156	369

Actuarial assumptions

Provisions for the Group’s post-employment defined benefit plans are reported based on actuarial valuations. The valuations are calculated based on actuarial assumptions for determining the discounted net present value of the obligations. Significant actuarial assumptions used are discount rate, future salary growth rate, future pension growth rate, inflation, future mortality expectancy and medical cost trend rate, as applicable. The discount rate is set per country with reference to market yield on high quality corporate bonds of appropriate duration or government bonds for countries where a deep market of high quality corporate bonds is not available. For the US defined benefit plans Swedish Match determined the obligation effective discount rate based on the single equivalent rate such as the present value of the plan’s obligation cash flows using the single rate equals the present value of those cash flows using the corresponding spot rate along the yield curve. The effective rates for interest on the defined benefit obligation and service cost are the single equivalent rates that result in the same value when applied to the defined benefit obligation and service cost, respectively.# NOTE 23 Continued

For the larger US post-employment defined benefit plans the same process is applied to the plan’s service cost cash flows to determine the effective discount rate associated with the service cost. For the other plans Swedish Match applies a single weighted average discount rate based on the full eligible population to measure the obligations and pension expense. Assumptions regarding future mortality expectancy are based on advice in accordance with published statistics and experience in each country. The interest income on plan assets is based on the discount rate and is a component of the return on plan assets. Changes in assumptions can give rise to remeasurement differences, i.e. actuarial gains and losses, in the valuation of the Group’s defined benefit obligations and the outcome from the performance of plan assets. Actuarial gains and losses are recognized to the full amount as they occur in accordance with the actuarial valuation and reported in other comprehensive income for all plans except for the US L-T Disability plan where actuarial gains and losses are recognized directly in profit and loss, which constituted an immaterial amount as per December 31, 2021. The full recognition of actuarial gains and losses implies that the Group’s net pension liability in the balance sheet includes all cumulative actuarial gains and losses.

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NOTE 23 Continued

Significant risks associated with the Group’s post- employment defined benefit plans

Changes in market yields on corporate and government bonds would impact the plan liabilities. A decrease in market yields will decrease the discount rate assumption which increases plan liabilities for accounting purposes. However, for funded plans, this will be partially offset by an increase in the value of the trusts’ bond holdings. As Swedish Match moves along the liabilitydriven investment glide path, this offset will increase and risk will be further mitigated. Some pension plan trusts hold equities, whose growth is expected to outpace liabilities over the long term while providing volatility and risk in the short term. Poor equity performance will decrease funded status and will increase both accounting expense and required funding. As discussed above, over time, Swedish Match intends to reduce the level of equity investment risk by investing more in fixed income assets to better match the liabilities per the liability driven investment glide path set forth in the Statement of Investment Guidelines. The plans provide benefits for the life of participants (and often also their spouses). As such, increases in life expectancy will result in an increase in the plans’ liabilities. Other risks to which the plans are exposed include the risk that price inflation will increase, which will result in higher pension payments being due. The post-retirement medical liabilities in the US reflect assumptions of increases in future US health care costs (health care trend). If actual cost increases outpace these assumptions, plan liabilities will increase.

Significant actuarial assumptions at the balance sheet date (expressed as weighted average):

| Actuarial assumptions | Group Defined benefit pension plans | \multicolumn{2}{c|}{Post-employment medical benefits} |
| :----------------------------------- | :---------------------------------- | :------------------------------------------------- |
| | 2021 | 2020 | 2021 | 2020 |
| Discount rate, % | 2.6 | 2.2 | 2.7 | 2.4 |
| Price inflation rate, % | 2.5 | 2.4 | 2.5 | 2.5 |
| Future salary increases, % | 3.4 | 3.3 | 3.2 | 3.2 |
| Future pension increases, % | 3.3 | 2.7 | – | – |
| Medical cost trend rate, % | – | – | 5.6 | 5.9 |

Sensitivity analysis of significant assumptions

Changes in the discount rate may have a significant effect on the Group defined benefit obligation. An increase in the discount rate of 0.5 percent would decrease the defined benefit obligation with 342 MSEK and a decrease of 0.5 percent in the discount rate would increase the defined benefit obligation with 383 MSEK. The effect from the sensitivity analysis is based on a change in the discount rate assumption while holding all other assumptions constant. Changes in other actuarial assumptions are calculated not to have a material effect on the Group defined benefit obligation. A change in the future salary increases or the inflation rate of 0.5 percent is estimated to have an effect on the defined benefit obligation of less than 1.0 and about 2.5% respectively, holding other assumptions constant.

Change in the defined benefit obligations and plan assets

The movements in the defined benefit obligation over the year were as follows:

| Defined benefit obligations | Group Defined benefit pension plans | \multicolumn{2}{c|}{Post-employment medical benefits} |
| :--------------------------------- | :---------------------------------- | :------------------------------------------------- |
| | 2021 | 2020 | 2021 | 2020 |
| Balance at beginning of year | 3,794 | 3,931 | 1,103 | 1,167 |
| Service cost | 79 | 75 | 33 | 25 |
| Interest expense on obligation | 71 | 100 | 22 | 32 |
| Settlement payments from plan asset | –59 | – | – | – |
| Settlement payments from employer | – | – | –9 | – |
| Contributions by plan participants | – | – | 4 | 4 |
| Benefits paid | –171| –164| –36 | –39 |
| Taxes paid | –1 | –1 | – | – |
| Settlement gain | –4 | 0 | – | – |
| Changes in financial assumptions | –138| 391 | –83 | 113 |
| Changes in demographic assumptions | 7 | –5 | 5 | –10 |
| Experience assumptions | 55 | –45 | 23 | –38 |
| Translation differences | 376 | –479| 113 | –151|
| Balance at end of year | 4,009| 3,794| 1,183| 1,103|

Profile of plan members of the defined benefit obligation

| Defined benefit pension plans | \multicolumn{2}{c|}{Group Defined benefit pension plans} | \multicolumn{2}{c|}{Post-employment medical benefits} |
| :--------------------------------- | :----------------------------------------------------- | :------------------------------------------------- |
| | 2021 | 2020 | 2021 | 2020 |
| Active employees | 1,473| 1,340| 657 | 572 |
| Deferred members | 450 | 449 | – | – |
| Members in retirement | 2,086| 2,005| 526 | 530 |
| Balance at end of year | 4,009| 3,794| 1,183| 1,103|

Weighted average duration of defined benefit obligation: 14 years, 14 years, 15 years, 16 years

The movements in the fair value of plan assets of the year were as follows:

| Plan assets | Group Defined benefit pension plans | \multicolumn{2}{c|}{Post-employment medical benefits} |
| :------------------------------- | :---------------------------------- | :------------------------------------------------- |
| | 2021 | 2020 | 2021 | 2020 |
| Fair value at beginning of year | 3,425| 3,644| 71 | 102 |
| Interest income on plan assets | 59 | 88 | 1 | 2 |
| Administrative expense | –11 | –10 | 0 | 0 |
| Settlement payments from plan asset| –59 | – | – | – |
| Settlement payments from employer| – | – | –9 | – |
| Employer contributions | 35 | 25 | 1 | 8 |
| Employee contributions | – | – | 4 | 4 |
| Benefits paid | –171| –164| –36 | –39 |
| Taxes paid | –1 | –1 | – | – |
| Return on plan assets, excluding interest income| 241 | 269 | 0 | 5 |
| Translation differences | 338 | –417| 6 | –10 |
| Fair value at end of year | 3,857| 3,425| 46 | 71 |

The actual return on plan assets was positive and amounted to 301 MSEK (364).

Plan assets at December 31 are comprised as follows:

Plan assets	2021	2020
Equity securities 1)	1,503	1,276
Debt instruments	1,326	1,303
Real estate	119	98
Other 2)	955	819
Total	3,903	3,496

1) Equity securities consist of quoted securites in all material respect. The Group’s plan assets does not hold any own shares.
2) A large part pertains to the UK pension scheme annuity insurance policies.

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Income and expenses relating to post-employment benefit plans recognized in the income statement

The amounts reported in the income statement consist of the following:

| Post-employment defined benefits income and expenses | Group Defined benefit pension plans | \multicolumn{2}{c|}{Post-employment medical benefits} |
| :------------------------------------------------- | :---------------------------------- | :------------------------------------------------- |
| | 2021 | 2020 | 2021 | 2020 |
| Service costs | 79 | 75 | 33 | 25 |
| Effect of settlements | –4 | 0 | – | – |
| Interest expenses on obligation | 71 | 100 | 22 | 32 |
| Interest income on plan assets | –59 | –88 | –1 | –2 |
| Administrative expenses | 11 | 10 | 0 | 0 |
| Net expense reported in the income statement | 98| 97| 54| 55|

The net expense for defined benefit plans are reported under the following headings in the income statement:

| Post-employment defined benefits income and expenses | Group Defined benefit pension plans | \multicolumn{2}{c|}{Post-employment medical benefits} |
| :------------------------------------------------- | :---------------------------------- | :------------------------------------------------- |
| | 2021 | 2020 | 2021 | 2020 |
| Cost of goods sold | 38 | 27 | 21 | 13 |
| Administrative expenses | 17 | 31 | 7 | 6 |
| Selling expenses | 31 | 27 | 6 | 6 |
| Other income/expenses | – | 1 | – | – |
| Interest income | –59 | –88 | –1 | –2 |
| Interest expenses | 71 | 100 | 22 | 32 |
| Net expense reported in the income statement | 98| 97| 54| 55|

Income and expenses relating to post-employment benefit plans recognized in other comprehensive income

The amounts reported in other comprehensive income consist of the following:

| Post-employment defined benefits income and expenses | Group Defined benefit pension plans | \multicolumn{2}{c|}{Post-employment medical benefits} |
| :------------------------------------------------- | :---------------------------------- | :------------------------------------------------- |
| | 2021 | 2020 | 2021 | 2020 |
| Actuarial gains and losses on obligations, incl. payroll taxes| –76 | 341 | –56 | 65 |
| Return on plan assets, excluding interest income | –241| –269| 0 | –5 |
| Change in assets ceiling | 4 | – | – | – |
| Net income (–)/expense(+) reported in other comprehensive income statement| –313| 71| –56| 61|

Post-employment employee benefits per country

Defined benefit pension plans and post-employment medical benefits as at December 31 per significant country are comprised as follows:

2021

	Present value of obligation	Fair value of plan assets	Assets ceiling	Net liability/asset in balance sheet
US	4,252	2,922	–	1,330
UK	770	774	–4	–
Rest of the world	182	207	–	–25
Total	5,204	3,903	–4	1,305

2020

	Present value of obligation	Fair value of plan assets	Net liability/asset in balance sheet
US	3,937	2,554	1,383
UK	738	707	32
Rest of the world	231	235	–4
Total	4,906	3,496	1,411

NOTE 23 Continued

Significant actuarial assumptions as at December 31 per significant country (expressed as weighted average):

| Actuarial assumptions | \multicolumn{4}{c|}{US} | \multicolumn{2}{c|}{UK} | \multicolumn{2}{c|}{Rest of the world} |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| | Defined benefit pension plans| Post-employment medical benefits| Defined benefit pension plans| Defined benefit pension plans|
| | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 | 2021 | 2020 |
| Discount rate, % | 2.7 | 2.4 | 2.7 | 2.4 | 1.8 | 1.4 | 5.0 | 3.5 |
| Price inflation rate, % | 2.2 | 2.2 | 2.5 | 2.5 | 3.6 | 3.2 | 3.0 | 2.2 |
| Future salary increases, % | 3.2 | 3.2 | 3.2 | 3.2 | – | – | 7.8 | 5.2 |
| Future pension increases, % | – | – | – | – | 3.4 | 3.1 | 1.5 | 0.9 |
| Medical cost trend | | | | | | | | |# Swedish Match 2021 108

24 Provisions

Non-current and current provisions at December 31 comprised the following:

Non-current provisions	2021	2020
Restructuring	3	7
Deferred compensation	459	434
Other operating provisions	4	3
Total non-current provisions	466	443

Current provisions	2021	2020
Other operating provisions	535	381
Total current provisions	535	381
Total non-current and current provisions	1,001	823

Movements in provisions during the year were as follows:

Provisions	Restructuring provisions	Deferred compensation	Other operating provisions	Total
Carrying value at beginning of year	7	434	383	823
Provisions made during the year	6	99	956	1,061
Provisions used during the year	–7	–89	–831	–927
Provisions reversed during the year and changes in estimates	–	–2	–10	–12
Reclassifications	–3	–19	7	–15
Translation differences, etc.	–	36	34	70
Carrying value at end of year	3	459	539	1,001

25 Other liabilities

Other non-current liabilities at December 31 comprised the following:

Other non-current liabilities	2021	2020
Non-current liabilities – derivatives 1)	128	213
Non-interest bearing non-current liabilities 2)	38	43
Other non-current financial liabilities 3	3	3
Total	169	258

1) Non current liabilities for derivaties consisted of negative currency effects amounting to 106 MSEK (163) and negative fair value effects amounting to 22 MSEK (50).
2) Non-interest bearing non-current liabilities mainly referred to additional obligations related to acquisition of patent rights.

