Scandinavian Tobacco Group Aktie

Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Q1 2026 Results Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded.

I would now like to turn the conference over to your first speaker, Torben Sand, Head of Investor Relations. Please go ahead.

Thank you. Yes, welcome to Scandinavian Tobacco Group's webcast for the third quarter 2026. My name is Torben Sand, and I'm Director of Investor Relations and External Communications. And I am, as usual, joined by our CEO, Niels Frederiksen; and our CFO, Marianne Bock. Before we start, I ask that you pay special attention to our disclaimer on forward-looking statements, which can be found on the next slide in this deck.

Please turn to Slides to #3 for today's webcast agenda. We will start the presentation by giving you a brief overview of the key highlights for the quarter and the results announcement, including a snapshot of the key financial highlights. Niels continues by turning to an update to our strategy, Focus2030, including details on the performance of our product categories before Marianne takes over to provide an update on the group and divisional financial performance. Niels will conclude the presentation by giving some insights into the expectations for the full year. After the pre-prepared presentation, we will conduct a Q&A session where we will be pleased to take any questions you might have.

Now let's begin. Please turn to Slide #5, and I'll leave the word to our CEO, Niels Frederiksen.

Thank you, Torben, and welcome to the call. First quarter of 2026 marks the beginning of our new strategy, Focus2030, and hence, it's still early days. However, I would like to spend a moment to share my reflections on the initial progress we made. We are off to a good start, and we follow the plans we outlined in relation to the launch of the strategy last November, and I'm confident that we've set the right direction to deliver on our long-term ambitions for the group.

We have laid the first bricks to build a solid foundation for protecting market our market positions within both machine-rolled cigars and handmade cigars. We are mindful that 1 quarter does not change a trend. But during the quarter, our market share positions have stabilized within machine-rolled cigars in Europe. We have grown our handmade cigar business measured by organic net sales and our nicotine pouch brand, XQS, has continued to take market share in Sweden.

Furthermore, we have set a clear direction of prioritizing our investments putting more emphasis on our power brands. We've taken steps to reduce complexity in our organization and in our portfolios, and we started to execute on our plans to deliver cost improvements as part of achieving our financial ambitions. So based on the financial performance in the early months of the year, we maintain our full year 2026 expectations. We still, however, expect it to be a year where geopolitical uncertainty will remain a key market condition and economic growth will be challenging.

For Scandinavian Tobacco Group, this means that our main priorities in the year are unchanged to stabilize earnings in our machine-rolled cigar and smoking tobacco business to inject new energy and growth into our strong handmade cigar business and to continue to grow our promising nicotine pouch business.

Now please turn to Slide #6, where Marianne will talk through the financial highlights of the quarter.

Thank you, Niels. The first quarter of our financial reporting year is typically the weakest and year-over-year changes can be significant to relatively low -- due to relatively low volumes and net sales, while certain costs remain fixed. As a result, underlying financial trends may deviate from the first quarter development.

Having said that, our reported net sales of DKK 1.9 billion were negatively impacted by a decline in the value of the U.S. dollar. Excluding the 5.2% negative currency impact, the organic development in net sales was down by 0.6%. As Niels will discuss shortly, the performance in the consumer market is steady. Volatility, including timing of deliveries, impacted temporarily net sales in our European machine-rolled cigar and nicotine pouch businesses.

The EBITDA before special items was unchanged compared to the first quarter last year despite the decrease in net sales. This resulted in an EBITDA margin before special items of 17.2% compared with 16.1% the previous year. The improvement primarily reflects last year's weak profitability, which was driven by the temporary challenges we experienced with the SAP implementation in our European factories.

In 2026, we increased the amortization of trademarks as a consequence of our power brand strategy. In March, we estimated that this change would increase amortization by nearly DKK 75 million, which remains our expectation for the year. For the first quarter of 2026, this resulted in a 0.9% negative impact on the EBIT margin before special items, ending at 10.4%, in line with the margin last year. The free cash flow before acquisitions was DKK 158 million, in line with the first quarter of last year. We have recovered a substantial part of the receivables postponed from the fourth quarter of last year into Q1 2026, and we continue to expect a full recovery during the first half of the year.

Comparing to last year, it is important to note that cash flow last year was exceptionally strong. The change from working capital was positive with DKK 41 million, marking the only first quarter since our listing in 2016, where working capital contributed positively to cash flow in the first quarter. Typically, we experienced inventory buildup during the quarter to prepare for upcoming high season. The first quarter of 2026 is the strongest on record. And even when excluding the impact from the recovered receivables, the underlying cash flow is solid and supports our expectation for the full year.

Finally, our leverage remained unchanged at 3x compared with the end of last year. We expect leverage to approach our target ratio by year-end with most improvements anticipated in the second half of the year.

Now please turn two slides to Slide #8, and I will leave the word back to Niels.

Thank you, Marianne. The purpose of Focus2030 is to create value by executing the strategy, but it is also to develop a company that is even better positioned to deliver value beyond 2030. So let me start by updating you on each of the three strategic priorities, which all play an important role for us to deliver on the ambitions for Focus2030.

Firstly, to stabilize our machine-rolled cigars and smoking tobacco business. The new strategy is anchored in our strong brands and strong market positions across our diversified portfolio. However, the market conditions and the strategy call for us to allocate resources differently going forward to ensure that we focus on and capture what we see as the largest growth opportunities. Our power brand strategy is tailored to facilitate this.

