Haypp Group AB (publ)

Thank you very much. Good morning everybody and welcome to our afternoon version of the Q2 2025 conference call. Today as opposed to this morning's version we're going to go for a slightly abbreviated version where we just focus on some key slides and the rest of the material is available within the deck and is available on recording on our platform as well. So going forward from here I'd like to start with slide number four and I'd like to focus on three key aspects of our operational highlights. Beginning first with our nicotine pouch Q2 volume which had -on-year growth of 23% on a -for-like basis and I would like to highlight that this doesn't reflect two key impacts on comparability which reduce the reported growth numbers. The first effect is the Easter effect and this particularly impacts our core markets. Easter in 2024 was in Q1 and it was in Q2 in 2025 which we highlighted in our Q1 presentation and this impacted growth by circa three percentage points. The second point I'd like to highlight is that in Q2 2024 it was an exceptional quarter driven by the initial Zin shortages in the US and much of the incremental traffic we received resulted in sales of non-Zin brands which grew over 50% quarter on quarter in Q2 24 versus Q1 24 and for more detail on that please refer to our Q2 24 presentation. So adjusting for these factors our nicotine pouch growth rates are revenue so revenue grew at roughly 20% so comparable to our Q1 and our last 12 months when we adjust for the Easter effect. And lastly I'd like to draw our attention to the material increase in our gross margin. Our business philosophy is built around sharing our economies of scale with our consumers in the form of superior convenience and the best value and despite aggressively moving forward on both of these areas HYPE has still been able to increase its gross margin by nearly five percentage points from 14% in Q2 24 to 19% in Q2 25. We believe this reflects the power of our operating model. Moving forward to the next slide and focusing specifically on the US I'd like to touch on how the market is changing and how we are investing. And if I start first of all on the left hand side of the market the overall market conditions continues to show robust growth driven both by consumers moving to the category and increasing consumption rates for those already in the category for a number of years. The US nicotine pouch category is now larger than the US legal vape category. In parallel fragmentation within the category continues to accelerate with further introductions of FDA allowed products. As an anecdote we launched more new nicotine pouch SKUs in the US in Q2 2025 than in all of 2024. Regulation remains stable with early signs of increasing emphasis on ensuring existing rules are complied with rather than introducing new legislation and while this is more evident in the vape category it bodes well for nicotine pouches also. In conclusion we believe the overall conditions for a compliant online retailer look extremely bright and we will continue to allocate resources accordingly. Moving to the right hand side of the slide which focuses more on US investment priorities which we touched upon in the CMD. Since then we have reinforced our team capabilities with our chief commercial officer recently relocating to the US office. In addition we have recruited a head of consumer acquisition and in keeping with our commitment to compliance we have on boarded both heads of legal and regulatory affairs. We consider these additions to our team to be an excellent bedrock to build a sustainable business from. We have focused much of our effort in recent months towards further improving our retention rates which is key to minimizing the returns we will achieve from new consumers in the future. Initiatives such as the same day delivery in Houston which has now been expanded to a broader area and the new loyalty program are key drivers in this improvement. And while we will continue to further sharpen our retention rates we will also try out a range of tools to accelerate our customer acquisition rates and access their success before allocating material resources. Finally as we'd said in our Q1 release we see Zinn supply and demand aligning and we continue to expect the return to selling Zinn in the second half of 2025. Moving to slide six which covers legal and regulatory updates. We remain engaged in two cases. In Stockholm the appeal process is ongoing in line with expectations and we expect this will take between one to six months. As previously stated we don't expect any material commercial impact from the outcome of this case. And on the second case in San Francisco settlement discussions are ongoing. Further down regarding the EU the EU released an initial draft of a tax proposal on nicotine products including nicotine pouches. As with previous EU tobacco tax initiatives we expect the final outcome to be radically different from this initial proposal especially given the number of member states which have openly opposed this draft. However we do welcome that nicotine pouches are clearly recognized category in the draft which is a strong step towards recognizing the category in other areas of regulation. And lastly in the UK a nationwide ban on disposable nicotine vaping devices came into effect on the 1st of June 2025. Vape manufacturers changed to similarly branded rechargeable pod systems to limit consumer confusion. We believe the shift benefits online retailers over the long term and HYPE is in full compliance with the new regulation. However the transition by offline retailers from disposables continues to create a temporary distortion in the market. With that I will hand over to Peter for an update on our financial performance. Thank you Kevin.

