Haypp Group AB (publ)

Welcome to Hype Group Q3 earnings call for 2025. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the speakers, CEO Gavin O'Dowd and CFO Peter Deli. Please go ahead.

Good morning, everyone. and welcome to our Q3 2025 conference call. Our CFO, Peter Deli, and I, Gavin O'Dowd, will take you through our results. Starting at slide four, I would like to focus on four key aspects of our operational highlights, beginning first with our nicotine pouch Q3 volume year-on-year growth of 21% on a like-for-like basis. It should be noted that Q3 last year had an exceptionally high traffic base in the US, which I will provide more details on in the next slide. Secondly, like-for-like sales grew 15% for the period, impacted by accelerated decline in snooze sales during the period. Third, gross margin continues to increase to a record high of 18.8%, reflecting the strength of our operating model. And lastly, we have continued to make strides forward in our infrastructure overall, having successfully migrated our largest site onto our new infrastructure. By year end, we expect to have the two remaining smaller sites completed, bringing the overall project to an end. This new infrastructure is already enabling much more speed and agility and creates an excellent foundation for future growth. Moving to the next slide, slide five, and focusing on the US performance. Our like-for-like sales volume in the US grew 40% year on year, despite the high comparators from last year, which you can see here in the chart. In addition, we recognized the strong development in our new consumers in recent quarters, which is visible in the second chart. And lastly, in mid-September, we resumed sales of Zinn in the U.S. This comes on the back of a mutually beneficial agreement where the brand will also avail of our media and inside services. We recognize that there are many Zinn loyal consumers who were forced to buy from other retailers over the past year. And we are now placing an emphasis on reactivating those consumers. Moving to slide six and the U.S. outlook. The FDA are piloting a new approval process which aims to process products from four of the leading manufacturers before the end of 2025. While this process doesn't guarantee that each product will be approved, it may signal an acceleration in the range of new products entering the US market. On the back of the ever-improving landscape in the US, Hype Group are preparing to accelerate new consumer inflow. Hype Group initiated a deep market analysis during Q3 with a third party specialist firm. The goal of the analysis is to identify the evolving needs of different offline consumer segments and how to overcome impediments to them shopping online. This work is expected to be completed this year. In conjunction, Hype Group have commissioned a marketing agency with specific expertise relating to our business, with the intent of engaging key consumer segments to accelerate our new consumer inflow. The learnings from our pilots this year, such as same day delivery, out of store advertising, referral and loyalty programs, are feeding into this marketing plan. And we expect it to be operational early in 2026. Moving to slide seven, our regulatory and legal update, and starting with the US. In addition to the point of the prior slide regarding the FDA's pilot program to process a range of SKUs before year-end, we expect the most notable changes to occur around state-level excise taxes on nicotine patches during 2026. As more information becomes available, It should also be noted that there is a referendum underway in Denver, Colorado, on tobacco product flavor ban. Nicotine patches is included in that categorization. Regarding the EU, in addition to the TTE, which we spoke of last quarter, the EU Commission is preparing a submission for the FCTC. These discussions are likely to generate a variety of headlines that over time will likely moderate. And we remain optimistic about the regulatory outlook for Europe, where the most regressive positions are opposed by member states led by Sweden. In the UK, the tobacco and vape bill is currently being discussed in Parliament. We hope the bill will implement nicotine patch product standards, which are in line with Hype Group's policies. Regarding litigation, Hype's legal proceedings in Stockholm are expected to take between three to nine months. And regarding San Francisco, a settlement was reached during October, removing US litigation uncertainty. With that, I will now hand over to Peter for an update on our financial performance.