During the quarter, we have started to roll out the power brand strategy for our machine-rolled cigars. And one example, which I will talk to in a moment, is the redesign and rebranding of the power brand, Mehari’s. Now an essential driver to deliver long-term value in the category will be to strengthen our market share by reversing the downward trend we have experienced over the past years. We have an ambition to increase the share from below 27% in 2025 to more than 29% in 2030. And although the data can deviate somewhat quarter-by-quarter and year-by-year from the underlying trends, market share data is an important KPI to evaluate our progress with the strategy.

For the first quarter this year, the volume market share in our 7 key markets is estimated at 27.9% based on preliminary data. And for the past 12 months, it is estimated at 27%. These data points indicate a stabilization compared with the declining trend we have experienced throughout the past years. This is a good first step, and we are now putting all our efforts behind sustaining this for the coming quarters. Three of our four power brands delivered market share increase, suggesting a good beginning to the execution of our strategy.

The second strategic priority is to grow our handmade cigar business anchored in the U.S. and with a stronger global footprint. And based on our power brands, Cohiba, Macanudo, CAO and Alec Bradley, we aim to increase our market share in the U.S. from approximately 13% to more than 15%. We aim to leverage our strong online and expanding retail distribution platforms to support the growth of our brands with the aim of growing our power brands faster than the overall category growth. With an 8% organic net sales growth in the first quarter, we've experienced a good start, although I again must emphasize that the first quarter is a seasonally low volume quarter and fluctuations from quarter-to-quarter will occur. However, the growth has been delivered from our branded portfolio in the U.S. as well as both retail stores and online.

The third strategic priority is to build a larger business in the attractive nicotine pouch category. Although the category accounts for only 5% of group net sales, we expect our nicotine pouch business to deliver a material contribution to our long-term net sales and profit development. Our power brand, XQS, continued to take market share in the important Swedish market. The brand share has grown from 10.7% in the first quarter of 2025 to 13.6% in this quarter.

And during the quarter, we estimate that the total market volumes in the key markets of Sweden, Denmark and U.K. combined have grown 21% with our brands growing 38%. So for the first quarter, our net sales development doesn't justify the continued strong development and progress XQS deliver, and I will explain this shortly.

Before I do that, let me share a few examples of how we have invested in our power brands over the past months. Please turn to Slide #9. A cornerstone in the Focus2030 strategy is to be more selective in where we invest to support our brands. And with our power brands, we emphasize the importance of growth and consumer relevance. So to mark its 50-year anniversary in 2026, we redesigned the packaging of Mehari’s to reflect the quality and craftsmanship behind every single Mehari’s cigar video. With this redesign, we're essentially relaunching the brand while staying true to what makes it unique.

Our aim is to make Mehari’s even more relevant to today's consumers by bringing back a strong sense of adventure, sharpening its core product message and strengthening its offer against future challenges. The highest account for about 12% of our machine-rolled cigar business in the first quarter measured by net sales and with an increasing market share during the quarter -- sorry, and with an increasing market share during the quarter, we expect the brand to constitute an even larger share going forward.

Another example is from our handmade cigar business. Cohiba has partnered with El Titan de Bronze factory in Miami to produce a new American-made cigar. The cigar branded as Serie M Reserva Plata, marks the sixth time Cohiba and El Titan de Bronze have collaborated on a limited edition, Cohiba Serie M cigars. This is just one example of many more innovative offerings within the handmade cigar category, which we expect to support the growth of our handmade cigar business over time.

The third example I would like to give you is for our nicotine power brand, XQS. We have partnered with Team Parker Racing for the Porsche Carrera 2026 Cup. This partnership is an opportunity for the brand to align with a high-performance platform that strongly resonates with our target audience. Team Parker Racing and the Porsche Carrera Cup provides a highly visible stage to strengthen brand awareness, deepen engagement with our trade partners and create meaningful experiences for consumers throughout the 2026 season. It reflects our ambition to show up in culturally relevant spaces that both drive brand impact and commercial growth.

Please turn 2 slides to Slide #10. Last year, we introduced more financial data for our product categories with the aim of giving more transparency to the underlying performance for each of the unique categories. In the first quarter, machine-rolled cigars and smoking tobacco delivered a 3% negative organic net sales development with machine-rolled cigars performing slightly better than smoking tobacco. The gross margin improved by almost 3 percentage points, primarily as a result of the weak profitability during the first quarter of last year, which Marianne mentioned earlier.

Handmade cigars delivered solid organic growth driven by our branded business in the U.S. as well as our retail stores. And although online also contributed to net sales growth, the business was the main reason for the category margin to decline as competition within online remains intense. Next-generation products, which covers our nicotine pouch business, experienced a 23% decrease in organic net sales compared to the same period last year. This development is driven by timing between quarters of deliveries to our trade partners, which impacted the net sales growth negatively in the first quarter this year. This is another example of the precaution needed when looking at individual quarters, especially in our smaller business streams.

With this, I'll now leave the word back to Marianne for a review of the financials. Please turn two slides to Slide #12.