Other current liabilities at December 31 comprised the following:

Other current liabilities	2021	2020
Tobacco taxes	1,136	1,161
VAT liabilities	426	434
Current financial liabilities, derivatives	6	258
Other	34	23
Total	1,603	1,875

26 Accrued expenses and deferred income

Accrued expenses and deferred income at December 31 comprised the following:

Accrued expenses and deferred income	2021	2020
Accrued wage/salary-related expenses	382	326
Accrued vacation pay	95	95
Accrued social security charges	88	84
Accrued interest	170	168
Other	326	344
Total	1,063	1,018

Restructuring

The provisions are generally expected to be settled within one year, but could for certain portions be expected to be settled within a period of up to three years.

Deferred compensation

The deferred compensation provision refers to the long term portion of the long term incentive plan for key management personnel, which will be settled within three years. Certain employees may elect to defer a portion of their normal salary and/or bonus awards until a later date, and may elect to defer compensation up until the date of retirement. From retirement, payments may be spread over a period not to exceed 15 years. The deferrals are invested and secured by corporate owned life insurance policies. The deferred amount develops each year by the investment return. Accordingly, the present value of the deferred amount is estimated to equal the initially deferred amount plus accumulated return. For more information on incentive programs and variable salaries see Note 5 Personnel. For further information about provisions for pensions see Note 23 Post-employment benefits.

Other operating provisions

Provisions of operating character, and not related to restructuring or deferred compensation, are reported as operating provisions. Other operating provisions mainly refer to provisions for sales discounts, expected product returns and outstanding redemptions of coupons. While provisions related to sales discounts, sales refund and coupons are expected to be realized within the year, they are replaced within the year, and as such the provisions are classified as current.

27 Financial instruments and financial risks

Operations

As a result of its international operations, Swedish Match is exposed to financial risks. The term “financial risks” refers to fluctuations in Swedish Match’s cash flow caused by changes in foreign exchange rates and interest rates, and to risks associated with refinancing and credit. To manage its financial risks, Swedish Match has a finance policy in place established by the Board of Directors. The Group’s finance policy comprises a framework of guidelines and principles governing the management of financial risks and finance operations in general. The central functions consist of Financial Services and Treasury, which are responsible for the Group’s borrowing including securing financing needs, cash management including cash pools and handling the liquidity surplus, as well as currency and interest rate management. Treasury serves as an internal bank for the Group’s financial transactions. The Group’s financial risk management is centralized to capitalize on economies of scale and synergy effects, and to minimize operational risks.

Financial instruments

Swedish Match uses various types of financial instruments to hedge the Group’s financial exposure arising in business operations and as a result of the Group’s financing and asset and debt management activities. To reduce Swedish Match’s financial exposure, derivative instruments, such as currency forwards, currency swaps, interest rate swaps, and cross currency interest rate swaps are used. A table showing all the derivatives that affected the Group’s balance sheet and income statement is provided below.

Outstanding derivatives	2021		2020
	Nominal	Assets	Liabilities	Nominal
Currency derivatives	4,671	71	6	4,044
Interest-rate and currency derivatives*	10,493	745	173	9,991
Total	15,164	816	179	14,035

In cash flow hedges
There are no conditions in these transactions that can cause any significant differences in the hedging relation between these derivatives and their underlying liabilities.

Currency risks

Exchange rate fluctuations affect Group earnings and shareholders’ equity in various ways:

Earnings – when sales revenues and production costs are denominated in different currencies (transaction exposure).
Earnings – when the earnings of foreign subsidiaries are translated to SEK (translation exposure).
Earnings – if loans and deposits are made in other currencies than the unit’s functional currency (translation exposure).
Shareholders’ equity – when the net assets of foreign subsidiaries are translated to SEK (translation exposure).

The consolidated income statement includes exchange rate gain of 7 MSEK (loss of 13) in operating profit and loss of 5 MSEK (loss of 8) in net finance cost.

Transaction exposure

A large part of the Group´s inflow and outflow in foreign currencies are matched, which effectively limits the Group’s transaction exposure. Transaction exposure arises when certain of the Group’s production units in Europe make purchases of raw tobacco in USD, and through the European operations’ exports of lighters and matches in USD. The largest exposure of the Group is in NOK due to the sales of products in Norway which is produced in Sweden. The anticipated commercial net currency flow in the same currencies (transaction exposure) is divided as following in MSEK:

Transaction exposure	NOK	USD	EUR	PHP	CHF	Other	Total
	1,434	505	261	112	42	47	2,401
Percentage	60%	21%	11%	5%	2%	2%

As Swedish Match’s transaction exposures are limited, few hedging transactions are executed. The hedging transactions are, if any, based on risk exposures, current market conditions and other strategic considerations. On December 31, 2021, no transaction exposure for 2022 has been hedged.# NOTE 27 Continued

A general rise of 10 percent in the value of the SEK against all of the Group’s transaction currencies is estimated to change consolidated earnings before tax by the following in MSEK:

	NOK	USD	EUR	Other	Total
	143	51	–26	–12	156

Translation exposure

The most significant effect of currency movements on consolidated earnings arises from the translation of subsidiaries’ earnings. Earnings in Group companies are translated at average exchange rates. Effects mainly pertain to USD, EUR, BRL and DKK. The single most important currency is the USD. When the net assets of foreign subsidiaries are translated to SEK, translation differences arise that are recognized directly in equity. The exposures of net investment are as following in MSEK:

	USD	EUR	DKK	BRL	Other	Total
Translation exposure	2,002	218	241	158	115	2,734
Percentage	73%	8%	9%	6%	4%

The Group does not, as a general rule, hedge the net investments in foreign subsidiaries. If the SEK strengthens by 10 percent against all the currencies in which Swedish Match has foreign net assets, the shareholders’ equity would be affected by the following amounts in MSEK, based on the exposure at December 31, 2021:

	USD	EUR	DKK	BRL	Other	Total
	200	22	–24	–16	–11	171

Interest-rate risk

The Swedish Match Group’s sources of financing mainly comprise of shareholders’ equity, cash flow from current operations, and borrowing. Interest-bearing loans and pension liabilities expose the Group to interest-rate risk. Changes in interest rates have a direct impact on Swedish Match’s net interest expense. Swedish Match policy is that the average interest maturity should be less than 5 years, but the aim is to have as long duration as possible, while still considering the maximum of 5 years. The speed with which a permanent change of interest rate impacts net interest expense depends on the interest maturity periods of the loans. The Group´s objective for interest rate fixing is to achieve an even and foreseeable cost of interest. Cross currency interest rate swaps are used mainly to convert our borrowing in foreign currencies into SEK and fixed interest rates. The average interest cost for outstanding bonds (including derivative instruments) on December 31, 2021 was 2.1 percent (2.1). The average interest maturity period for Group loans was 3.5 years (3.7 years), taking into account cross currency interest rate swaps. The interest maturity structure on December 31, 2021 was as follows:

Year	Loans Fixed	Loans Variable	Loans and effects from derivatives Fixed	Loans and effects from derivatives Variable
2022	987		987
2023	1,784	450	1,984	250
2024	3,065		3,065
2025	3,088		3,088
2026	1,998		1,998
2027–	3,811		3,811
Total	14,734	450	14,934	250

The Group is exposed to interest rate risk in the transition to new benchmark interest rates, due to the Group´s borrowing in floating interest rates. The Group currently has two loans in scope of the IFRS 9 amendments due to the interest rate benchmark reform with floating rate 3 month IBOR. Of the variable rate loans linked to IBOR in the table above, one is not in a hedging relationship, and has a nominal amount of 250 MSEK with interest payments of 3 month STIBOR. The other loan has a nominal amount of 200 MSEK with interest payments of 3 month STIBOR, which is hedged in a cross currency interest rate swap receiving 3 month STIBOR and paying fixed terms. The terms of the hedged items match those of the corresponding hedging instruments. None of the Group’s current STIBOR linked contracts include adequate and robust fall back provisions for a cessation of the referenced benchmark interest rate. Different working groups in the industry are working on fall back language for different instruments and different IBOR´s, which Swedish Match is monitoring closely and will implement when appropriate. At December 31, 2021, a general rise of 1 percent (100bp) in short term interest rates of debt with variable interest rates and cash surplus was estimated to increase consolidated earnings before tax by approximately 8 MSEK (18) on an annual basis. The net interest-bearing debt (including net pension obligations and lease liabilities) at the same date amounted to 14,035 MSEK (13,523). If interest rates were to rise with 1 percent (100bp) the total effect on equity due to cash flow hedges would have a positive impact on the amount by 2 MSEK (4).

Refinancing risk and liquidity

Refinancing risk is defined as the risk that funds become scarce and thus more expensive than expected, and liquidity risk is defined as not being able to make regular payments as a consequence of inadequate liquidity or difficulty in raising external loans. Swedish Match applies a centralized approach to the Group’s financing, whereby as much external borrowing as possible is conducted centrally. Subsidiary borrowing can, however, take place in countries where regulations and taxes make central financing impossible or uneconomical. Swedish Match tries to limit its refinancing risk by having a good distribution and length on its gross borrowing, and not being dependent on individual sources of financing. Swedish Match has a syndicated bank credit facility of committed 1,500 MSEK, which matures in December 2026. This was unutilized at year-end and contained no financial covenants. It is defined as a reserve facility. At year-end 2021, available cash funds and committed credit facilities amounted to 3,621 MSEK. Of this amount, confirmed credit lines amounted to 1,500 MSEK and cash and cash equivalents making up the remaining 2,121 MSEK. All cash and cash equivalents are available for use, none of this is pledged or similar. Most of Swedish Match’s financing consists of a global medium-term note program (MTN) with a limit amount of 2,000 MEUR. The program is an uncommitted borrowing program and the availability could be limited by the Group’s creditworthiness and prevailing market conditions. In case of market stress, if this program cannot be efficiently used, the syndicated bank credit facility of 1,500 MSEK will be utilized if necessary. At December 31, 2021, a total of 15,179 MSEK of the global medium-term note program was outstanding. The average maturity of the Group’s bond borrowing at December 31, 2021 was 3.5 years. Swedish Match’s undiscounted cash flows regarding sources of loans and lease liabilities, including interest payments, negative derivatives (derivatives with positive market values are excluded), accrued interest, trade payables and their maturity profiles are distributed as follows:

Year	Other financial liabilities incl. interest	Negative derivatives	Trade payables	Total value	Total booked value
2022	1,317	33	464	1,814	1,599
2023	2,526	34		2,560	2,354
2024	3,273	31		3,304	3,140
2025	3,240	33		3,273	3,157
2026	2,133	30		2,163	2,064
2027–	4,035	136		4,171	3,947
Total	16,524	297	464	17,285	16,261

Under the global MTN program, Swedish Match has issued bonds in SEK, EUR, USD and CHF. Borrowing in EUR, USD and CHF is hedged into SEK by cross currency interest rate swaps. Liquidity within Swedish Match is handled centrally through local cash pools. Group companies are required to deposit liquid funds in cash pool accounts or, if these are not available, with the Group’s treasury unit. Exceptions are only allowed when regulations prohibit cash pools or internal deposits.