Thank you, Gavin. Good morning, everyone. Before going to the details, I just would like to quickly summarize what you're going to see. In our view, we concluded a solid quarter. As Gavin already elaborated on, we successfully relaunched Zinn, the market-leading brand on our US storefronts, and we maintained our strong gross margin, allowing 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 investments or adjusted EBIT remain flat versus same period last year at 3.5%. On slide eight, let me begin with our sales development, like for like comparison. Like-for-like comparison became even more complex because we have to adjust our 2025 Q3 reported numbers as well to make the numbers comparable. In 2024 Q3, we had Zin in the US for the full quarter, while in 2025 Q3, we sold this brand only for 19 days. Our reported sales grew by 1%. Excluding FX, the increase was 3%. Like-for-like sales growth was 15%. There is no change in the product composition of growth drivers. The 15% like-for-like growth is mainly driven by nicotine pouches, with snooze decline mainly in Sweden impacting our performance negatively by 5%. This is partly offset by the emerging segment contribution to the growth of 2%. The snooze decline accelerated during the quarter. However, on a going forward basis, we expect it to moderate. On slide 9, going into more details about our like-for-like sales development, you can find the key drivers. The net impact included in the reported sales driven by US ZIN, tobacco discontinuation and closing states was 92 million SEC. As said before, currency created a headwind for us. The impact of the foreign exchange movement remained in line with the first half of the year. The depreciation of the Norwegian crown and the US dollar against the Swedish crown have negatively affected reported sales. Zooming into the operational performance, all reporting segments contributed to the growth on a like-for-like basis. The growth segment, US particularly, remained the biggest driver, accounting for 54% of the operational growth. Core segment represented 29%, while the emerging segment accounted for 17%. Moving to slide 10 and progressing a few lines down in the P&L, you can find the long-term quarterly development of Hype Group's gross margin, both in absolute terms and as a percentage of net sales. Q3's margin level remained in line with the first half of 2025. Compared to last year, not only in terms of the margin rate, but also the key drivers of increase are the same. Year after year, we managed to increase our gross margin driven by consistent volume and top line growth and by the increasing contribution of our media and insights business. The sustainable margin performance is the foundation for the execution of our growth strategy in the U.S. This allows us to make the investments required to set the foundations of the next growth chapter. Important to note that going forward, the return of ZIN is not expected to negatively impact our margin levels. Sustaining a strong media and insights business will remain important, and the continued development of those products are pivotal for us. I would like to reaffirm the foundational principles of our business model. We allocate the value created by your 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 offerings, we are able to deliver greater value and convenience to our consumers, while also driving healthier profit margins over the medium term. On slide 11, you can see an overview of our overhead base, which increased to 126 million SEC for the third quarter. This increase is mainly driven by the US local team capabilities build. We also strengthened our media and insights teams and invested into activities to increase online channel and high-proof brand awareness. On slide 12, you can see key figures around our profitability. Adjusted EBIT for the third quarter grew by 0.9%, reaching 33.4 million SEC. The adjusted EBIT margin remained flat at 3.5%. We got the benefit from the increased gross margin. However, this was offset by the increased investments into overheads and marginally into paid marketing. The increase in depreciation similar to previous quarters this year is partly driven by the US automatization, which we installed mid-December last year. We maintained our investment into the emerging segment. This quarter, the investment amounted to 13.1 million SEC and reduced the overall adjusted EBIT of the group by 1.6 percentage points. Adjusted EBIT for the core and gross business was 5.1%, growing 0.7 percentage point versus last year. Moving to slide 13 and zooming in in our core markets. This segment delivered an overall 5% constant currency net sales growth. The quarter started slow, with some acceleration during the second half of the quarter. Behind the sales growth, two completely different dynamics remained. The nicotine pouch segment, which accounted for 57% of the volume of our core markets, maintained its growth and consistently gaining share with Hinor Volume. The snooze segment's volume remained in decline, and this decline was accelerated in Q3 versus the first half of the year. The decline was driven by the reduction of the underlying consumer demand, but also important to note that Q3 is the last quarter where the tax reduction driven price decrease on the 1st of October 2024 drove a negative price mix for the Swedish market in the snooze segment. These two opposite dynamics mean that the share increase of the fast-growing nicotine pouch segment will improve the overall growth rates of the core markets. The changes in the purchasing customer numbers are also showing the different dynamics. While we are continuously building on nicotine pouch consumer base, the decline in Swedish snus consumer offset this. Adjusted EBITDA remains strong for this segment at 10% in Q3. This result is 1.3 percentage points above same period last year. The driver behind the increase is the media and insights revenue growth. On slide 14, you can find our growth market performance. Net sales excluding currency impact on a like-for-like basis is up by 39%. While all markets increased their sales, we are very pleased with the high double-digit growth rates of the US and the nicotine pouch volume development in the UK. IGSTDB moved into the negative territory, driven by increased investment levels mainly to the US. In absolute terms, it amounted to minus 1.4 million SEC, and the adjusted EBITDA rate was minus 0.6%. While the profitability is down versus the same period last year, important to note that gross margin remained stable for the segment. However, the overhead increase, mainly driven by the US, negatively impacted the business unit. On slide 15, for emerging segment, The sequential sales growth continued and we are particularly pleased with the Swedish and German market performance. Unfortunately, operating in the UK vape market remained challenging due to the absence of regulatory enforcement across the entire spectrum of market participants. Hype Group was and always will be committed to comply with regulation. However, this can create a significant competitive disadvantage in case other retailers are not doing so. On markets and segments, where we are market leaders, we can compensate with our weight, but in the UK weight market as a challenger, the unleveled playing field prohibits us from achieving our ambitions. As you can see on the bottom chart, while Sweden and Germany net sales maintain its growing trend, this was not the case in UK, despite the heavy investments we made both into our consumer offer and also into our internal capabilities. These factors led us to decide to discontinue our vape and heat node burn sales in the UK during Q4. On page 16, I would like to highlight three of our selected KPIs. The full list of KPIs are available in the appendix of this presentation. Starting with the inventory, it increased versus Q2, driven by the ZIN inventory build in US, with slight reduction in other inventories in other locations. The inventory increase didn't translate it fully into the increase in our working capital, driven by improvements in other components. Net debt to adjusted EBITDA ratio remained at 0.4 times. With this, I would like to hand back to Gavin. Thank you very much, Peter.