Haypp Group AB (publ)

Good morning, everybody, and welcome to our Q2 2024 interim results. Our CFO, Peter Deli, and I, Gavin O'Dowd, will talk you through our results. This quarter, I would not only like to reiterate the higher purpose of inspiring healthier enjoyment for millions, but I would like to call out that in the past 12 months, we served over 1 million consumers. While we have many more millions to reach, This in itself is a material milestone. Moving along to our operational highlights. I would like to begin with our nicotine pouch Q2 volume year over year growth of 43% and 93% across a two year period. Nicotine pouches now account for 61% of our total volume for the quarter of 11 percentage points versus Q2 2023. and the robust trend continues. We're particularly happy with the continued strong nicotine pouch performance in our growth divisions, which grew 65% year on year after moving into profitability in Q1 and has continued expansion in margin in Q2. The increase in EBIT margin from 2.7% to 3.7% reflects the benefits of scale to our business. particularly in our growth markets. And the investment of 90 basis points in our emerging segment is already delivering robust growth rates. Our infrastructure transformation continues on track, and now all of our Norwegian stores are migrated to V3. We will further add functionality to our storefront platform and then migrate the remaining European stores. Moving along to slide six, The quarter was more turbulent in the U.S. than usual. Higher-than-expected overall consumer demand for the category during 2023 and early 2024 has created a well-documented market shortage for Zine, the market-leading brand. This generated an increased consumer awareness of the online channel, which resulted in the need to ration consumers by introducing a monthly Zine cap for consumers. However, our broad assortment and skills in offering trial enable consumers to choose alternative brands, which increased the overall growth rate to 70% for the quarter. Moving along to regulation, in the US, the FDA issued marketing granted orders for some flavored vaping products. While processing the backlog of risk-reduced products already on the market, and new products awaiting a launch will undoubtedly take some time. This is a positive step forward. In the EU, while there has been little communication around TPD3, the outcome of the European parliamentary election is likely to further increase the support for risk reduction as a health strategy. In the UK, the July election delayed the proposed legislation on vaping. However, we expect the new Labour government to continue with the proposed legislation, albeit with some modifications and clarifications. In Sweden, while we have not seen any specific legislation changes, the principle of harm reduction as a strategy continues to be reinforced. With that, I will hand over to Peter for more depth on our commercial performance.

Good morning. Let me start the financial overview with our sales development on slide 8. In Q2, the group achieved 23% sales growth versus the same period last year. Excluding 1% favorable currency impact, the growth was 22%. As I mentioned in our Q1 report, 2024 March and April are not comparable with the previous year due to the timing of the Eastern. So if we look at the period from March to June, the growth is 19%, very comparable number. This shows a strong improving trend versus the slow start of the year. All business units contributed to the growth. However, the key driver was the growth segment, which accounted for 54% of all growth. Important also to look not only at the geography, but the product category split as well. The improvement since our Q1 results is mainly driven by the contribution of the nicotine pouch segment The growth of this category contributed 24% to the overall sales growth, compensating for the 3% negative impact from the snooze segment. The negative impact of snooze is down to 3% versus 4% in Q1. The rapid growth in the nicotine power segment is a cornerstone for our future strategy as well. With this, moving to slide nine and the profitability. Q2 was a strong quarter, not only in terms of sales, but gross margin and adjusted EBIT as well. Gross margin is up by 1.4% each point versus same period last year to 14.3%, which is in line with our Q1 results and reflects the benefits of scaling and favorable product mix through increased share of nicotine pouches. Adjusted EBIT for the group in the quarter is 3.7% or 34.4 million sales. This is 68% higher than the 2026 Q1 and in line with the Q1 performance. The key driver for the improvement in the margin is its margin performance, with 1.6% positive impact on the adjusted EBIT margin. Part of this was reinvested into organizational capabilities and capacity, meaning to support the emerging segment. Looking at the bottom right part of the slide, you can see The core and growth segment reached 4.5% adjusted EBIT margin in the quarter. We see this as a major step towards the 5% to 7% range for 2025, we guided during our capital markets day. This quarter, we invested 0.9% of our sales into our emerging segment. Moving to slide 10, which is showing the performance of our core markets. In our core segment, the net sales increased by 11%. The growth was driven by the nicotine pouch segment with 33% volume growth. EBITDA margin was 8.6%, driven by the improved gross margin performance. We see strong nicotine pouch performance both in Sweden and Norway, showing the sustained high level of consumer interest for this category. With that, I'm moving to slide 11 and our growth mark. In our growth markets, net sales increased by 52%, excluding the favorable exchange impact, it's up by 50%. The segment reached 30% share of total group sales from 24% in Q2 2023. The growth was driven by nicotine pouches, which segment shows strong growth rates across all four markets. Profitability further improved since the previous quarter, the EBITDA margin was 1.3% in Q2 2024. This shows a major turnaround versus Q2 2023, where the group invested 12 million SEC into this category. On the next slide, you can see the performance of our emerging markets. This is slide 12. Here, the sales grew to 12.8 million SEC in the quarter, which is 58% higher than it was in Q1 2024. Investments remained comparable level to the previous quarter. We are happy to see that this strong momentum continued into July as well, which is giving us optimism for the future. Moving to slide 13, and our selected KPIs. On this slide, I would like to highlight two key lines. First, as Gavin mentioned before, We crossed the important milestone of the 1 million active customers over the last 12 months. We acknowledge that we have a long way to go to inspire millions, but we got the first million. From the balance sheet, I would like to highlight our net debt to adjusted EBITDA ratio, which is 0.5, showing the strong balance sheet we are maintaining. In the quarter, we generated 67.5 million SEC cash flow from our operating activity. With that, I hand over to Gavin, who is going to talk about financial targets and strategy.

Thank you, Peter. Moving to our financial targets, we continue to target 5 billion in revenue for 2025. I will touch on this a little more in our next slide. Regarding profitability, our target is an adjusted EBIT for core and growth segments in the range of 5% to 7% in 2025. As Peter already highlighted, during Q2, our adjusted EBIT for these segments was 4.5%, an increase of 1.9 percentage points versus Q2 2023. We would like to remind investors that our operating model tends to reflect the benefits of scale as we transition from one calendar year to the next. As such, I expect early 2025 to be the next time we experience a material uptick in our EBIT model. Moving to the next slide. On the back of questions during our Q1 results, I would like to provide more context on our five billion revenue target. In the right hand side, you can see the chart we provided during our capital markets day in late 2023. I would like to provide a different cut on these assumptions on the right hand side. While snus, which is a substantially less profitable category for us, and has been declining faster, we see very strong performance in our nicotine pouch category. It is also worth noting that the NP growth rates for our growth division is currently 65% and is accounting for 42% of our nicotine pouch volume during Q2. This strong development would, if it continues, positively impact our overall growth rates. Moving to the next slide, I would like to reiterate the overall growth rates which we have projected for our category, the potential for significant increases in overall online penetration, remembering that the online share in Sweden is now over 30%. And this, combined with our leading positions across all of our markets, leaves us particularly well positioned for robust growth for many years to come. Moving to our final slide, I would like to reflect the dynamics underpinning our continued performance. Hype has its substantial competitive advantages in its business model, which in turn are built on robust processes and systems. However, our overall processes is a result of an excellent team and culture that have fostered and their connections to our higher purpose of inspiring healthy enjoyment for millions. I would like to take this opportunity to thank the team for their commitment, dedication and overall performance. With that, I will hand over to the operator for questions.