Thank you, Niels. In my opening remarks, I already discussed the key developments in net sales, profits and cash flow. However, I would like to provide a few additional comments on select financial details and key metrics.

During the quarter, we recorded DKK 31 million in other income compared with DKK 11 million in the first quarter of last year. Increase was mainly driven by income from certain duty refunds, as mentioned in our results announcement in March. Special items for the quarter amounted to negative DKK 76 million compared with negative DKK 70 million in the same period last year. These special costs include DKK 33 million for the Focus2030, DKK 31 million for our global SAP implementation and a combined total of DKK 11 million for the Mac Baren integration cost and for our new service delivery organization. We continue to expect that special costs in 2026 will total approximately DKK 275 million.

Finally, I would like to address the decline in the return on invested capital, which remains a key KPI as we work toward our financial ambitions. Our ambition is to achieve a return on invested capital above 11% in 2030. However, improvement from the current level of 7.8% will come as special costs decrease, and we start to see underlying improvements in our EBIT before special items as we implement the strategy.

Now please turn to one slide -- on one slide to Slide #13. I would like to share a few additional remarks about our three reporting divisions. Although reported net sales growth was negative across all three divisions, organic growth was positive for both North America Branded and Rest of the World and North America Online and Retail. Since these divisions have a high proportion of net sales in North America, the reported numbers in Danish kroner are sensitive to changes in the U.S. dollar.

Increase in handmade cigars, as mentioned by Niels, was a key driver behind the organic net sales growth for both divisions. For Europe Branded, organic net sales declined by nearly 9%. To reiterate, this was a quarter impacted by low season and by the timing in deliveries in both machine-rolled cigars and nicotine pouches. Because the absolute number are relatively small, even minor changes have a significant impact on quarterly growth rates. Margins in Europe Branded improved significantly compared with a weak first quarter last year. Last year, the volumes were impacted by the SAP implementation at our European machine-rolled cigar factory.

Finally, I would like to mention the lower margin in our online and retail business. Although organic net sales are trending upward, ongoing intense competition in the online channel continues to put pressure on margins as achieving adequate pricing remains challenging. Currently, our intensified focus on protecting market share and supporting brands remain a key commercial priority, which means that we do not expect any near-term improvements in market conditions. That said, the first quarter is typically a low season quarter when margins tend to improve as volume increases through the high season.

With this, I'll now hand the presentation back to Niels. Please turn two slides to Slide #15.

Thank you, Marianne. So overall, our expectations for 2026 remain unchanged compared with the expectations we released in March. For the year, we still expect consumer trends to be unchanged for most of our product categories and broadly similar to historic trends. We do appreciate that uncertainties are elevated and geopolitical risks remain high and the outbreak of the conflict in the Middle East just after our full year 2025 release in March is an example of this as is the ongoing uncertainty around tariffs in the U.S.

For 2026, we expect group net sales growth at constant currencies to be in the range of minus 2% to plus 2%. The expectation reflects that total market volumes for machine-rolled cigars in Europe will decline by about 3% and consumption of handmade cigars in the U.S. will decline by about 4%. Improving our market shares, growing our U.S. retail and nicotine pouch business are expected to offset the volume declines in our core combustible categories.

For 2026, we expect the EBIT margin before special items to be in the range of 13% to 14.5% compared with the 14.9% in 2025, with the EBIT margin being negatively impacted by 0.9% from the change in amortization of trademarks. The expectation reflects that 2026 is a year with focus on stabilization and that we will continue investing to facilitate our long-term ambitions as reflected in the Focus2030 strategy. For 2026, the free cash flow before acquisitions is expected in the range of DKK 950 million to DKK 1.2 billion, reflecting expectations for net sales and margins as well as the delayed payments from trade receivables impacting cash flow positively in 2026.

Finally, we also maintain our expectation that EBITDA before special items will be more or less in line with the DKK 1.8 billion we delivered last year, supporting that the leverage ratio will approach our target ratio of 2.5x.

Now this concludes our presentation for today's call. I'll now hand the word back to the operator, and we're ready to take any questions that you may have. Thank you.

[Operator Instructions] The questions come from the line of Niklas Ekman from DNB Carnegie.

First question is on the nicotine pouch segment. If you could just clarify here, a 23% decline here due to phasing. And I noticed you had 37% growth in Q4. If you look at the average of those two, that suggests a low single-digit growth roughly if you combine them. I was wondering if that's the right way to look at it and how much of this is impacted by the discontinued product lines and what kind of the underlying trend is? That's my first question.

Let me start by saying that some of the trend is affected by the underlying change in mix moving volume from ACE and GRITT to XQS, but this is also why we are disclosing, let's say, in-market sales numbers. And then when we look at the first quarter of 2026, and take the three important markets for us, Sweden, Denmark and the U.K., we see the category growing 21%, and we see our volumes growing by 38%. So this indicates different numbers. And I think you have to think about it more along those lines. Similarly, you can say that the last 12 months growth rate of XQS, including the first quarter, is around mid-single -- 35%.

And maybe let me add, Niklas, it's correct we've had some timing of deliveries in Q1, but we also have a distributor that have lowered their level of inventories, which also impacted us in Q1, but that is temporary.