Good morning everyone. Overall we feel that we concluded a successful quarter. What underlying serious development remained robust and our margin increased further. This allowed us to initiate the necessary investment primarily towards the US market to lay the foundation for the next growth chapter. Despite the increased level of investment or adjusted EBIT grew by 50 basis points to 4.2%. Moving to slide 7 and looking at the sales performance. To properly understand the performance similar to Q1 we must consider not only the impact of the discontinuation of Zin and tobacco products in the US and the closure of some states but also the Easter impact. Q1 reported growth was higher while Q2 is lower than the reality due to the Easter timing. To mitigate this distortion we should look at extended periods from January to April and March to June. When you look at the left side of the graph you can see that the growth rates for these extended periods are very similar around 20%. There is no change in the product composition of the growth drivers. The reported 17% growth is mainly driven by MPs with smooth decline mainly in Sweden impacting our performance negatively by 3%. But this was fully offset by emerging segment contribution of 3% to the overall growths. On slide 8 I'm going into more details of the like for like sales development and here you can find the key building blocks of it. On a like for like basis the growth is mainly driven by US however core and emerging markets contributed as well. Foreign exchange movements particularly the depreciation of the Norwegian crown and the US dollar against the Swedish crown had negatively impacted reported sales. As discussed earlier Easter impacted both business units relative to the growth rates it has a bigger impact on the core markets. Excluding the impact of Easter the core markets grew by 9% while the growth segments were up by 51%. We don't have it here and as Gavin mentioned this will be an abbreviated version of the morning I would like to highlight here that the revenue for the emerging segment is almost tripled versus the same quarter last year. Moving to slide 9 and to the gross margin performance here you can see the long term development of it both in absolute terms and as a percentage of net sales. Compared to last year the key drivers of the increase are the same as they were in Q1. Yet after the year we managed to increase our gross margin driven by consistent volume and top line growth and by increasing contribution for media and insights business. When looking at the increase versus Q2 2024 it's important to highlight that the discontinued part of our US business was not a major contributor to our gross margin pool so the reduction in sales without significant negative gross margin explains around two percentage points of the increase versus last year. In Q1 we achieved a major step up in our gross margin rates. In Q2 we managed to further improve it thanks to the increased contribution of the media business. I would like to reaffirm the foundational principles of our business model. We allocate the value created by our company across our consumers, business partners and shareholders. Our ongoing priority is to enhance the value we provide to consumers which in turn requires us to strengthen the value we generate for our business partners. By continuously improving our media and insights offering we are able to deliver greater value and convenience to our consumers while also driving healthier profit margins. On slide 10 you can see how the overhead base evolved over the last two years. There is an increase in this quarter and it's mainly driven by the US and other gross markets where we enhance local team capabilities and also rolled out category awareness and PR efforts. On slide 11 you can see the key figures around our profitability. On this slide we highlight key metrics and trends. Adjusted EBIT for the second quarter grew by 11% reaching 38.3 million sec. The adjusted EBIT margin increased to .2% up by 50 basis points versus last year. The increase is driven by a better gross margin partly offset by increased investments. While Q2 margin level is a step back versus the record high Q1 it is still 50 basis points better than Q2 2024. We maintained our investment into the emerging segment. This quarter the investment amounted to 11.4 million and reduced the overall adjusted EBIT of the group by 1.2 percentage points. Adjusted EBIT for the core and gross segments was .4% .9% better than the same period in last year. Here on this call I'm not planning to go into the details of the core growth and emerging segments. However during the Q&A session we are more than happy to answer any particular questions around those. Also you can find in the appendix the detailed list of key PIs which we get used to publish. In terms of balance sheet you will see that there is no major shift versus Q1. We maintained a healthy balance sheet with .4% leverage net debt versus last 12 months adjusted EBITDA and I think with that I pass it back to Gavin.

Thank you Peter. Moving to slide 17 I will just touch briefly on the outlook here and then we will open up for Q&A. In our view the long-term future for risk-reduced nicotine products, the online channel and Hype Group with as many strengths remains very encouraging. Hype Group's operating model continues to generate increasing value for consumers and suppliers while also providing margin expansion for Hype. The expected increase in regulatory requirements are beginning to manifest which further differentiates us given our sustained focus and investment on long-term compliance. As highlighted in our CMD in April the conditions in the US market provide a significant opportunity for long-term value creation. As such we expect to invest heavily over the medium term which is expected to impact our short to medium term earnings. With that the following slide contains the outlook on what our targets are for 2028 which we feel very comfortable with at this point in time. With that I will pass over to the operator for any questions.