Cash flow and fair value hedges

Cash flow hedges

The table below shows the yearly change of the fair value of the hedging instruments, from opening balance, recognized in other comprehensive income and the amounts that are reclassified in profit and loss during the year, previously recognized in other comprehensive income. There was no ineffectiveness in cash flow hedge accounting during 2021.

2021

	Opening balance fair value Jan 1	Change in fair value used for calculating hedge ineffectiveness	Balance in cash flow hedge reserve for continuing hedges	Change in the fair value of hedging instrument recognized in OCI	Amounts reported in the income statement during the year	Closing balance fair value Dec 31
Hedging instruments, derivatives	–135	135	–135	373	–292	–53
Total	–135	135	–135	373	–292	–53

2020

	Opening balance fair value Jan 1	Change in fair value used for calculating hedge ineffectiveness	Balance in cash flow hedge reserve for continuing hedges	Change in the fair value of hedging instrument recognized in OCI	Amounts reported in the income statement during the year	Closing balance fair value Dec 31
Hedging instruments, derivatives	–84	84	–84	–507	456	–135
Total	–84	84	–84	–507	456	–135

Maturity profile over interest payments taking part in a cash-flow hedge:

	2022	2023	2024	2025	2026	2027–
Fixed rate interest on payments	–235	–222	–189	–130	–72	–87

Fair value hedges

At year end there were no fair value hedges outstanding.

Liquidity risks and credit risks

To limit liquidity and credit risks, investments and transactions in derivative instruments may be made only in instruments with high liquidity and with counterparties having high credit ratings. In addition to bank accounts, Swedish Match invests surplus funds in banks and institutions. The credit risk of financial counterparties is monitored daily. Management has further assessed that there is no change in the underlying risk affecting the classification of financial instruments reported in the balance sheet.At December 31, 2021, the average interest maturity for the Group’s current investments was less than 1 month. The Group’s finance policy regulates the maximum credit exposure to various counterparties. The aim is that counterparties to Swedish Match in financial transactions should have a credit rating of at least category A from Standard & Poor’s or equivalent from Moody’s. To reduce the credit risk in receivables from banks arising via derivative instruments, Swedish Match has entered into netting agreements, known as ISDA Master Agreements, with all of its counterparties. These agreements grant rights to net market valuations on assets and liabilities if the counterpart is in an event of default, as with suspended payments. The following table shows the netted exposures per December 31, 2021. No collateral has been received or pledged. The majority of the derivatives are related to the Group´s central funding.

Financial instruments under master netting agreements
| | 2021 | | 2020 | |
| :--- | :--- | :--- | :--- | :--- |
| | Gross amount for financial instruments | Amounts of financial instruments not netted in the balance sheet, but subject to netting agreement | Net | Gross amount for financial instruments | Amounts of financial instruments not netted in the balance sheet, but subject to netting agreement | Net |
| Derivatives – Assets | 816 | –160 | 656 | 461 | –178 | 283 |
| Derivatives – Liabilities | 179 | –160 | 19 | 517 | –178 | 339 |

At December 31, 2021, credit exposure in derivative instruments amounted to 656 MSEK, and credit exposure in cash and deposits at banks amounted to 1,063 MSEK. Swedish Match reduces the risk of its customers failing to fulfill their undertakings with the result that payment is not received for accounts receivable as they are divided among many different customers. At the reporting date, there was no significant concentration of credit risk in the Group’s accounts receivable. The total amount of the Group’s trade receivables was 1,843 MSEK (1,577). For more information see Note 18 Trade receivables.

Credit ratings
At December 31, 2021, Swedish Match had the following credit ratings from Standard & Poor’s and Moody’s Investor Service:

Standard & Poor’s	Moody’s
Long term rating: BBB	Baa2
Outlook: Stable	Stable

Carrying value and fair value
Swedish Match applies IFRS 9 to classify and measure financial instruments IFRS 13 is applied for financial instruments measured at fair value on the balance sheet which implies using a fair value hierarchy that reflects the significance of input used according to the following levels:

Level 1 - Quoted prices (unadjusted) in active markets.
Level 2 - Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly. The input data consists mainly of the compounded interest rates from interest rate swaps, basis swaps and conversion rates for variable interest rates to create relevant Cross Currency Interest Rate Swap (CCIRS) rates. The created interest rates are used to calculate the market value by discounting the external outstanding CCIRS flows including the actual market valuation of involved currencies.
Level 3 – Inputs that are not based on observable market data.

The following table shows carrying value (including accrued interest) and fair value for each category of financial instruments, including their levels in the fair value hierarchy, at December 31, 2021. Items measured at fair value through profit and loss (FVTPL) consist of derivatives, for which hedge accounting is not applied. Derivatives attributable to cash flow hedges are measured at fair value via other comprehensive income (FVOCI) in level 2 of the fair value hierarchy. In assessing the fair values of these derivatives, the Group uses a variety of methods and makes assumptions based on market conditions at each reporting date. Quoted market prices or dealer quotes for identical or similar instruments are used. Items not valued at fair value are measured at amortized cost. Trade receivables are measured at their transaction price. All items, except loans and borrowings, have a short duration and are considered non- interest bearing, and therefore, the total carrying value of the financial instruments corresponds to the estimated fair value. The carrying amount for loans and borrowings differ from their fair value as a consequence of changes in the market interest rates, determined by using current official market quotations for our outstanding bonds or similar instruments and discounting future cash flows. The values presented are indicative and may not necessarily be realized.

Carrying value and fair value
The following table show carrying value and fair value for financial instruments per December 31, 2021.

	2021
	Financial instruments measured at FVTPL	Financial assets measured at amortized cost	Financial liabilities measured at amortized cost	Cash flow hedges measured at FVOCI	Other receivables and liabilities	Total carrying value
Trade receivables	–	1,843	–	–	–	1,843
Other non-current financial receivables	–	36	–	700	601	1,337
Other current assets and financial receivables	71	92	–	43	271	476
Prepaid expenses and accrued income 1)	–	–	–	2	153	155
Cash and cash equivalents	–	2,121	–	–	–	2,121
Total assets	71	4,092	–	745	1,025	5,932
Loans and borrowings	–	–	15,187	–	–	15,187
Other non-current financial liabilities	–	–	307	128	41	476
Other current liabilities	6	–	102	–	1,590	1,699
Accrued expenses and deferred income 1)	–	–	125	45	892	1,063
Trade payables	–	–	464	–	–	464
Total liabilities	6	–	16,185	173	2,523	18,889
1) Accrued interest income on cash flow hedges is reported in the balance sheet as Prepaid expenses and accrued income and accrued interest expense on cash flow hedges is reported as Accrued expenses and deferred income.

Fair value measurement by level

	Level 1	Level 2	Level 3	Total
Derivative financial assets	–	816	–	816
Derivative financial liabilities	–	179	–	179

The following table show carrying value and fair value for financial instruments per December 31, 2020.

	2020
	Financial instruments measured at FVTPL	Financial assets measured at amortized cost	Financial liabilities measured at amortized cost	Cash flow hedges measured at FVOCI	Other receivables and liabilities	Total carrying value
Trade receivables	–	1,577	–	–	–	1,577
Other non-current financial receivables	–	3	–	459	473	935
Other current assets and financial receivables	1	69	–	–	246	315
Prepaid expenses and accrued income 1)	–	–	–	1	115	117
Cash and cash equivalents	–	3,411	–	–	–	3,411
Total assets	1	5,060	–	460	834	6,355
Loans and borrowings	–	–	15,364	–	–	15,364
Other non-current financial liabilities	–	–	208	213	45	466
Other current liabilities	258	–	77	–	1,617	1,952
Accrued expenses and deferred income 1)	–	–	122	46	850	1,018
Trade payables	–	–	409	–	–	409
Total liabilities	258	–	16,180	259	2,512	19,209
1) Accrued interest income on cash flow hedges is reported in the balance sheet as Prepaid expenses and accrued income and accrued interest expense on cash flow hedges is reported as Accrued expenses and deferred income.

Fair value measurement by level

	Level 1	Level 2	Level 3	Total
Derivative financial assets	–	461	–	461
Derivative financial liabilities	–	517	–	517

28 Pledged assets
Pledged assets at December 31 comprised the following:

	2021	2020
Pledged assets for debt to credit institutions and other commitments
Floating charges	–	3
Endowment insurances	160	132
Other	5	2
Total	165	137

29 Commitments and contingent liabilities and assets
Contingent liabilities
Guarantees on behalf of subsidiaries referred to undertakings on behalf of the companies over and above the amounts utilized and recognized as liabilities by the companies. Other guarantees and contingent liabilities referred to contractual commitments with tobacco growers for future purchases of leaf tobacco, guarantees made to government authorities for Group companies fulfillment of undertakings in connection with imports and payment of tobacco taxes.

	2021	2020
Contingent liabilities
Guarantees on behalf of subsidiaries	303	291
Other guarantees and contingent liabilities	252	185
Total	556	476

Legal disputes
The Group is involved in a number of legal proceedings. Although the outcomes of these proceedings cannot be predicted with any certainty, and accordingly, no guarantees can be made, management is of the opinion that obligations attributable to these disputes, if any, should not have any significant impact on the results of operations or the financial position of Swedish Match.

Contingent assets
As per December 31, 2021, the Group had no contingent assets.

CFO comment Auditor’s report Content Five year summary Financial overview Quarterly data Proposed distribution of earnings Definitions Consolidated statements Parent Company statements The Group Sustainability Shareholder information Financial reports Corporate GovernanceOur business Swedish Match 2021 113 30 Group companies
Swedish Match subsidiaries are owned to 100 percent by Swedish Match Group, with exception of one Swedish subsidiary of which Swedish Match holds the shares to 95 percent as well as an insignificant non-controlling interest in a foreign subsidiary.

Subsidiary’s domicile, country	Ownership share, %	Subsidiary holdings 1)	2021	2020
Swedish Match da Amazonia S.A.	Brazil	100
Swedish Match do Brazil S.A.

Reconciliation of liabilities arising from financing activities

Non-cash changes	Dec 31, 2020	Acquisitions	Cash flows	Changes in lease liabilities	Adj. current portion from non-current	Foreign exchange movement	Fair value changes	Dec 31, 2021
Long-term borrowings	13,514	1	1,393	–	–	–945	234	14,197
Short-term borrowings	1,850	1	–1,848	–	945	42	–	990
Lease liabilities	285	–	–89	189	–	18	–	403
Net assets held to hedge long-term borrowings	–248	–	–12	–	–	–279	–82	–621
Total liabilities from financing activities	15,401	2	–556	189	15	–82	14,968

32 Related parties

The Group’s related parties include associated companies and key management personnel with significant influence over the Group. Key management personnel with significant influence over the Group are Swedish Match Board of Directors and members of the Group Management Team. Related parties transactions are conducted at an arms-length basis. For information about the Group’s transactions with associated companies, see Note 15 Investments in associated companies. For information about remuneration to the Board of Directors and Group Management Team, see Note 5 Personnel. Besides this, and disregarding intergroup transactions that are eliminated in the consolidated financial statements of the Group, no other significant related parties transactions have been conducted during the year.

33 Information about the Parent Company

Swedish Match AB (publ), Corporate Identity Number: 556015-0756, is a company domiciled in Stockholm and registered in Sweden. The Parent Company’s shares are listed on Nasdaq Stockholm. The address of the head office is Sveavägen 44, postal address: SE-118 85 Stockholm, Sweden. The consolidated financial statements for 2021 include the Parent Company and its subsidiaries, jointly referred to as “the Group”. The Group also comprises the Group’s interest in associated companies.

