Scandinavian Tobacco Group

Good day and thank you for standing by. Welcome to the Scandinavian Tobacco Group Q3 Results 2025 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the 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, one, and one again. Please, the advice of today's conference has been recorded. I would now like to hand the conference over to your speaker today, Torben Sand, Head of Investor Relations. Please go ahead.

Thank you, and welcome to our webcast for the third quarter and first nine months 2025 results. My name is Seth Torben Sand, and I'm leading the investor relations and external communications And I'm, as usual, joined by our CEO, Nils Frederiksen, and our CFO, Marianne Røsler-Bock. Please turn to slide number three for today's agenda. Nils will kick off the presentation by giving you a brief overview of the highlights of the quarter, followed by an update on our strategy rolling towards 2025. as well as an update on developments in our core product categories. Then, Marianne will take over and give you an update on the financial performance in our three reporting divisions, followed by an overview of key financial developments for the group, including an update on cash flow and leverage. Niels will conclude the presentation by giving you an update to our expectations for the full year 2025. After the pre-prepared presentation, we will conduct a Q&A session where we will be more than pleased to take any questions you might have. Again, before we start, I ask you to pay special attention to our disclaimer on forward-looking statements, which can be found in the end of this slide deck. I will now leave the word to our CEO, Niels Frederiksen. Please turn to slide number five.

Thank you, Torben. And welcome to the call. The results in the third quarter continue to improve compared to the previous quarters. And overall, the financial performance, including the development in the beginning of the fourth quarter, supports the expectations for the full year we communicated in August. First, the comparisons to the same quarter last year are, for the first time in more than a year, what I will call more clean comparisons. From the third quarter, it is more than one year since we acquired McBarn, and it's more than one year since the distribution of thin nicotine pouches in the U.S. was discontinued. Reported net sales were 3% lower than last year, but measured in constant currencies, organic growth was slightly positive by 0.3%. Both handmade cigars and nicotine pouches delivered growth in the quarter, whereas machine-rolled cigars and smoking tobacco declined. In a moment, I'll talk more to the drivers behind the development in each product category. The EBITDA margin was 22%, a decline compared to the same quarter last year, but an improvement versus the first and second quarter of this year. Compared with last year, the lower margin is primarily a result of changes in product and market mix and investments in our market positions in both machine world cigars and our online business. The free cash flow before acquisitions developed as expected and is on track to reach our expectation of 800 to 1 billion kroner for the full year. The return on invested capital of 8.3% remains impacted by the operational results and a high level of special costs. Please turn to slide number six. We are approaching the end of the current five-year strategy, rolling towards 2025, and in just eight days, on the 20th of November, we will launch an updated strategy where we will host a virtual capital market event. More details to be found on the INVISTA website. Now let me give a brief update on the progress we made with our existing strategy. The integration of our bond is progressing according to plan, with the U.S. business now up and running in a new structure, We've streamlined all acquired online sales channels into one single platform, pipes and cigars, and we are reducing the geographic footprint for the nicotine pouch brands, ACE and GRID. Overall, the integration is progressing well, and we are on track to deliver almost 150 million kroner in synergies from the integration and to improve the group return on invested capital when the integration is fully completed in 2027. This quarter, all our three growth enablers delivered double-digit growth. I'll talk more to each of the growth enablers when I turn to the update on our product categories in a moment. However, I would just like to mention that we, during the fourth quarter, are opening another two new cigar superstores in the U.S., bringing the total to 15 by the end of the year. Combined, the growth enablers accounted for 11% of GroupNet sales in the quarter, compared with 9% for the full year of 2024. Further, we continue to invest in the future, increasing spending on improving our market share positions in machine rolled cigars and the implementation of the ERP system SAP 4 for HANA. The ERP implementation is progressing well with inclusion of our European factories during the first half of the year and in September by the rollout to all our European sales operations. However, the rollout does create ongoing operational issues and have affected our machine-rolled cigar market share negatively in the quarter. We expect to be on top of these problems towards the end of 2025, and we are moving more resources to ensure that what we have implemented is stable and functioning as intended. Now please turn two slides to slide number eight. Let me now turn the focus to a more detailed update on the performance by product categories. And later, Marianne will talk to the commercial reporting by divisions. In the slide, we have outlined the net sales distribution by product category and by divisions to give you an overview of the structure in our announcements. Measured by product categories, nicotine pouches now constitute 5% of group net sales compared with 4% in the second quarter. Machine rolled cigars and smoking tobacco comprises slightly more than 48% of group net sales and handmade cigars, 37%. Sales of accessories, bar sales, which is not directly linked to a product category, sorry, and others which is not directly linked to a product category is included in other and account for 10% of group net sales. Please turn one slide to number nine. The market for handmade cigars in the US continues to contract, but the decline rate appears to have stabilized. Our four different business streams all have achieved positive organic growth during the quarter, resulting in an organic mid-sales growth for the category of almost 6%. For the nine-month period, organic mid-sales were broadly unchanged. Firstly, the sales of handmade cigars to US wholesalers and distributors. what we call our business-to-business market, recovered in the third quarter and delivered a low single-digit growth. Secondly, our online sales of handmade cigars were up in the quarter for the first time during the year. And thirdly, sales in our retail stores continued to increase, driven by new store openings, but more recently also a slight positive same-store sales development. Finally, sales to our international markets increased for the first time during the year, as the impact of lower shipments to Asian markets, as expected, was temporary. International sales delivered double-digit growth. So please now turn to slide number 10. Based on the preliminary data, the total market for machine-rolled cigars in Europe in our seven key markets is estimated to have decreased by 0.6% during the third quarter, whereby the total market decline in the first nine months of the year is estimated to be down by close to 1%. The quarterly data has improved for the category during the past two quarters. However, let me remind you that the data can deviate somewhat quarter by quarter from the underlying trends, and currently we remain uncertain whether this is only a temporary or a sustainable improvement. Our base scenario of 2% to 3% general volume decline rate for machine-rolled cigars is maintained. Measured by our market share, we experienced a setback during the third quarter despite our initiatives and investments to recover market shares. The setback was primarily driven by continued delivery issues following our large way to go live for SAP earlier in the year, impacting especially our performance in Belgium and Netherlands, but also other European markets. Our market share index for the third quarter was 26.2%, compared with 27.9% for the full year 2024. We continue to invest in strengthening our positions further as stronger market share positions are crucial to delivering long-term value in the category. For the nine-month period, our market share index was 26.9% based on the preliminary data. Machine-rolled cigars and smoking tobacco respectively delivered 4% and 5% negative organic growth in the quarter. With that, please turn to the next slide. Moving on to next generation products, which comprises our nicotine pouch business. The third quarter year-on-year performance for our nicotine pouch business is no longer impacted by the discontinued SIN business. In that sense, the headline development better reflects the underlying development of the business. During the third quarter, the business delivered 23% organic net sales growth, with the XQS brand delivering 75% growth. For the nine-month period, XQS delivered 45% growth. The growth rate for the category continues to be impacted by the streamlining of the nicotine pouch portfolio we took over from McBarn, where we have reduced the geographic footprint for the brands ACE and GRID. However, for the XQS brand, So if we consider our nicotine power brand, volumes and market shares continue to improve. In Sweden, the brand has now exceeded 13% of the total market, and in the UK, we continue to slowly improve our position. With this, I will now leave the word to Mayelle for more details on the division of performance. Please turn two slides to slide number 13.