Okay. Very clear. And on the same topic, if you look at the Europe branded sales, organic sales down 9% and still gross margin up 10 percentage points. Your EBITDA nearly doubled. Just curious -- and obviously, this is on easy comparisons from the year before, but is the nicotine pouch segment, is that loss-making? Is that why when you're seeing a decline here that the earnings are improving? Or can you explain because it looks a little bit strange with the sales decline and significant earnings improvement.

It's a very relevant question. So last year, in Q1, our gross profit margin for Europe Branded was 41% and now we are at 49%. The way you should think it is that the level of 49% to 50% is what we expect also going forward in Europe Branded. And if you look from Q2 last year until Q4, that is the level. What happened in Q1 last year was our go-live of SAP 1st of February. And even though it is depressing to think about, then we did have issues, as you probably remember, in our go-live at that point in time. So that decreased our volume significantly in Q1 last year. So it is primarily driven by the issues that we had in Q1 last year, and now we are back to a level of margins that is more normalized.

Another question just on your full year guidance. Given that sales are opening now with a decline on very easy comparisons. You have slightly tougher comparisons in the quarters ahead, but your EBIT margins are holding up quite well. Would you say that within this range that the risk is on the downside for sales, but you are fairly confident on delivering in line on the EBIT? Or is there any way to elaborate on this? Or is it too soon to say based on a small quarter?

Yes. Niklas, again, I think it's too soon to say. Q1 is always a smaller quarter. And the reason for us also keeping the wide range is, first of all, the uncertainty that we see in the world around us, but also we like to get through Q3 or Q2 into the high season to be able to say anything more educated around the narrow range.

Fair enough. Very good. And just a final question. I was curious about the competitive situation from Cuban cigars. Has there been any change there? Because a while ago, a couple of quarters ago, the Cuban supply was very short, and that provided an opportunity for you to expand your international handmade cigars business.

And then I understand that Cuban cigars have come back. But given the energy shortage situation in Cuba, is that something you see that could be moving to your advantage in the quarters ahead?

Yes, it's a good and interesting question. I think that it's correct that we've seen an improvement in inventory availability of Cuban cigars outside the U.S. We do not see signs that, let's say, the current increased prices in Cuba is changing that. But it's also important to remember that Cuban cigars has been on a downward trend outside, again, the U.S. for many decades. So it's more a question of how fast the transition to cigars from other regions is moving.

And also, you can say that the very high price increases that Cuban cigars implemented a few years ago and which they are continuing with is also affecting market dynamics. But we still aim to grow our international business in handmade cigars.

[Operator Instructions] The next questions come from the line of Damian McNeela from Deutsche Bank.

A couple for me. Firstly, can we just have a little bit more color on the European machine-rolled cigar business, please? And obviously, it was a decent performance in Q1, and you indicated that you don't want to sort of extrapolate the trend. But can you sort of give us some of your insights into -- to the extent you're leveraging the new SAP system and your confidence in being able to sort of recover further the market share losses that you've incurred in that business is the first question.

The second question is on the sort of online competition. It seems to be consistently a headwind for the business. Is this just merely sort of price-orientated competition? Or is there something more meaningful in how the other platforms are selling their products online?

And just a final one, perhaps on nicotine pouches. I know you've got sort of three markets which are your focus. But given the way that the EU TPD is moving, I'm just wondering how you think about potential expansion into other markets given how well XQS is doing in those three markets?

Well, let me start by saying that throughout 2025, we kind of chased an acceptable level of inventories for our cigars in Europe, and that ended up affecting our full year performance for that category quite significantly. But we also ended the year with a better inventory level across many of our key markets, and that is part of what has driven the improvement in market share in the first quarter of the year. So that's important, and that's, of course, what we are focusing on sustaining.

There's no material change currently to the, let's say, the pricing picture. So we still see some markets where we need to be cheaper price than we would optimally like. So I think that what we will see over the coming quarters is whether we can sustain the positive development into the second and third quarter, which Marianne also mentions the higher volume quarters. So that's our focus. Whether we will succeed or not, I don't want to predict that right now, but we are trying to really focus also on the two markets that we have highlighted as key, which is Spain and France. And also here, we saw solid market share development in the first quarter.

So if I move to the online competition question, it is true that in the fourth quarter of last year and the first quarter of this year, we've seen margins significantly below also historic levels, and it's affecting the overall margin from that business. It's a combination of two things. It's a combination of challenges with passing on tariff and other price increases to consumers in a, let's say, intense competitive environment. It's also a reflection that last year in October, we took the decision to introduce free shipping for our largest online site. This was a response also to competition.

So we did begin to see some margin improvement in the end of Q1, and we are working to sustain that into the Q2 and onwards. So I think we have to look at a few more quarters to see where the earnings of that business stabilizes. But the focus for us right now is protecting market share, and you can consider the free shipping and effort there. And then it's about passing on tariffs as quickly as we can to consumers, also, of course, considering what competition is doing.

Then let me finally answer the question on nicotine pouches and how we look at expansion. Yes, our main focus markets today is to continue to do well in Sweden to get increased momentum in the U.K. And then we are actually expanding into a number of other markets. So even though we don't talk so much about it, our geographic footprint for XQS is expanding, and it's still not with sustainable volumes, but it is, of course, an attempt from our side to test out individual markets to see whether there are over and above markets that need more investments. So we do not think about it only as core. We do think about it as Europe, but we do look at geographic expansion as well.