34 Subsequent events

On September 14, 2021, Swedish Match announced its intention to separate its cigar business via a spin-off to shareholders and a subsequent listing on a US national securities exchange. The separation was initially expected to be completed in the second half of 2022, at the earliest. While the Board of Swedish Match still has the strategic intent to separate the cigar business, and views this as a move that would further enhance the prospects for Swedish Match’s US smokefree business, as well as for its US cigar business, the Board decided on March 14, 2022 to suspend the preparations for the contemplated spin-off until further notice. The Board decision was prompted by information received from US Food and Drug Administration (FDA) that substantial equivalence (SE) designations had been denied for SE applications corresponding to about 3 percent of Swedish Match’s 2021 cigar volume. It cannot be ruled out that additional SE applications for the cigar assortment will be denied in the first instance as FDA continues to work through remaining applications. Swedish Match plans to appeal the non-SE designations by the FDA by requesting a supervisory review and Swedish Match remains confident that it will be given the opportunity to provide the FDA with sufficient data in order to demonstrate that the cigars in question are substantially equivalent to their predicate products insofar that the changes that have taken place do not raise questions of public health.

31 Supplementary information to cash flow statement

Interest paid and interest received

	2021	2020
Interest received	34	49
Interest paid	–317	–281
Total	–283	–232

Interest payments and interest receipts are reflected in cash flow from operations.

Adjustments for non cash items

	2021	2020
Result sale of fixed assets	–31	–16
Net change in defined benefit plans	121	121
Change in accrued interest	–2	44
Change in market value revaluations and unrealized exchange rate differences	52	–318
Realized exchange rate differences moved to financing	–111	304
Other	–72	–62
Total	–42	72

Investments in associated companies and other companies

No investments have been made in associated companies during 2021 nor 2020.

Investment of subsidiaries

Acquisition of subsidiaries in 2021 includes consideration paid relating to the acquisition of Fire-Up International B.V. and in 2020 refers to the remaining consideration related to the acquisition of Gotlandssnus in 2018.

Divestment of subsidiaries

No divestments of subsidiaries have been made during 2021 nor 2020.

Parent Company income statement

MSEK	Note	2021	2020
Sales	1	32	27
Administrative expenses	2, 7, 25	–252	–279
Other operating income and expenses	3	–9	4
Operating loss		–229	–248
Result from participation in Group companies	4	3,137	3,898
Interest income and similar items	4	0	–
Interest expenses and similar items	4	–359	–345
Profit after financial items		2,549	3,305
Appropriations	5	2,356	2,042
Profit before income tax		4,905	5,347
Income tax expense	6	–363	–314
Profit for the year		4,543	5,033

Parent Company statement of comprehensive income

MSEK	Note	2021	2020
Profit for the year		4,543	5,033
Other comprehensive income that may be reclassified to the income statement
Effective portion of changes in fair value of cash flow hedges	24	82	–51
Income tax relating to components of other comprehensive income	6	–17	11
Other comprehensive income, net of tax for the year		65	–41
Total comprehensive income for the year		4,608	4,992

Parent Company balance sheet

MSEK	Note	December 31, 2021	December 31, 2020
Assets
Tangible assets	7	0	0
Non-current financial assets
Participations in Group companies	8	30,857	31,156
Other non-current receivables	9	700	459
Deferred income tax assets	6	51	61
Total non-current financial assets		31,608	31,675
Total non-current assets		31,608	31,676
Current assets
Receivables on Group companies		3,153	2,416
Income tax receivables	6	29	73
Other receivables	10	79	30
Prepaid expenses and accrued income	11	33	36
Total current assets		3,293	2,555
Cash and other current deposits	24	109	250
TOTAL ASSETS		35,010	34,481
Equity
Restricted equity
Share capital		390	390
Unrestricted equity
Reserve for fair value		–42	–107
Retained earnings		5,390	6,528
Profit for the year		4,543	5,033
TOTAL EQUITY		10,280	11,843
Untaxed reserves	13	2,965	2,675
Other provisions	14	69	93
Total provisions		69	93
Non-current liabilities
Bond loans	15	14,197	13,514
Other liabilities	16	128	213
Total non-current liabilities		14,325	13,726
Current liabilities
Bond loans		987	1,849
Trade payables	10	9	–
Liabilities to Group companies		6,138	4,064
Other liabilities		2	2
Accrued expenses and deferred income	17	233	218
Total current liabilities		7,371	6,143
TOTAL EQUITY AND LIABILITIES		35,010	34,481

Restricted equity	Unrestricted equity
2020	Note	Share capital	Reserve for fair value 1)	Retained earnings	Profit for the year
Equity at beginning of year	12	390	–66	10,162	1,485
Profit for the year		–	–	–	5,033
Other comprehensive income, net of tax for the year		–	–41	–	–
Total comprehensive income for the year		–	–41	–	5,033
Allocation of profit		–	–	1,485	–1,485
Dividend		–	–	–	–2,020
Repurchase of own shares		–	–	–	–3,099
Cancellation of shares		–18	–	18	–
Bonus issue		18	–	–18	–
Equity at end of year		390	–107	6,528	5,033
1) Reserve for fair value consists of a hedge reserve.

Restricted equity	Unrestricted equity
2021	Note	Share capital	Reserve for fair value 1)	Retained earnings	Profit for the year
Equity at beginning of year	12	390	–107	6,528	5,033
Profit for the year		–	–	–	4,543
Other comprehensive income, net of tax for the year		–	65	–	–
Total comprehensive income for the year		–	65	–	4,543
Allocation of profit		–	–	5,033	–5,033
Dividend		–	–	–	–2,369
Repurchase of own shares		–	–	–	–3,802
Cancellation of shares		–10	–	10	–
Bonus issue		10	–	–10	–
Equity at end of year		390	–42	5,390	4,543
1) Reserve for fair value consists of a hedge reserve.

Cash flow statement for the Parent Company

MSEK

Note	2021	2020
Operating activities
Profit after financial items	2,549	3,305
Adjustments for non-cash items and other	272	324
Income tax paid	–325	–558
Subtotal	2,496	3,071
Increase (–)/Decrease (+) in operating receivables	–5	–8
Increase (+)/Decrease (–) in operating liabilities	15	4
Net cash generated from operating activities	2,506	3,067
Investing activities
Disposal of tangible assets	–	0
Shareholders contribution	–	–292
Net cash used in investing activities	–	–292
Financing activities
Proceeds from non-current borrowings	1,813	3,702
Repayment of borrowings	–2,270	–1,300
Repurchase of own shares	–3,802	–3,099
Dividend	–2,369	–2,020
Changes in financial receivables/liabilities
Group companies	3,992	–192
Other	–12	–16
Net cash used in financing activities	–2,648	–2,925
Net decrease in cash and cash equivalents	–142	–150
Cash and cash equivalents at the beginning of the year	250	400
Cash and cash equivalents at end of year	109	250

Notes for the Parent Company

All amounts referred to in the notes of the Parent Company financial statements are in millions of Swedish kronor (MSEK) unless stated otherwise. The amounts within brackets refer to the preceding year, 2020. For remuneration and other benefits to Parent Company President and other members of Group management, see Note 5 Personnel for the Group on page 94.

1 Sales

Sales refer to services provided to Group companies.

2 Audit fees

Expenses for auditor´s fees are included in the administrative expenses as set out in the table below. The audit firm for 2021 and 2020 was Deloitte.

Audit fees	2021	2020
Audit services	2	2
Other services	1	1
Total	3	2

Other operating income and expenses

Other operating income and expenses mainly relates to foreign exchange gains and losses as well as a write-down of an operating receivable.

4 Financial items

Result from participation in Group companies	2021	2020
Dividends received	3,436	4,185
Write-downs of participations in subsidiaries	–299	–287
Total	3,137	3,898

The impairment loss during 2021 was recognized due to reduced equity in a subsidiary following a dividend.

Interest income and similar items	2021	2020
Net foreign exchange gains	0	–
Total	0	–

Interest expenses and similar items	2021	2020
Interest expenses relating to Group companies	–40	–32
Interest expenses relating to other financial liabilities measured at amortized cost	–224	–220
Interest expenses relating to financial instruments measured at fair value in hedging relationships	–90	–85
Other financial expenses	–4	–7
Net foreign exchange losses	–	–2
Total	–359	–345

5 Appropriations

Appropriations	2021	2020
Difference between reported depreciation and according to plan
Equipment, tools and fixtures	0	0
Tax allocation reserve
Appropriation for the year	–550	–475
Reversal of appropriation	260	125
Group contributions
Group contributions received	3,140	2,406
Group contributions granted	–494	–14
Total	2,356	2,042

6 Income tax

Income tax reported in income statement	2021	2020
Current tax expense for the period	–370	–319
Deferred tax due to temporary differences	7	5
Total	–363	–314

Income tax reported in other comprehensive income	2021	2020
Effective portion of changes in fair value of cash flow hedges	–17	11
Total	–17	11

	2021		2020
Reconciliation of effective tax rate (%)	MSEK	(%)	MSEK
Income before tax	4,905		5,347
Swedish statutory tax rate	–1,011	20.6	–1,144
Non-taxable dividends	708	–14.4	896
Tax exempt income	7	–0.1	–
Non-deductible expenses	–65	1.3	–65
Effect of enacted change of tax rate	1	0.0	1
Standard interest income, tax allocation reserve	–3	0.1	–2
Reported effective tax	–363	7.4	–314

Sweden reduced the corporate tax rate from 21.4 percent to 20.6 percent as of January 1, 2021. The change to the current tax receivables/liabilities during the period is explained below:

Current income tax receivables/liabilities	2021	2020
Carrying value at beginning of year	–73	166
Current tax expense	370	319
Paid tax	–325	–558
Carrying value at end of year	–29	–73

Net tax receivables amounted to 29 MSEK and consisted of taxes to be refunded on income for the year.

The tax effects of deductible temporary differences that resulted in deferred tax assets at December 31 are summarized below:

Deferred income tax assets	2021	2020
Hedge reserve	11	28
Provision	40	33
Carrying value at end of year	51	61

The following reconciles the deferred tax assets at the beginning of the year to the end of the year.

	2021
	Balance Jan. 1	Charges to profit for the year	Charges to other comprehensive income	Balance Dec. 31
Hedge reserve	28	–	–17	11
Provision	33	7	–	40
Total	61	7	–17	51

	2020
	Balance Jan. 1	Charges to profit for the year	Charges to other comprehensive income	Balance Dec. 31
Hedge reserve	17	–	11	28
Provision	28	5	–	33
Total	46	5	11	61

7 Tangible assets

Equipment, tools and fixtures	2021	2020
Cost at beginning of year	0	4
Intercompany sales	–	–4
Disposals	–	0
Cost at end of year	0	0
Accumulated depreciation at beginning of year	0	–4
Depreciation for the year	0	0
Intercompany sales	–	4
Disposals	–	0
Accumulated depreciation at end of year	0	0
Net carrying value at end of year	0	0

Depreciation charges on tangible assets are included in administrative expenses in the income statement and amounted to 0 MSEK (0).