If you wish to ask a question please dial pound key 5 on your telephone keypad. To enter the queue if you wish to withdraw your question please dial pound key 6 on your telephone keypad. The next question comes from Roderick Van Zylen from Nightwatch Investment Management. Please go ahead.

Hi guys thanks so much for organizing this second call and allowing your US-based investors to ask questions. I have a question on your emerging market or emerging products segment and I'm wondering now that it's getting to be a more substantial part of your overall business whether you have any updated views on the market potential here at which point you should get closer to a break even point and maybe whether there are any ways to accelerate the growth in this business.

Hi Roderick thank you very much for the question. We're very happy with the growth performance that we're experiencing within this category at this point in time. However we recognize that it's still relatively small share of the category that we have across the three markets that we're operating within. While we continue to see the robust a quarter on quarter growth within it we will continue to invest. I think it will get to a stage whereby so long as we can see that growth we will continue to prioritize that and we envisage that that will be the case at least for the next 12 months. At which point in time subject to the opportunity we see ahead of us we may choose to lift the nose of the plane and move it more towards profitability at that stage but I think we're still very much in the wait and see as the opportunity continues to open up ahead of us here.

One more on the same day delivery that you're now offering in Houston and I'm just wondering whether there are any early indicators whether one day delivery sort of brings the revenue uptake or the demand uptake that you are hoping to see and also whether you are able to roll this out throughout the US given that your fulfillment center is based in Texas. I'm just wondering whether it's even a possibility to scale that to the rest of the country.

Yeah so we did and the reasoning of course why we started in Houston is because that's where our fulfillment center was. We've seen a notable uptake not just in retention rates within Texas but a notable uptake in new customers sorry a notable uptake in retention rates particularly for second order and then of course we always had quite good retention rates from there forward. We've also seen a notable uptake in new customers in the area and our research indicates that that's coming from referrals for people who are very happy with the service that they're receiving from us telling some of their friends and colleagues and that that's causing a spillover effect on it there. So what we have done is we've extended the shipping service across a broader part of northern Texas and some of the local states as well to get in not to same day delivery but to get into next day delivery for that. So we want to see now that's the second stage of the test as regards to how much of these benefits can we get across a broader geographic area with not quite as good a service but with almost as good a service coming through and I think once we have that then it becomes a lot easier for us to determine what are the future rollout opportunities for this but our base assumption going into this has always been if we make this successful in one part of the country and we're very happy with the results then we would love to pick off other key urban areas in order to expand it in the future.

Got it. Final question if I may. I think in the last quarter you also pointed out that part of the reinvestment in the US isn't just in headcount but I think you were planning on taking some steps on advertisement as well. I'm just wondering whether that's already happening what exactly you're spending your money on. I think I've seen some headlines of sponsorship for your US website. Just wondering what is being spent on and whether it's got the results you were hoping for.

Yeah so the approach we took on this one was firstly sort of build up the team and get that robust and I think we've taken a good step towards that at the moment but there's a little bit further to go. Secondly shore up as much of the funnel as possible so that we get ever improving retention rates and we're very happy with how they've been progressing over the year to date and then at that point in time start accelerating the pouring in of customers from here on in. What you have seen from us so far is that we've been spending some money on PR within the US and we've seen some quite good results from that so far. It's not significant and you'll see that coming through under the growth section of the report under overheads at this point in time. We've also we have been doing some testing of co-branding for sorry co-branding for activations along with some of the brand owners. That's not particularly expensive to us because that tends to be something where we have facilitated but we're not necessarily the party which pays for it or certainly that pays for the bulk of it and so that hasn't been a huge piece so far and we have been testing some other activities both in the form of some podcasts and some out of store marketing etc but where we are at this stage and that's roughly where we expect it to be is that we're still very much in the on that third leg of customer acquisition. We're testing a range of concepts and evaluating them before we decide what we can get comfortable with allocating capital to. So there hasn't been a huge amount of spend going into new customer acquisition in the US for the second quarter.

Got it thank you so much.

There are no more questions at this time so I hand the conference back to the speakers for any closing comments.

Thank you all very much for your time I look forward to speaking to you soon. Thank you. Thank you everyone. Bye.