And Damian, let me add because in your first question, you asked a question about where we were leveraging our SAP implementation. And a quick status we are done in Europe and in Asia. We're moving into U.S. end of this year and beginning of last year. I certainly think that for us, having standardized our processes have given us much more transparency and much more insight also into our data. I think it is too early for us to say that we have achieved the benefits that we anticipated from the implementation. However, this is a critical foundation also for us to move forward with more digitalization.

There are no further questions at this time on the phone lines. So I'll now hand back to Torben for the written questions. Thank you.

Yes. Thank you. And there are no questions on the web. So I think that brings us to the end of this webcast. Thank you for listening in. And yes, we will talk again a few months from now in August. Thank you, and have a nice day.

This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you.

Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Full Year 2025 Results Conference Call and Webcast.

[Operator Instructions] 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, and good morning, and welcome to Scandinavian Tobacco Group's webcast for the Full Year and Fourth Quarter 2025 results. My name is, as said, Torben Sand, and I'm Director of Investor Relations and External Communications. And I am today, as usual, joined by our CEO, Niels Frederiksen; and our CFO, Marianne Rorslev Bock.

Please turn to the next slide for today's webcast agenda. Niels will start the presentation by giving you a brief overview of the highlights, including a snapshot of the key financial data. Niels will also summarize a few of the highlights from our new strategy that we launched last year, Focus2030. Then Niels will move on to share more details on the performance of our product categories before Marianne takes over and give you an update on the financial performance in our 3 reporting divisions. Marianne will also give more details about the financial performance, including comments on cash flow, leverage and capital allocation. Niels will conclude the call by giving some insights into the expectations for the full year 2026. After the pre-prepared presentation, we will conduct a Q&A session where we will be pleased to take any questions you might have.

Before we start, I ask you to pay special attention to our disclaimer on forward-looking statements, which can be found on Page #3 in this slide deck.

Now please turn to Slide #5, and I leave the word to our CEO, Niels Frederiksen.

Thank you, Torben, and welcome to the call. 2025 became a challenging year for Scandinavian Tobacco Group with a combination of external disruptions and internal operational issues. Tariffs and lower consumer sentiment in the U.S. directly impacted our handmade cigar business and the category experienced fierce price competition, both in retail and in the online distribution channels. Our machine-rolled cigar business continued to be under pressure, while our investment in our nicotine pouch business delivered good contributions to the group's financial performance.

Throughout the year, we have concentrated our efforts on protecting our market positions, integrating Mac Baren and growing our handmade and nicotine pouch businesses. And given the difficult circumstances, I am satisfied with our results for the year despite having to reduce our full year expectations in May as a consequence of the increased tariffs.

2025 was a year where we launched our new strategy, Focus2030, and we released new financial ambitions, and we adapted a new more flexible shareholder return policy. At our Capital Markets Day on November 20 last year, we unfolded the new strategy but today, we will also provide a few highlights on this later in the call. We expect 2026 to be a year where geopolitical uncertainty will remain a market condition and economic growth will be challenging.

For Scandinavian Tobacco Group, this means that our main priorities in the year will be to stabilize earnings in our machine-rolled cigar and smoking tobacco business and inject new energy and growth into our strong handmade cigar business. We will also continue to grow our promising nicotine pouch business.

Now please turn to Slide #6. Let me now share a few financial highlights for the year. Marianne will give more details about the financial performance and the quarterly development later in the presentation. But reported net sales were DKK 9.36 billion compared with our guidance of DKK 9.1 billion to DKK 9.2 billion, and the EBITDA margin before special items was 19.8% compared with our guidance of 19.5% to 20.5%. Overall, this results in an EBITDA before special items in line with our expectations.

The free cash flow before acquisition came in more than DKK 200 million below our guidance due to a delay in the collection of certain receivables due to the SAP implementation in Europe. The issue has been solved and as the deviation is a phasing issue, the free cash flow will be equally positively impacting 2026. Marianne will give you more details in her part of the call. Adjusted earnings per share were DKK 10.8, in line with our guidance of DKK 10 to DKK 12 per share.

Please turn to Slide #7. On 20th November, we launched our new 5-year strategy in connection with the Capital Markets Day, and you can find a recorded version of the event on our website. The purpose of Focus2030 is not only to create value by executing the strategy but also to develop a company that is even better positioned to deliver value beyond 2030 and we are confident that we can do so. We've defined 3 strategic priorities, each important for us to deliver on the ambitions for Focus2030.

Firstly, to create a sustainable and stable machine-rolled cigar and smoking tobacco business, primarily focused on Europe. Secondly, to grow our attractive handmade cigar business anchored in the U.S. but with a stronger global footprint. And thirdly, to build a larger nicotine pouch business with even more upside in an attractive category. And in the process, we intend to turn the declining earnings trend around and we have -- sorry, in the process, we intend to turn the declining earnings trend around that we've seen over the past 3 years and create value for consumers, employees and shareholders.

The new strategy is anchored in our strong brands and strong market positions across our diversified portfolio. However, the market conditions and the strategy call for us to allocate resources differently going forward to ensure that we focus on and capture what we see as the largest growth opportunities. And our power brands strategy is tailored to facilitate this. The strategy addresses the areas that we need to fix because they are not performing up to expectations, but also the areas where we do well and where we need to push further to deliver even better results, all with a combined ambition to build a sustainable and growing company with more potential beyond 2030.