8 Group companies

	2021
	Balance Jan. 1	Shareholder’s contribution	Liquidation	Impairments	Balance Dec. 31
Costs of acquisitions	55,264	–	–	–	55,264
Impairments	–24,108	–	–	–299	–24,407
Carrying value	31,156	–	–	–299	30,857

	2020
	Balance Jan. 1	Shareholder’s contribution	Liquidation	Impairments	Balance Dec. 31
Costs of acquisitions	57,516	292	–2,544	–	55,264
Impairments	–26,365	–	2,544	–287	–24,108
Carrying value	31,151	292	–	–287	31,156

Shares in subsidiaries, directly owned

Subsidiary	Corp. Reg.no.	Domicile	Number of shares	Ownership, % 2021	Ownership, % 2020
Svenskt Snus AB	556367-1261	Stockholm, Sweden	1,000	100	100
Swedish Match North Europe AB	556571-6924	Stockholm, Sweden	1,000	100	100
SMD Logistics AB	556571-7039	Stockholm, Sweden	1,000	100	100
Svenska Tändsticksbolaget Försäljningsaktiebolag	556012-2730	Stockholm, Sweden	34,403,000	100	100
Swedish Match Holding AB	556367-1253	Stockholm, Sweden	2,000	100	100
Swedish Match Industries AB	556005-0253	Tidaholm, Sweden	30,853	100	100
Swedish Match US AB	556013-4412	Stockholm, Sweden	96,000	100	100
Svenska Tändsticks AB	556105-2506	Stockholm, Sweden	1,000	100	100
Svenska Tobaks AB	556680-3028	Stockholm, Sweden	100,000	100	100
Swedish Match USA, Inc	62-1257378	USA	1,000	100	100
Swedish Match Cigars Holding Inc	81-0733029	USA	1,000	100	100
Swedish Match Dominicana S.A.S.	55338STI	Dominican Republic	9,249,907	99.99	99.99
Swedish Match Distribution A/S	930567647	Norway	500	100	100
SA Allumettiére Causemille 1)		Algeria	10,000	100	100
The Burma Match Co Ltd 2)		Myanmar	300,000	100	100
Vulcan Trading Co. Ltd 3)		Myanmar	4,000	100	100

	2021	2020
Carrying value at end of year	30,857	31,156
1) Nationalized in 1963.
2) Nationalized in 1968.
3) Nationalized in 1969.

In addition, shares are owned in Union Allumettiére Marocaine S.A. Ownership is purely formal. Group companies hold all rights and obligations.# NOTE 6 Continued

9 Other non-current receivables

Other non-current receivables consisted of derivatives including exchange rate differences and fair values of cross currency and interest rate swaps of 700 MSEK (459).

10 Other receivables

	2021	2020
Derivatives	43	–
Tax account	34	26
VAT receivables	2	3
Other current receivables	0	0
Carrying value at end of year	79	30

11 Prepaid expenses and accrued income

	2021	2020
Accrued interest income	2	1
Prepaid bank charge	6	2
Prepaid rent	5	4
Other prepaid expenses	19	28
Carrying value at end of year	33	36

Other prepaid expenses mainly referred to receivables for pension contributions.

12 Equity

For information regarding the change in Parent Company equity see Statement of changes in Parent Company equity.

Number of registered shares in the Parent Company are detailed below:

	2021	2020
Issued at beginning of year	1,622,000,000	1,699,500,000
Cancellation	–42,000,000	–77,500,000
Total shares outstanding at end of year	1,580,000,000	1,622,000,000
Of which held by Swedish Match AB	–48,764,810	–37,929,170
Total shares outstanding, net of shares held by Swedish Match AB	1,531,235,190	1,584,070,830
Total outstanding shares quota value	0.2465	0.2402

Repurchase of own shares

Repurchase of own shares encompass the acquisition cost for treasury shares owned by the Parent Company. At December 31, 2021, the Parent Company’s holding of treasury shares amounted to 48,764,810 shares (37,929,170).

Number of shares held in treasury and cumulative repurchases of own shares included in retained earnings are detailed below:

	Number of shares (thousands)	Cumulative effect on equity (MSEK)
	2021	2020
Balance at beginning of year	37,929	67,217
Repurchase of own shares during the year	52,836	48,212
Allocated to retained earnings by cancellation of shares	–42,000	–77,500
Bonus issue	–	–
Balance at end of year	48,765	37,929

The Annual General Meeting on April 13, 2021 renewed the mandate to repurchase up to 10 percent of the shares of the Company. In addition, a decision was made to cancel 42.0 million shares held in treasury, with a simultaneous bonus issue, without issuing new shares, of an amount equivalent to the amount represented by the cancelled shares or 10 MSEK. Furthermore the shareholders approved the proposal that the reduction will be allocated to a fund for use pursuant to a resolution adopted by the Annual General Meeting.

During the year it was resolved to split each of the Company’s shares into ten shares (ratio 10:1). All references to shares and earnings per share in this document have been restated to reflect this split. During the year 52,836 million shares were repurchased for 3,802 MSEK at an average price of 71.96 SEK. Total shares bought back since the buyback program started have been repurchased at an average price of 15.95 SEK. As per December 31, 2021 Swedish Match held 48.8 million shares in its treasury, corresponding to 3.09 percent of the total number of shares. The number of shares outstanding, net, as per December 31, 2021, amounted to 1,531.2 million.

Dividend

After the balance sheet date, the Board proposed a dividend for 2021 of 1.86 SEK per share (1.50). The proposed dividend amounts to 2,848 MSEK based on the 1.531 billion shares outstanding at the end of 2021. The ordinary dividend for 2020, paid in 2021, amounted to 2,369 MSEK corresponding to 1.50 SEK per share.

Reserve for fair value

Reserve for fair value consists of a hedge reserve, the change during the year is explained below:

	2021	2020
Carrying value at beginning of year	–107	–66
Effective portion of changes in fair value of cash flow hedges	82	–51
Income tax	–17	11
Carrying value at end of year	–42	–107

The hedge reserve includes the accumulated effective portion of changes in fair value of cash flow hedges attributable to interest rate hedges.

13 Untaxed reserves

	2021	2020
Excess depreciation: Tangible assets
Carrying value at beginning of year	0	0
Excess depreciation for the year	0	0
Total	0	0
Tax allocation reserve:
Carrying value at beginning of year	2,675	2,325
Reversal of appropriation	–260	–125
Appropriation current year	550	475
Total	2,965	2,675
Carrying value at end of year	2,965	2,675

14 Other provisions

Non-current and current provisions at December 31 comprised the following:

	2021	2020
Pension obligations	39	64
Deferred compensation	31	29
Carrying value at end of year	69	93
Whereof total non-current	63	88
Whereof total current	6	5

Movements in provisions during the year were as follows:

2021

	Pension obligations	Deferred compensation	Total
Carrying value at beginning of year	64	29	93
Provisions made during the year	2	16	18
Provisions used during the year	0	–	0
Provisions reversed during the year and changes in estimates	–27	0	–27
Provisions reclassified to accrued expenses	–	–15	–15
Carrying value at end of year	39	31	69

2020

	Pension obligations	Deferred compensation	Total
Carrying value at beginning of year	70	28	98
Provisions made during the year	3	17	20
Provisions used during the year	0	–	0
Provisions reversed during the year and changes in estimates	–10	0	–10
Provisions reclassified to accrued expenses	–	–15	–15
Carrying value at end of year	64	29	93

Pension obligations

Pension obligations included provisions recognized for special income taxes on pension obligations secured in endowment insurances and provisions for post-employment defined benefit obligations. At year-end 2020 the major part of the pension provisions referred to a pension trust for former employees in the divested Swedish Match UK Ltd. Due to changes in assumptions, the updated valuation at year-end 2021 reflected a decreased pension obligation and no provision was recognized. Payments relating to the pension obligations later than five years after balance sheet date are calculated to an amount of 38 MSEK.

Deferred compensation

Deferred compensation referred to long term incentive plans for certain managers which will be settled within three years.

15 Bond loans

Bond loans issued under the GMTN program that are due for payment later than five years after the balance sheet date amounted to 3,811 MSEK (4,411). Bond loans issued in foreign currency and floating interest rate are hedged by cross currency interest rate swaps to convert borrowing into SEK and fixed interest rates.

Year	MSEK
2027	3,067
2028	445
2029	300
Total	3,811

16 Other liabilities

Other liabilities mainly consisted of the change in fair value of the derivatives, due to increase or decrease of interest rates and currencies. Derivative liabilities with maturity over five years after the balance sheet date amounted to 127 MSEK (210).

17 Accrued expenses and deferred income

	2021	2020
Accrued interest expenses	170	168
Accrued incentives including social security charges	40	39
Accrued social security charges	6	5
Accrued vacation pay	3	3
Personnel expenses	0	0
Other accrued expenses	13	2
Deferred income	–	0
Carrying value at end of year	233	218

Carrying value and fair value

The following table shows carrying value and fair value for financial instruments per December 31, 2021.

	Financial assets measured at amortized cost	Financial liabilities measured at amortized cost	Cash flow hedges measured at FVOCI	Other receivables and liabilities	Total carrying value	Estimated fair value
Other non-current financial receivables	–	–	700	–	700	700
Receivables on Group companies	3,153	–	–	–	3,153	3,153
Other current receivables	–	–	43	65	108	108
Prepaid expenses and accrued income 1)	–	–	2	31	33	33
Cash and cash equivalents	109	–	–	–	109	109
Total assets	3,262	–	745	96	4,103	4,103
Loans and borrowings	–	15,184	–	–	15,184	15,496
Other liabilities	–	–	128	2	130	130
Liabilities to Group companies (current)	–	6,138	–	–	6,138	6,138
Accrued expenses and deferred income 1)	–	125	45	63	233	233
Trade payables	–	10	–	–	10	10
Total liabilities	–	21,457	173	65	21,695	22,007

1) Accrued interest income on cash flow hedges is reported in the balance sheet as Prepaid expenses and accrued income and accrued interest expense on cash flow hedges is reported as Accrued expenses and deferred income.

Fair value measurement by level

	Level 1	Level 2	Level 3	Total
Derivative financial assets	–	745	–	745
Derivative financial liabilities	–	173	–	173

The following table shows carrying value and fair value for financial instruments per December 31, 2020.# Financial instruments

2020	Financial assets measured at amortized cost	Financial liabilities measured at amortized cost	Cash flow hedges measured at FVOCI	Other receivables and liabilities	Total carrying value	Estimated fair value
Other non-current financial receivables	–	–	459	–	459	459
Receivables on Group companies	2,416	–	–	–	2,416	2,416
Other current receivables	–	–	–	103	103	103
Prepaid expenses and accrued income 1)	–	–	1	35	36	36
Cash and cash equivalents	250	–	–	–	250	250
Total assets	2,666	–	460	138	3,264	3,264
Loans and borrowings	–	15,363	–	–	15,363	15,713
Other liabilities	–	–	213	2	215	215
Liabilities to Group companies (current)	–	4,064	–	–	4,064	4,064
Accrued expenses and deferred income 1)	–	122	46	50	218	218
Trade payables	–	9	–	–	9	9
Total liabilities	–	19,558	259	52	19,869	20,219

Fair value measurement by level

	Level 1	Level 2	Level 3	Total
Derivative financial assets	–	460	–	460
Derivative financial liabilities	–	259	–	259

18 Carrying value and fair value of financial instruments

Swedish Match applies IFRS 9 to classify and measure financial instruments. IFRS 13 is applied for financial instruments measured at fair value on the balance sheet which implies using a fair value hierarchy that reflects the significance of input used according to the following levels:

– Level 1 – Quoted prices (unadjusted) in active markets
– Level 2 – Inputs other than quoted prices that are observable, either directly or indirectly. The input data consists mainly of the compounded interest rates from interest rate swaps, basis swaps and conversions rates for variable interest rates to create relevant Cross Currency Interest Rate Swap (CCIRS) rates. The created interest rates are used to calculate the market value by discounting the external outstanding CCIRS flows including the actual market valuation of involved currencies.
– Level 3 – Inputs that are not based on observable market data

The following table shows carrying value (including accrued interest) and fair value for each category of financial instruments at December 31, 2021. Derivatives attributable to cash flow hedges are carried at fair value via other comprehensive income (FVOCI) in level 2 of the fair value hierarchy. In assessing the fair values of these derivatives, a variety of methods are used to make assumptions based on market conditions at each reporting date. Quoted market prices or dealer quotes for identical or similar instruments are used. Items not valued at fair value are measured at amortized cost. All other items, except loans and borrowings, have a short duration and are considered non-interest bearing, and therefore, the total carrying value of the financial instruments corresponds to the estimated fair value. The carrying amount for loans and borrowings differ from their fair value as a consequence of changes in the market interest rates, determined by using current official market quotations for outstanding bonds or similar instruments and discounting future cash flows. The values presented are indicative and may not necessarily be realized. For more information see Note 27 Financial instruments and financial risks for the Group on page 110.

