Scandinavian Tobacco Group

good day and thank you for standing by welcome to the scandinavian tobacco group third quarter 2024 results webcast at this time all participants are in the listen only mode after the speaker's presentation there'll be a question and answer session to us in the request session you will need to press star 1 1 on your telephone you will then hear an automated message advising your hand is raised to withdraw your question please press star 1 1 again If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link anytime during the conference. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Torben Sand. Please go ahead.

Thank you. Yes, and welcome to our webcast for the third quarter results 2024. My name is Seth Torben Sand, and I'm Director of Investor Relations and Group Communications and I am today joined by our CEO, Nils Frederiksen, our CFO, Marianne Breslow-Bock, and our Chief Commercial Officer, Regis Broschmar. Now, please turn to slide number three for the agenda for today's webcast. Nils will start by introducing, sorry, Nils will introduce by giving an overview of the key highlights of the third quarter as well as an update on our strategy and other key events, including the financial impacts from the acquisition of McBaron. Regis will follow and give you an update on key developments in our core markets, as well as insights to recent trends and developments in our product categories. Mayanna takes over with an overview of the financial performance in our three reporting divisions, where after she will turn the focus to key financial developments for the group, including an update on cash flow leverage and capital allocations. This will conclude the presentation with an update on our expectations for 2024. After the presentation by management, we will, as usual, conduct a Q&A session where we will be pleased to take any questions you might have. And before we start, I ask you, as always, to pay special attention to our disclaimer on forward-looking statements at the end of this presentation. Please now turn to slide five, and I'll leave your work to Niels.

Thank you, Torben, and welcome and good morning to everyone on the call. First, let me remind you that the reported results are impacted by the consolidation of McBaron, the smoking tobacco company we acquired with effect from 1st of July, and we've now updated the financial guidance for the full year to include the impacts from McBarn. Reported net sales increased by 7.1%, with organic net sales growth being slightly negative at 0.1%. The EBITDA margin decreased, as we expected, compared with the strong third quarter of last year. The EBITDA margin in the third quarter was 23.4%. For the first nine months of the year, The reported net sales growth was 4.5% and the beta margin was 22.0%. Free cash flow before acquisitions was $275 million in the third quarter and $327 million for the nine-month period. In terms of highlights for the quarter, I would like to mention that the performance of machine world cigars have improved as a result of our investments in retaining market shares. Our nicotine brand XQS continues to grow at high double-digit rates, and the distribution of third-party NGP products in the U.S. will be discontinued. Finally, the integration plan of McByron has been completed, and we have now communicated the expected financial benefits of the integration, and in September we issued a new €300 million corporate bond. Compared to our original guidance, which we repeated in August, financial performance year-to-date support these expectations, though we are likely to end in the lower end of the ranges due to the discontinuation of the third-party distribution of nicotine pouches in the U.S. and the difficult market conditions for handmade cigars in the U.S. where we continue to see weak demand. Marianne will give more details on the financial performance in a moment. I will now give you an update on the progress we're making with our strategy. Please turn to slide number six. We continue to make good progress with our strategy rolling towards 2025, and let me give you a few highlights on the recent achievements. Acquisitions are an important part of our vision to become a larger and more profitable company, and at the same time keep financial discipline to make sure we can also deliver long-term value for our shareholders. The acquisition of McFarland meets all these criteria. It improves our positions within smoking, tobacco, and nicotine pouches, and will, when fully integrated, deliver significant value to our shareholders. I will get back to McFarland and the financial implications of the transaction in a moment. In August, we talked about the importance of being ahead of the market dynamics and establishing an agile cost structure. The creation of one commercial organization with a stronger focus on our core product categories and the aim of getting closer to our consumers and customers is one example of this, and the action to implement additional adjustments to our cost structure across the group is another. We will maintain this focus going forward, but at the same time it remains important for us to make the necessary investments to support the long-term health of our company. The investments in our growth enablers are examples, just as the investments we have made in recovering our market shares in machine world cigars in Europe. It might have an impact on near-term profit margins, but we are convinced that these investments will support our vision and financial ambitions over time. Our growth enablers continue to deliver good performance with our next-generation products, our U.S. retail stores, and our international sales of handmade cigars, all delivering solid growth. Regis will talk more about these achievements in a moment. The growth-enabler share of group net sales declined to 9% in the third quarter, which is lower compared with the first half of the year. However, this decline is entirely explained by the discontinuation of distribution of third-party products in the U.S., During the third quarter, we issued a €300 million corporate bond securing our long-term financing. Marianne will give you more details about this in a second. Please turn to slide number 7. I will now turn the focus to the integration of McBaron and the expected financial impacts of the acquisition. We have completed the planning on how to integrate McBaron into Scandinavian Tobacco Group, and we now have a better understanding of the benefits the combination will create. The detailed planning process has confirmed that the investment of 535 million kroner will create good value for our shareholders. And we are convinced that the combination of our businesses will secure a strong and attractive portfolio of brands and products to the benefit of our consumers and customers. When integrated, we expect synergies in the level of 150 million kroner with full impact in 2027. The main cost synergies will be within sales and marketing, head office functions, and the combination of our manufacturing footprint. Last week, we announced that McBaron's production sites in Sutcliffe, the US, and in Svenborg, Denmark, will be closed down over the coming years. Special cash costs are expected in the level of 150 million, primarily expensed in 2025 and 2026, and we expect to have capital expenditures in the level of 125 million kroner, primarily in relation to the transfer of production to our existing sites. By 2024, we expect McFerran to add about 300 million kroner in net sales, with a slightly negative impact to the group financials, whereas those synergies and special costs would be immaterial. With this, I'll now leave the word to Regis. Please turn two slides to slide number nine.