We also introduced new financial ambitions, which are to significantly improve the return on invested capital from about 7.9% in 2025 to more than 11% in 2030, to deliver an incremental increase in EBIT and a free cash flow generation exceeding DKK 1.2 billion in 2030. Acquisitions as well as divestments of less core assets will continuously be evaluated, assuming these potential transactions support our strategy as well as our financial ambitions. The shareholder return policy has been adapted to be more -- to a more flexible dividend payout ratio policy based on 40% to 60% payout ratio against adjusted earnings per share, supplemented by share repurchases when the projected leverage ratio allows.

Please now turn slide to Slide #8. To meet our financial ambition and the objectives in Focus2030, we need to deliver on 3 strategic priorities. Growing handmade cigars will be defined as growing net sales as well as delivering incremental profit growth to the group. The key growth drivers are expected to -- the key growth drivers are expected to be delivered by a combination of increasing our market share of own brands in the U.S. from approximately 13% to more than 15% in 2030 as well as through an expansion in our retail network. This expansion will be driven by our power brands, which in 2025 have 5% overall market share.

Stabilizing the machine-rolled cigar business requires a focus on protecting profits and cash flow. The path to success is offsetting the structural volume decline in the categories through price management and market share gains. Mitigating structural market trends through intensified market share focus is reflected in the ambition to increase volume market share in key European markets from 26.8% in 2025 to more than 29% in 2030. And a key component to the profit growth will also be through simplification of our portfolio by almost 50%.

Finally, accelerating our nicotine pouch business is expected to deliver important contributions to the group's growth in net sales and profits in Europe. We expect to build on existing market share positions in Sweden and in the U.K. but also in other markets where our capabilities within distribution and access to the market provide us with an advantage.

Now let's turn 2 slides -- to Slide #10. Machine-rolled cigars and smoking tobacco comprised 50% of group net sales in 2025 with handmade 35%, nicotine pouches at 5% and others at 10%. Others include accessories and bar sales, amongst others. For the full year, organic net sales growth was minus 3%, where handmade cigars delivered flat organic net sales, machine-rolled cigars and smoking tobacco minus 1% and nicotine pouches a negative 17% growth. However, the organic growth for nicotine pouches does not reflect the underlying progress of our power brand, XQS, which delivered a high double-digit organic growth. The negative growth for the category was significantly impacted by the discontinued online distribution of ZYN from the second half of 2024.

For the first time, we are giving details on the gross margin structure for our product categories. For the group, the gross margin before special items was 44% for the full year of 2025. The product category machine-rolled cigars and smoking tobacco delivered a 51% margin, handmade cigars, 41% and our nicotine pouch business, 36%. Going forward, we intend to share these details in order for you to get a sense of the progress we make in our strategic priorities.

Now let's move on to each of the categories, and please turn to Slide #11. The market for handmade cigars in the U.S. continued to contract in 2025 by an estimated mid-single-digit percentage. For 2026, we expect a 4% total market volume decline rate. We still estimate the underlying longer-term decline rate to be a lower single-digit number. For the full year 2025, reported net sales decreased by 4% for the category with organic net sales being broadly unchanged. Reported growth was impacted by the development in currencies. Increasing organic net sales in retail and pricing were offset by underlying volume declines in the U.S. market and by international sales.

Gross margin before special items have been on a declining trend for the past 2 years. For 2025, the margin was 41.4%, with the main drivers for the decline being fierce competition in our online distribution channel, and negative impact from increasing tariffs and consumers trading down.

The data illustrated in the chart show the development in the last 12 months data, not the specific quarterly data. For the fourth quarter, our category performance was 1% organic net sales growth and was positively impacted by business-to-business sales in the U.S. and continued growth in our retail stores. The sales of handmade cigars to U.S. wholesalers and distributors, the business-to-business market continued to recover in the fourth quarter and delivered a 6% increase following a low single-digit growth in the third quarter.

Sales in our retail stores continued to increase, driven by new store openings, although the same-store sales were slightly down due to a temporary rebuild of our largest store in Dallas, Texas. And finally, our online sales of handmade cigars were broadly unchanged, where sales to our international markets decreased during the quarter.

Now please turn to Slide #12, and we'll talk about machine-rolled cigars and smoking tobacco. For machine-rolled cigars and smoking tobacco reported growth in net sales was 2% for the full year. The growth was impacted by the acquisition of Mac Baren from the second half of 2024, while organic growth in net sales was slightly negative by 0.5%. The gross margin before special items was 50.8%, broadly in line with the full year of 2024. But as the graph also indicates the last 12 months margin declined -- sorry, the last 12 months margin declined significantly throughout 2024, primarily as a result of the high volume decline rates we experienced in machine-rolled cigars throughout 2024. In that context, the stabilization of the category margin is encouraging, although still not satisfactory.

The current margin level remains negatively impacted by changes in product and market mix as well as disruptions caused by our SAP rollout in Europe. With the financial ambitions we have communicated, we need to protect and improve the margin, not only for machine-rolled cigars but also for smoking tobacco. For the fourth quarter, organic net sales for the category were unchanged, comprised by a low single-digit growth in machine-rolled cigars and a low single-digit decline in smoking tobacco.