19 Derivatives under netting agreements

To reduce the credit risk in receivables from banks arising via derivative instruments, Swedish Match has entered into netting agreements, known as ISDA Master Agreements, with all of its counterparties. These agreements grant rights to net market valuations on assets and liabilities if the counterpart is in an event of default, as with suspended payments. The following table shows the netted exposures per December 31. No collateral has been received or pledged. All the derivatives are related to Group’s central funding.

Financial instruments under master netting agreements

	2021			2020
	Gross amount for financial instruments	Amounts of financial instruments not netted in the balance sheet, but subject to netting agreement	Net	Gross amount for financial instruments	Amounts of financial instruments not netted in the balance sheet, but subject to netting agreement
Derivatives – Assets	745	–97	647	460	–134
Derivatives – Liabilities	173	–97	76	259	–134

20 Operating lease agreements

Total expense for operating lease agreements for 2021 amounted to 21 MSEK (14). Operating leasing agreements mainly refer to rental of office and storage premises. The contracts are non-cancellable during the agreed leasing period and the agreements include indexation clauses. Future annual minimum lease payments under the terms of non-cancellable operating lease agreements with initial or remaining terms of one year or more fall due as follows:

Minimum lease payments

	2021	2020
Within one year	25	19
Between 1–5 years	25	48
Later than 5 years	–	–
Total	50	67

Certain parts of the leased premises are sub-leased to a subsidiary of Swedish Match AB. Rental income for the year relating to items that are being subleased to a subsidary amounted to 17 MSEK (12).

21 Pledged assets and contingent liabilities

Pledged assets

Pledged assets referred to endowment insurance policies pledged as security for pension obligations amounting to 157 MSEK (128). In accordance with IAS 19, endowment insurance policies pledged as securities for certain defined contribution obligations have been netted against the pension obligation in other provisions.

Contingent liabilities

	2021	2020
Guarantees on behalf of subsidiaries	303	291
Total	303	291

22 Distribution of earnings

Proposed distribution of earnings

Dividend (1.86 SEK based on 1,531,235,190 shares) SEK 2,848,097,453
Retained earnings to be carried forward SEK 7,042,718,802
Total amount SEK 9,890,816,255

23 Related parties

Summary of transactions with related parties

Subsidiaries	2021	2020
Revenues
Dividends	3,436	4,185
Group contribution	3,140	2,406
Sale of services	32	27
Rental income	17	12
Expenses
Group contribution	–494	–14
Interest expenses	–40	–32
Purchase of goods/services	–29	–44
Receivables	3,153	2,416
Liabilities	6,138	4,064
Contingent liabilities	303	291

Transactions with related parties are determined at an arms-length basis. For remunerations to key management personnel, see Note 5 Personnel for the Group. In the normal course of business, the Parent company conducts various transactions with subsidiaries. For information about directly owned subsidiaries, see Note 8 Group companies.

Reconciliation of liabilities arising from financing activities

	2020	Cash flows	Adj. current portion from non-current	Foreign exchange movement	Fair value changes	2021
Long-term borrowings	13,514	1,393	–944	234	–	14,197
Short-term borrowings	1,849	–1,849	944	42	–	987
Net assets held to hedge long-term borrowings	–248	–12	–	–279	–82	–621
Total liabilities from financing activities	15,115	–468	–	–3	–82	14,562

25 Post-employment benefits

Swedish Match AB has post-employment benefit obligations that are insured by Swedish pension trust arrangements. Swedish Match AB also has assumed the role as sponsor and Principal Employer for a pension trust for former employees in the divested Swedish Match UK Ltd. As per December 31, 2021 the Swedish pension trust arrangement and the pension plan for employees in UK show a net surplus. In accordance with RFR 2 the net surplus in the pension plans was not recognized in the balance sheet. The tables below specify the pension obligations assumed by Swedish Match AB:

Defined benefit pension plans

	2021	2020
Present value of funded obligations	833	827
Fair value of separately held assets	–977	–887
Surplus, net	–144	–60
Net surplus in pension trust not recognized in balance sheet	144	92
Net pension liability recognized in the balance sheet	0	32

Specification of movements in the net liability recognized in the balance sheet attributable to pension:

Net pension liability

	2021	2020
Balance at beginning of year	32	43
Benefits paid	12	20
Contribution received from pension trust	–12	–20
Change in pension provision	–32	–11
Balance at end of year	0	32

140 MSEK (92) of the total net pension asset is covered by “Tryggandelagen”.

Specification of expenses and income attributable to pension:

Defined benefit pension plans

	2021	2020
Difference between contribution received from pension trust and benefits paid	0	0
Interest cost on obligation	–12	–16
Actual return on separately held assets	59	47
Change in pension provision	32	11
Net income for pension	80	42

Pensions covered by insurance premiums:

Costs for pension insurance premiums recognized in income statement –19 –17
Change in surplus in pension trust –48 –31
Net pension costs recognized in income statement attributable to pension 13 –6

The expenses attributable to pension are recognized in the income statement under administration costs. The actual return on separately held assets expressed in percentage is 6.7 percent (4.9 percent). Separately held assets of the pension trusts are comprised as follows:

Separately held assets

	2021	2020
Debt instruments	76	72
Equity securities	172	130
Other 1)	729	684
Total	977	887

1) Large part refers to the UK annuity policies at the insurance company Aviva.Significant actuarial assumptions at the balance sheet date

The obligations are calculated based on a weighted average discount rate of 1.8 percent (1.3). A contribution to the UK pension plan will be paid during the first quarter of 2022 in an amount of approximately 6 MSEK.

Supplementary information to cash flow statement

Interest paid and received and dividend received

	2021	2020
Dividend received	3,436	4,185
Interest paid, non-Group companies	–316	–261
Interest paid, Group companies	–40	–32
Total	3,080	3,892

Interest payments and interest receipts are reflected in cash flow from operations.

Adjustments for non cash items and other

	2021	2020
Depreciation	0	0
Write-down of subsidiaries	299	287
Change in accrued interest	5	48
Change in pension provision	–32	–11
Total	272	324

Cash and cash equivalents

	2021	2020
Cash and bank	0	0
Other current deposits 1)	108	250
Total	109	250

1) Other current deposits have been classified as cash and cash equivalents based on that they are readily convertible to known amounts of cash.

Subsequent events

No significant events has occurred after the balance sheet date.

Auditor’s report

To the general meeting of the shareholders of Swedish Match AB (publ)

corporate identity number 556015-0756

Report on the annual accounts and consolidated accounts

Opinions

We have audited the annual accounts and consolidated accounts of Swedish Match AB (publ) for the financial year 2021-01-01–2021-12-31. The annual accounts and consolidated accounts of the company are included on pages 11, 31–33, 71–72 and 75–126 in this document.

In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2021 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act.

The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2021 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act.

The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts. We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for the parent company and the group.

Our opinions in this report on the annual accounts and consolidated accounts are consistent with the content of the additional report that has been submitted to the parent company’s Board of Directors in accordance with the Audit Regulation (537/2014) Article 11.

Basis for Opinions

International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audited company or, where applicable, its parent company or its controlled companies within the EU. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Key Audit Matters

Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters.

Valuation of intangible assets

Swedish Match reports intangible assets of MSEK 2 281 as of 31 December 2021. For cash generating units (“CGUs”) which contain intangible assets, the determination of recoverable amount, being the higher of fair value less costs to sell and value in use, requires judgement on behalf of management in both identifying and valuing the relevant CGUs. Management prepared impairment assessments by CGU, as required under accounting standards, which were based on a value in use calculation. Such calculations are based on management’s judgements of variables such as sales growth, EBITDA margin, terminal growth rate of free cash flow, and discount rate. Disclosures regarding intangible assets are included in note 1 Accounting principles and note 11 Intangible assets.

Our audit procedures included, but were not limited to:

evaluated the design and implementation of relevant internal controls over the impairment assessment process including identifying indicators of impairment;
with the support of our internal valuation specialists, evaluated and challenged key assumptions in management’s valuation model, including assumptions of sales growth, EBITDA margin, terminal growth rate, and discount rate;
tested the mathematical accuracy of the valuation model used by management, and
evaluated the appropriateness of disclosures made in the financial statements.

Other information than the annual accounts and consolidated accounts

This document also contains other information than the annual accounts and consolidated accounts and is found on pages 2–10. 12–30, 34–70, 73–74, 130–135 and 149–151. The Board of Directors and the Managing Director are responsible for this other information. Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information. In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated. If we, based on the work performed concerning this information, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors and the Managing Director are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

In preparing the annual accounts and consolidated accounts, The Board of Directors and the Managing Director are responsible for the assessment of the company’s and the group’s ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Managing Director intends to liquidate the company, to cease operations, or has no realistic alternative but to do so.

Auditor’s responsibility

Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts.

A further description of our responsibilities for the audit of the annual accounts and consolidated accounts is located at the Swedish Inspectorate of Auditors website: www.revisorsinspektionen.se/ revisornsansvar. This description forms part of the auditor´s report.

Report on other legal and regulatory requirements

Opinions

In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Directors and the Managing Director of Swedish Match AB (publ) for the financial year 2021-01-01–2021-12-31 and the proposed appropriations of the company’s profit or loss.We recommend to the general meeting of shareholders that the profit to be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.

Basis for Opinions

We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company’s and the group’s type of operations, size and risks place on the size of the parent company’s and the group’s equity, consolidation requirements, liquidity and position in general. The Board of Directors is responsible for the company’s organization and the administration of the company’s affairs. This includes among other things continuous assessment of the company’s and the group’s financial situation and ensuring that the company’s organization is designed so that the accounting, management of assets and the company’s financial affairs otherwise are controlled in a reassuring manner. The Managing Director shall manage the ongoing administration according to the Board of Directors’ guidelines and instructions and among other matters take measures that are necessary to fulfill the company’s accounting in accordance with law and handle the management of assets in a reassuring manner.

Auditor’s Responsibility

Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect:
• has undertaken any action or been guilty of any omission which can give rise to liability to the company, or
• in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

Our objective concerning the audit of the proposed appropriations of the company’s profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company’s profit or loss are not in accordance with the Companies Act.

A further description of our responsibilities for the audit of the management’s administration is located at the Swedish Inspectorate of Auditors website: www.revisorsinspektionen.se/revisornsansvar. This description forms part of the auditor´s report.

The auditor’s examination of the ESEF report

Opinion

In addition to our audit of the annual accounts and consolidated accounts, we have also examined that the Board of Directors and the Managing Director have prepared the annual accounts and consolidated accounts in a format that enables uniform electronic reporting (the ESEF report) pursuant to Chapter 16, Section 4 a of the Swedish Securities Market Act (2007:528) for Swedish Match AB for the financial year 2021-01-01– 2021-12-31. Our examination and our opinion relate only to the statutory requirements.

In our opinion, the ESEF report #[checksum] has been prepared in a format that, in all material respects, enables uniform electronic reporting.

Basis for Opinion

We have performed the examination in accordance with FAR’s recommendation RevR 18 Examination of the ESEF report. Our responsibility under this recommendation is described in more detail in the Auditors’ responsibility section. We are independent of Swedish Match AB in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors and the Managing Director are responsible for the preparation of the ESEF report in accordance with the Chapter 16, Section 4 a of the Swedish Securities Market Act (2007:528), and for such internal control that the Board of Directors and the Managing Director determine is necessary to prepare the ESEF report without material misstatements, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to obtain reasonable assurance whether the ESEF report is in all material respects prepared in a format that meets the requirements of Chapter 16, Section 4(a) of the Swedish Securities Market Act (2007:528), based on the procedures performed. RevR 18 requires us to plan and execute procedures to achieve reasonable assurance that the ESEF report is prepared in a format that meets these requirements. Reasonable assurance is a high level of assurance, but it is not a guarantee that an engagement carried out according to RevR 18 and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the ESEF report.

The audit firm applies ISQC 1 Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and other Assurance and Related Services Engagements and accordingly maintains a comprehensive system of quality control, including documented policies and procedures regarding compliance with professional ethical requirements, professional standards and legal and regulatory requirements.

The examination involves obtaining evidence, through various procedures, that the ESEF report has been prepared in a format that enables uniform electronic reporting of the annual accounts and consolidated accounts. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement in the report, whether due to fraud or error. In carrying out this risk assessment, and in order to design audit procedures that are appropriate in the circumstances, the auditor considers those elements of internal control that are relevant to the preparation of the ESEF report by the Board of Directors and the Managing Director, but not for the purpose of expressing an opinion on the effectiveness of those internal controls.

The examination also includes an evaluation of the appropriateness and reasonableness of assumptions made by the Board of Directors and the Managing Director. The procedures mainly include a technical validation of the ESEF report, i.e., if the file containing the ESEF report meets the technical specification set out in the Commission’s Delegated Regulation (EU) 2019/815 and a reconciliation of the ESEF report with the audited annual accounts and consolidated accounts. Furthermore, the procedures also include an assessment of whether the ESEF report has been marked with iXBRL which enables a fair and complete machine-readable version of the consolidated statement of financial performance, financial position, changes in equity and cash flow.

Deloitte AB, was appointed auditor of Swedish Match AB by the general meeting of the shareholders on the 2021-04-13 and has been the company’s auditor since 2017-05-04.

Five year summary 2017–2021

Condensed consolidated income statement, MSEK

	2021	2020	2019	2018	2017
1) Sales	18,489	16,698	14,739	12,966	11,751
Gross profit	12,240	10,947	9,363	8,133	7,396
Larger one-time items	300	–	–367	–	373
Operating profit	8,286	6,991	5,307	4,812	4,592
Net finance cost	–345	–347	–247	–281	–240
Profit before income tax	7,941	6,644	5,060	4,531	4,353
Profit for the year	6,218	4,888	3,896	3,578	3,400
EBITDA 2)	8,601	7,580	6,222	5,227	4,600

1) Financial statements for 2017 have been restated in accordance with IFRS 15. For further information about the impact from the adoption of IFRS 15, see Note 1.
2) Excluding larger one-time items.# Financial reports

Five year summary

Condensed consolidated balance sheets, MSEK

	2021	2020	2019	2018	2017
Intangible assets	2,281	2,237	2,355	2,708	2,088
Property, plant and equipment 2)	4,556	3,633	3,255	2,941	2,558
Right-of-use assets	388	278	255	–	–
Investments in associated companies	41	42	42	24	22
Other non-current assets and operating receivables 3)	25	20	18	19	22
Other non-current financial assets and receivables	1,832	1,556	1,826	1,420	1,254
Total non-current assets	9,123	7,765	7,750	7,113	5,944
Other current financial receivables	374	219	195	226	263
Current operating assets and receivables	4,534	3,732	3,905	3,762	3,171
Cash and cash equivalents	2,121	3,411	2,370	2,886	3,998
Total current assets	7,029	7,362	6,471	6,874	7,432
Assets held for sale 4)	–	28	16	–	–
Total assets	16,152	15,155	14,237	13,987	13,376
Equity attributable to equity holders of the Parent	–6,686	–7,814	–6,324	–5,611	–4,202
Non-controlling interests	17	16	16	16	1
Total equity	–6,669	–7,798	–6,308	–5,595	–4,201
Non-current financial provisions	1,397	1,268	1,228	1,186	1,200
Non-current loans	14,197	13,514	12,130	12,282	10,277
Other non-current financial liabilities 5)	1,883	1,926	1,626	1,140	1,218
Other non-current operating liabilities	504	485	434	415	368
Total non-current liabilities	17,981	17,194	15,417	15,024	13,063
Current loans	990	1,850	1,300	1,229	1,253
Other current financial liabilities 6)	368	653	715	245	534
Other current operating liabilities	3,482	3,257	3,112	3,085	2,727
Total current liabilities	4,840	5,759	5,127	4,559	4,514
Total liabilities	22,821	22,953	20,544	19,582	17,577
Total equity and liabilities	16,152	15,155	14,237	13,987	13,376

1) Restated in accordance with IFRS 15.
2) Includes forest plantations.
3) Includes pension assets and derivatives financial instruments.
4) Assets held for sale refers to land. The fair value less costs to sell are not expected to be lower than the carrying value.
5) Includes pension obligations and derivative financial instruments.
6) Includes short term derivatives financial instruments.

Condensed consolidated cash flow, MSEK

	2021	2020	2019	2018	2017
Net cash from operating activities	6,336	5,607	5,080	3,705	3,402
Net cash used in/from investing activities	–1,156	–1,173	–815	–1,204	1,594
Net cash transferred to shareholders	–6,171	–5,119	–4,766	–5,423	–5,498
Net cash used in/from other financing activities	–440	2,000	–38	1,727	1,215
Net decrease/increase in cash and cash equivalents	–1,431	1,315	–539	–1,195	713
Cash and cash equivalents at beginning of the year	3,411	2,370	2,886	3,998	3,364
Effects of exchanges rate fluctuations on cash and cash equivalents	141	–274	23	83	–79
Cash and cash equivalents at end of year	2,121	3,411	2,370	2,886	3,998

2) Net cash from operating activities

Key data 1)

	2021	2020	2019	2018	2017
Net debt, MSEK	14,035	13,523	11,925	10,843	8,183
Investments in property, plant and equipment, MSEK	1,172	1,126	720	649	369
Operating margin from product segments, %	44.8	43.8	40.5	39.0	37.9
Operating margin 3), %	44.8	41.9	36.0	37.1	39.1
EBITA interest cover	24.3	21.4	23.4	17.5	12.6
Net debt/EBITA	1.7	1.9	2.1	2.2	1.9
Share capital, MSEK	390	390	390	390	390
Ordinary dividend per share, SEK 4)5)	1.86	1.50	1.25	1.05	0.92
Special dividend per share, SEK 5)	–	–	–	–	0.74
Earnings per share, basic and diluted, SEK
Including larger one time items	3.97	3.04	2.32	2.06	1.89
Including larger one time items and excluding income from STG 5)	3.97	3.04	2.32	2.06	1.84
Excluding larger one time items and income from STG 5)	3.82	3.22	2.54	2.06	1.64

1) All key ratios have been calculated excluding larger one–time items, unless otherwise stated.
2) Restated in accordance with IFRS 15.
3) Group operating margin including Larger one–time items
4) Board proposal.
5) In May 2021, a share split (10:1) was made. Historical share data in this report has been restated in accordance with IAS 33.

Sales by product segments, MSEK

	2021	2020	2019	2018	2017
Smokefree	12,120	10,651	8,914	7,477	6,661
Cigars	4,688	4,533	4,249	3,890	3,457
Lights	1,338	1,149	1,200	1,246	1,291
Sales from segments	18,145	16,332	14,363	12,612	11,410
Other operations	344	366	376	353	342
Sales	18,489	16,698	14,739	12,966	11,751

1) 2017 has been restated in accordance with IFRS 15.

Operating profit/loss by product segments, MSEK

	2021	2020	2019	2018	2017
Smokefree	5,998	5,142	3,997	3,317	2,798
Cigars	1,841	1,796	1,577	1,412	1,314
Lights	297	222	238	189	211
Operating profit from product segments	8,136	7,160	5,812	4,918	4,323
Other operations	–150	–169	–137	–106	–104
Sale of STG shares	–	–	–	–	197
Income from defined benefit plan amendment	–	–	–	–	69
Capital gain from sale of land	–	–	–	–	107
Settlement income	300	–	–	–	–
Impairment charge – European chewing tobacco business	–	–	–367	–	–
Operating profit	8,286	6,991	5,307	4,812	4,592

1) 2017 has been restated in accordance with IFRS 15.

Operating margin by product segments, %

	2021	2020	2019	2018	2017
Smokefree	49.5	48.3	44.8	44.4	42.0
Cigars	39.3	39.6	37.1	36.3	38.0
Lights	22.2	19.3	19.8	15.2	16.4
Operating margin from product segments	44.8	43.8	40.5	39.0	37.9

1) Restated in accordance with IFRS 15.

Quarterly data 2020–2021

Condensed consolidated income statements, MSEK

	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Sales	4,751	4,778	4,505	4,455	4,136	4,400	4,133	4,029
Gross profit	3,099	3,166	2,990	2,986	2,677	2,990	2,672	2,607
Operating profit	1,901	2,075	1,956	2,354	1,650	2,048	1,693	1,601
Net financial cost	–83	–88	–85	–89	–80	–105	–84	–78
Profit before income tax	1,818	1,987	1,871	2,265	1,570	1,943	1,609	1,523
Profit for the period	1,457	1,540	1,441	1,780	1,244	1,222	1,254	1,168
EBITDA 1)	2,070	2,227	2,107	2,197	1,796	2,193	1,841	1,749

1) Excluding larger one-time items.

Key data

	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Operating margin, %	40.0	43.4	43.4	52.8	39.9	46.5	41.0	39.7
Investments in property, plant and equipment, MSEK	313	284	298	277	379	231	324	192
Earnings per share, basic SEK 1)	0.94	0.99	0.92	1.12	0.78	0.76	0.78	0.72

1) A share split (10:1) was made in May 2021. Historical share data in this report has been restated in accordance with IAS 33.

Sales by product segments, MSEK

	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Smokefree	3,242	3,100	2,955	2,823	2,606	2,842	2,695	2,508
Cigars	1,063	1,237	1,138	1,249	1,152	1,184	1,069	1,128
Lights	357	354	321	305	288	277	275	309
Sales from product segments	4,663	4,691	4,414	4,376	4,045	4,303	4,039	3,945
Other operations	88	87	90	78	91	97	94	84
Sales	4,751	4,778	4,505	4,455	4,136	4,400	4,133	4,029

Operating profit by product segments, MSEK

	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Smokefree	1,547	1,558	1,428	1,465	1,168	1,519	1,301	1,154
Cigars	343	481	458	560	481	499	378	438
Lights	67	60	103	67	46	57	52	67
Operating profit from product segments	1,957	2,099	1,988	2,092	1,695	2,075	1,731	1,659
Other operations	–57	–24	–32	–37	–45	–28	–38	–58
Settlement income	–	–	–	300	–	–	–	–
Operating profit	1,901	2,075	1,956	2,354	1,650	2,048	1,693	1,601

Operating margin by product segments, %

	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Smokefree	47.7	50.3	48.3	51.9	44.8	53.5	48.3	46.0
Cigars	32.3	38.8	40.3	44.8	41.7	42.2	35.4	38.8
Lights	18.7	17.0	31.9	22.0	16.0	20.5	18.9	21.7
Operating margin from product segments	42.0	44.7	45.0	47.8	41.9	48.2	42.9	42.1

EBITDA by product segments, MSEK

	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Smokefree	1,668	1,663	1,532	1,561	1,269	1,617	1,401	1,252
Cigars	365	502	479	581	503	520	400	460
Lights	78	71	113	77	54	67	62	78
EBITDA from product segments	2,111	2,236	2,124	2,219	1,826	2,204	1,863	1,790

EBITDA margin by product segments, %

	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Smokefree	51.4	53.6	51.8	55.3	48.7	56.9	52.0	49.9
Cigars	34.3	40.6	42.1	46.5	43.6	43.9	37.4	40.8
Lights	21.8	20.0	35.3	25.3	18.8	24.1	22.7	25.2
EBITDA margin from product segments	45.3	47.7	48.1	50.7	45.1	51.2	46.1	45.4

Depreciation, amortization and impairments, MSEK

	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Property, plant and equipment	124	110	109	101	105	103	106	105
Right-of-use assets	26	24	23	23	23	23	23	22
Intangible assets	19	19	18	18	18	19	20	21
Total	169	152	151	142	146	145	149	148

Net finance cost, MSEK

	Q4 2021	Q3 2021	Q2 2021	Q1 2021	Q4 2020	Q3 2020	Q2 2020	Q1 2020
Interest income	12	6	7	11	5	7	8	30
Interest expense	–91	–92	–90	–93	–91	–109	–93	–87
Net interest expense	–79	–86	–84	–83	–86	–102	–85	–57
Other finance costs, net	–4	–3	–2	–6	6	–3	1	–21
Total net finance cost	–83	–88	–85	–89	–80	–105	–84	–78

Dividend pay-out ratio (%)

	2021	2020
Dividend per share (proposed after year-end)	1.86	1.50
Adjusted earnings per share from continuing operations, basic	3.82	3.22
Dividend pay-out ratio (%)	49	47
Definition/calculation
	100 x Dividend (proposed after year-end) ÷ Adjusted earnings per share from continuing operations, basic
Purpose
	Used as a measure of the percentage of net profits distributed as a dividend to the shareholders.