Now let me give you an update on the market share development in our machine-rolled cigars. The total market for machine-rolled cigars in Europe is estimated to have declined by 1.2% in the full year of 2025 based on preliminary data for our 7 key markets and with the decline rate for the fourth quarter estimated to be 2.8%. The data can deviate somewhat quarter-by-quarter and year-by-year from the underlying trends, and we don't regard 2025 market development as an indication of a sustainable improvement.

Our base scenario of 2% to 3% structural decline rate is maintained, and for 2026, we expect a 3% market decline in Europe. Measured by our market share, we experienced a stabilization in the fourth quarter compared with the third quarter. The market share index was 26.3% for the fourth quarter and 26.8% for the full year of 2025. As mentioned with the Focus2030 strategy, we will invest in strengthening our positions as stronger market share positions are crucial to deliver long-term value in the category.

With this, please turn to the next slide. So moving on to next-generation products, which comprises our nicotine pouch business and currently accounts for 5% of group net sales and slightly less of gross profits. For the full year 2025, reported net sales growth was 2% and organic growth was minus 17%. However, these data points do not give the full picture of the positive development we experienced for the category. The full year growth was significantly impacted by the discontinued distribution of ZYN in the U.S. but the reported growth rates were also impacted by the nicotine pouch portfolio we acquired from Mac Baren in the middle of 2024 and the ongoing streamlining of the brands, ACE and GRITT now being sold in fewer markets.

Importantly, our brand XQS delivered 55% organic net sales growth and the market share in Sweden increased from 7.8% in 2024 to 12.3% in 2025. And by the end of 2025, the market share was above 13%. Our market share in the U.K. also improved during the year, although it is still only close to 1%. The category gross margin before special items was broadly unchanged at the level of 35% for the full year 2025 compared to 2024. As a result of the continued expansion of XQS to new markets and with investments to increase market positions, the EBITDA margin was only slightly positive for the year. During the fourth quarter, our nicotine pouch business delivered 42% reported net sales growth and 37% organic net sales growth. XQS -- the XQS brand delivering 87% organic growth, driven by a strong performance in the U.K. and Sweden.

With this, I will now leave the word to Marianne for more details on the financial performance, please turn 2 slides to Slide #15.

Thank you, Niels. In 2025, the commercial division Europe Branded comprised 36% of group net sales, North America Branded & Rest of the World, 33% and North America Online & Retail 31%. For the full year, organic net sales growth for the group was minus 3%. Europe Branded delivered minus 1%; North America Branded & Rest of the World, minus 5%; and Online & Retail, minus 4%. For Online & Retail, growth was impacted by the discontinued distribution of ZYN from the second half of 2024.

In the table, we have shared an overview of the margin structure for each of the divisions measured by gross margin before special items as well as EBITDA before special items. For Europe Branded, the gross margin before special items was 48%. North America Branded & Rest of the World delivered 46% and Online & Retail, 38%. These differences in margin by division reflect product and market mix and for Online & Retail business being a direct-to-consumer business, whereas the 2 other divisions are business to business.

The group margin was, as already mentioned, at 44%. Measured by EBITDA, the margin differences are even wider with Online & Retail delivering the lowest margins, while North America Branded & Rest of the World delivered the highest margin, primarily as these markets do not have own sales organizations. We'll now move to each of the divisions.

So please turn to Slide #16. I will begin with Europe Branded. For the full year, reported net sales grew by 6%, largely due to the acquisition of Mac Baren in the third quarter of 2024. Organic net sales growth was slightly negative as increased sales of nicotine pouches were offset by declines in machine-rolled cigars and smoking tobacco. During the year, our gross margin before special items decreased from nearly 49% in '24 to 48% in '25. The decline was driven by changes in product mix with a strong growth in net sales of our nicotine pouch brand, XQS and lower sales of smoking tobacco.

The same factors contributed to a decrease in the EBITDA margin, which fell from 21% in '24 to 19.8% in '25. Overall, profit margins for Europe Branded are affected by shifts in product and market mix as well as disruption in product availability. Reported and organic net sales growth for the fourth quarter was 6%, driven by both nicotine pouches and machine-rolled cigars. However, declines in both gross margin and EBITDA margin were due to the rapid growth of nicotine pouches compared to other product categories.

Now please turn to Slide #17. For the full year, reported net sales decreased by 4% and organic growth declined by 5%. The acquisition of Mac Baren contributed positively to reported growth, while the weakening of U.S. dollar against the Danish krone has a nearly equal negative impact. The full year gross margin before special items decreased from almost 51% in '24 to 46% in '25, primarily due to changes in product and market mix. This was most notably affected by lower sales of high-margin machine-rolled cigars and smoking tobacco products.

For the fourth quarter, reported net sales for North America Branded & Rest of the World fell by 12%. Organic growth was negative by 7% as growth in handmade cigars could not offset a high single-digit decline in machine-rolled cigars and smoking tobacco. The category other, which includes sales of accessories and similar items, also experienced negative growth during the quarter. The decline in the gross margin during the fourth quarter was even steeper compared to the full year decrease as the quarter was compared to a particularly strong fourth quarter in 2024.