Dividend yield (%)

	2021	2020
Dividend per share (proposed after year-end)	1.86	1.50
Share price at year-end	72.02	63.78
Dividend yield (%)	2.58	2.35
Definition/calculation	100 x Dividend (proposed after year-end) ÷ Share price at year-end
Purpose	Used as a measure of cash return to shareholders.

Total return (%)

SEK

	2021	2020
Share price at year-end	72.02	63.78
Dividend paid	1.5	1.25
Return on reinvested dividend	0.02	0.13
Share price at preceding year-end	63.78	48.28
Total return (%)	15.3	35.0

Definition/calculation
100 × (Share price at year-end – Share price at preceding year-end) + (Dividend paid + Return on reinvested dividend) ÷ Share price at preceding year-end

Purpose
Used as a measure of the Group’s total value creation for the shareholder, including cash returns and share price appreciation/ depreciation.

P/E ratio

SEK

	2021	2020
Share price at year-end	72.02	63.78
Earnings per share from continuing operations, basic	3.97	3.04
P/E ratio	18.1	21.0

Definition/calculation
Share price at year-end ÷ Earnings per share

Purpose
Used as a measure of the estimated market value based on net profit generation.

Definitions

Swedish Match presents several financial measures not defined under IFRS with the aim of enabling effective evaluation of the Group’s financial position and performance for investors and for the Group’s management. This means that these measures are not always comparable with measures used by other companies and shall therefore be considered as a complement to measures defined according to IFRS. Swedish Match applies these alternative key ratios consistently over time. The key ratios are alternative performance measures according to ESMA guidelines unless otherwise stated.

Sales from product segments

Definition/calculation
Sales from reportable segments, which excludes Other operations

Purpose
Used as a measure of sales performance of the core commercial businesses of Swedish Match, excluding the impact of Other operations (incl. Swedish distribution function).

Operating profit/loss (EBIT) from product segments

Definition/calculation
Operating profit from reportable segments, which excludes Other operations and larger one-time items

Purpose
Used as a measure of operating performance of the core commercial businesses of Swedish Match, excluding the impact of Other operations (incl. Swedish distribution function) and items which impacts comparability between periods.

Operating margin from product segments (%)

Definition/calculation
100 × Operating profit from product segments ÷ Sales from product segments

Purpose
Used as a measure of operational profitability of the core commercial businesses of Swedish Match excluding the impact of Other operations (incl. Swedish distribution function).

Profit for the period, excluding larger one-time items

Definition/calculation
Profit for the period excluding larger one-time items

Purpose
Used as an alternative measure of profit for the period of the ongoing business which is not affected by items which impact comparability between periods.

EBIT multiple

MSEK

	2021	2020
Market capitalization	110,280	101,032
Net debt	14,035	13,523
Non-controlling interest	17	16
Operating profit	8,286	6,991
EBIT Multiple	15.0	16.4

Definition/calculation
(Market capitalization + Net debt + Non-controlling interest) ÷ Operating profit

Purpose
Used as a measure of Group enterprise value in relation to operating profit generation.

EBITA and EBITDA

MSEK

	2021	2020
Profit for the period	6,218	4,888
Income tax expense	1,723	1,756
Net finance cost	345	347
Operating profit for the period	8,286	6,991
Larger one-time items	–300	–
Amortization and impairment of intangible assets	75	77
EBITA	8,061	7,068
Depreciation and impairment of tangible and right-of-use assets	540	511
EBITDA	8,601	7,580

EBITA

Definition/calculation
Profit for the period excluding larger one-time items, net finance cost, tax, amortization and impairments of intangible assets

Purpose
Used as a measure of operating performance relative to the financial obligations of the Group.

EBITDA

Definition/calculation
Profit for the period excluding larger one-time items, net finance cost, income tax, depreciation, amortization and impairments of tangible, intangible and right-of-use assets

Purpose
Used as an alternative measure of operating performance that is not impacted by historical investments and the related accounting treatment of such investments as well as items which impact comparability between periods.

EBITDA and EBITDA margin from product segments

MSEK

	2021	2020
Operating profit for the period	8,286	6,991
Less operating loss from Other operations	150	169
Less larger one-time items	–300	–
Operating profit from product segments	8,136	7,160
Amortization, depreciation and impairment of intangible, tangible and right-of-use assets	615	588
Less amortization, depreciation and impairment of intangible, tangible and right-of-use assets for Other operations	–61	–65
EBITDA from product segments	8,690	7,684
Sales from product segments	18,145	16,332
EBITDA margin from product segments, %	47.9	47.0

EBITDA from product segments

Definition/calculation
Operating profit from product segments excluding depreciation, amortization and impairments of tangible, intangible and right of use assets.

Purpose
Used as an alternative measure of operating performance for the core commercial businesses of Swedish Match, that is not impacted by historical investments and the related accounting treatment of such investments as well as items which impact comparability between periods.

EBITDA margin from product segments (%)

Definition/calculation
100 × EBITDA from product segments ÷ Sales from product segments

Purpose
Used as an alternative measure of operating profitability for the core commercial businesses of Swedish Match.

Larger one-time items

MSEK

	2021	2020
Settlement income	300	–
Total larger one-time items in operating profit	300	–
Income tax expense on settlement income	–62	–
Tax charge including interest related to an adverse ruling in a tax case in Sweden	–286	–
Total larger one-time items in net profit	238	–286

Definition/calculation
Larger one-time items are separately disclosed non-recurring income and cost which usually refer to larger capital gains or losses on divestments, larger asset impairments and restructuring costs and other larger non-recurring income and costs recognized during the period

Purpose
Used to provide information regarding items which impact comparability between periods.

DEFINITIONS Continued
CFO comment
Auditor’s report
Content
Five year summary
Financial overview
Quarterly data
Proposed distribution of earnings
Definitions
Consolidated statements
Parent Company statements
The Group
Sustainability
Shareholder information
Financial reports
Corporate GovernanceOur business
Swedish Match 2021
134

Adjusted earnings per share

Basic and diluted

	2021	2020
Profit for the period attributable to equity holders of the Parent, MSEK	6,217	4,888
Settlement income in net profit, MSEK	–238	–
Tax charge including interest, MSEK	–286	–
Profit for the period attributable to equity holders of the Parent, excl. larger one-time items, MSEK	5,979	5,174
Weighted average number of shares outstanding, thousands 1)	1,565,397	1,608,665
Adjusted earnings per share, SEK	3.82	3.22

1) A share split (10:1) was made in May 2021. Historical share data in this report has been restated in accordance with IAS 33.

Definition/calculation
Profit for the period excluding larger one-time items net of tax ÷ Average number of shares outstanding

Purpose
Used as an alternative measure of earnings per share which is not affected by items which impact comparability between periods.

EBITA interest cover

MSEK

	2021	2020
EBITA	8,061	7,068
Interest income	36	49
Interest expense	–367	–379
EBITA interest cover	24.3	21.4

Definition/calculation
EBITA ÷ (Interest income - Interest expense)

Purpose
Used as a measure of the ability to fund interest expenses.

Net debt/EBITA

MSEK

	2021	2020
Net debt	14,035	13,523
EBITA	8,061	7,068
Net debt/EBITA	1.7	1.9

Definition/calculation
Net debt ÷ EBITA

Purpose
Used as an indication of the duration (in years) required to fund existing net financial obligations with free cash flows from the ongoing business.

Net debt

MSEK

	2021	2020
Non-current loans	14,197	13,514
Current loans	990	1,850
Components of derivatives (liabilities) 1)	112	420
Components of derivatives (assets) 2)	–851	–546
Non-current lease liabilities 3)	307	208
Current lease liabilities 4)	96	77
Net provision for pensions and similar obligations 3)	1,445	1,503
Net asset for pensions and similar receivables 5)	–140	–92
Cash and cash equivalents	–2,121	–3,411
Net debt	14,035	13,523

1) Included in Other non-current financial liabilities and Other current financial liabilities in the condensed consolidated balance sheet.
2) Included in Other non-current financial assets and receivables and Other current financial receivables in the condensed consolidated balance sheet.
3) Included in Other non-current financial liabilities in the condensed consolidated balance sheet.
4) Included in Other current financial liabilities in the condensed consolidated balance sheet.
5) Included in Other non-current financial assets and receivables in the condensed consolidated balance sheet.

Currency components of derivatives included in the net debt are recognized in the condensed consolidated balance sheet based on the total value of all components in the financial instrument, i.e. if the total value of the financial instrument is an asset, but includes a negative derivative component, that derivative component is recognized as a negative asset in the condensed consolidated balance sheet and vice versa.# Swedish Match 2021 135

Financial overview

Definitions

Definition/calculation	Purpose
Current and non-current loans, adjusted for components of derivatives (assets and liabilities) relating to these loans + net provisions for pensions and similar obligations + current and non-current lease liabilities – cash and cash equivalents and other short-term investments	Used as a measure of net financial obligations.

Market capitalization

	2021	2020
Share price at year-end, SEK	72.02	63.78
Number of shares outstanding at year-end	1,531,235,190	1,584,070,830
Market capitalization, billions SEK	110.3	101.0

Definition/calculation	Purpose
Share price at year-end × Number of shares outstanding at year-end	Used as a measure of the market value of the Group.

CFO comment

Auditor’s report

Content

Five year summary
Financial overview
Quarterly data
Proposed distribution of earnings
Definitions
Consolidated statements
Parent Company statements
The Group
Sustainability
Shareholder information
Financial reports
Corporate Governance

Our business

Swedish Match 2021 135

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Swedish Match — Annual Report (ESEF) 2021

Swedish Match 2021

Click to browse Annual report 2021

A world without cigarettes

PORTFOLIO TRANSITION

From traditional tobacco products to discrete nicotine enjoyment

Milestones in our transition

ZYN  THE #1 NICOTINE POUCH BRAND IN THE US

GOTHIATEK ® QUALITY STANDARD FOR SNUS

Swedish Match 2021 3

CONTENT

THE BOARD OF DIRECTORS REPORT

Swedish Match 2021 4

The Group

Sustainability

Shareholder information

Financial reports

Corporate Governance

Our business 5

CEO comment

2021 in brief

Financials

KEY DATA

Sustainability

KEY DATA

CEO comment

Products and brands

SMOKEFREE

CIGARS

LIGHTS

CEO comment

Vision and strategy

Core values

Introduction to BoD report

Organization

The Group

Sustainability

Shareholder information

Financial reports

Corporate Governance

Our business

Net debt

Shareholder distribution

Financial strategy

Sustainability strategy

Focus areas

How we operate

US Division

Europe Division

Lights Division

Corporate functions

OPERATING LOCATIONS

Living our core values

Passion, Ownership, Innovation, Quality

Introduction to the Board of Directors Report

Strategic priorities

CEO comment

Content

Board of Directors Report

Financial strategy, shareholder returns and financial performance

Managing risks

Content

Sales and operating profit from product segments

SUMMARY OF CONSOLIDATED INCOME STATEMENT

Effects from COVID-19

Significant events during the year

Tax audits in Sweden

Larger one-time items

Taxes

SUMMARY OF CONSOLIDATED BALANCE SHEET

SUMMARY OF CONSOLIDATED CASH FLOW STATEMENT

Earnings per share

Cash flow and financing

Swedish Match AB (publ)

Events after the reporting period

Updated plans for separation of the US cigar business

Auditor’s report

Content

Our business

Swedish Match Annual Report (ESEF) 2021