Additionally, lower sales of machine-rolled cigars were primarily driven by reduced sales in our high-margin markets in Australia and Canada. These dynamics were also the main factor behind the significantly lower EBITDA margin before special items during the fourth quarter, impacting not only North America Branded division but also the group margin for the period.

Now please turn to Slide #18. For the full year, North America Online & Retail reported growth in net sales decreased by 8%. Organic growth was down 4% but excluding the discontinued distribution was slightly positive. Underlying organic growth included gains in our retail stores, while our online business experienced a slight decrease. In retail, we are seeing the benefits of opening new stores over the past year. However, same-store sales were marginally lower due to a renovation of our largest store in Fort Worth, Texas, as Niels mentioned earlier.

Competitive pressure remains strong in the online channel but our pricing strategies are gradually improving our market share. Throughout the year, both gross margin and EBITDA margin were affected by the intensified promotional activities aimed at expanding our market position.

For the fourth quarter, reported net sales decreased by 8.6%, primarily due to currency fluctuation. Organic growth was down 0.5%, with retail achieving 7% growth and online business showing a slight decline. Gross margin and EBITDA margin before special items in the fourth quarter were impacted by the high level of promotional activities, which have continued into 2026.

I'll now move to an update on group financial performance. Please turn 2 slides to Slide #20. Throughout the presentation, details regarding developments in net sales, gross margin, EBITDA margin have already been given. Now I would like to provide a few additional comments on select financial details and key metrics. In 2025, special items amounted to negative DKK 200 million compared to DKK 279 million in '24. These costs can be divided into DKK 130 million for the SAP implementation and DKK 70 million for reorganizations and the integration of Mac Baren. We expect special costs in '26 will total approximately DKK 275 million before gradually tapering off in '27.

Higher net financial costs were driven by both increased net debt and the refinancing of our corporate bond, which took place in September '24. We refinanced our existing EUR 300 million bond, which matured in '24 with a new facility of similar DKK 300 million. However, the new bonds were issued with a coupon interest that was almost 3.5 percentage points higher, reflecting the prevailing market rates at that time. Financial costs, including exchange losses, increased by nearly DKK 100 million compared to 2024. We have already addressed the effect of the discontinued distribution of the ZYN nicotine pouch product, which negatively impacted group organic net sales by 1.3%. This implies that the underlying decline for the year was 1.8%.

Finally, I'd like to address the decline in return on invested capital, which is a key KPI for us as we strive to meet our new financial ambition. Return on invested capital decreased to 7.9% from 9.4% in '24, while our ambition is to achieve a return on invested capital above 11% in 2030. Excluding the impact of special items, which are included in the calculation, return on invested capital was 9.3% in 2025, almost similar to '24. The decline in return on invested capital for the year was primarily due to lower EBIT as invested capital remained broadly unchanged at DKK 14.5 billion.

Please turn to Slide #21. Niels mentioned in his opening remarks, the free cash flow before acquisitions was approximately DKK 200 million below our guidance. The free cash flow was DKK 595 million compared to DKK 931 million in '24, and our guidance range was DKK 800 million to DKK 1 billion. In the fourth quarter, free cash flow before acquisitions was DKK 147 million compared to DKK 604 million in the fourth quarter of '24. The lower cash flow during the quarter relative to our expectation was due to delays in collecting of receivables associated with our ERP implementation in Europe. This issue has now been resolved. Payments are beginning to be recovered, and we anticipate working capital will return to normal levels during the coming months.

The delayed payments are expected to have a positive effect on cash flow during the first half of 2026. The effect on working capital during the fourth quarter resulted in an unusually negative contribution from changes in working capital with a reduction of DKK 17 million in the quarter, which was DKK 180 million lower than the positive contribution during the fourth quarter of '24. Typically, working capital changes are positive in the fourth quarter of the financial year. Other factors contributing to the lower cash flow in the fourth quarter included a reduced EBITDA and higher taxes paid, which in the illustration is included in investments and other.

Now please turn one slide to Slide #22. In the fourth quarter, the leverage ratio increased from 2.9x by the end of third quarter to 3x by the end of 2025. The increase is due to a decline in EBITDA before special items compared to the fourth quarter of last year. Compared to '24, the leverage increased from 2.6x. Throughout '26, we remain fully committed to lowering the leverage ratio and working towards our target ratio of 2.5x. This is a top priority for us this year, and if our earnings come under greater pressure than anticipated, we will take necessary steps to ensure the leverage ratio is reduced.

Now please turn to Slide #23. In November, we announced our capital -- new capital allocation policy, which is guided by a leverage target of 2.5x. This target determines the level of investments and shareholder payout, giving us the financial flexibility to pursue growth opportunities while delivering shareholder returns. It also emphasizes our commitment to maintaining an investment-grade credit rating. We transitioned to a payout ratio-based dividend policy, ensuring dividend distributions are closely aligned with our underlying financial performance. The dividend payout ratio is set between 40% to 60% of adjusted earnings per share. This approach will take effect with dividend allocation related to the '25 financial results and will impact the dividend proposal for the upcoming Annual General Meeting in April.

Since our listing in 2016, we have consistently delivered on our shareholder returns and intend to continue doing so. Given the current leverage ratio, we believe it is prudent to propose a dividend payment of 2025 in the low end of the payout range. The Board of Directors plan to propose a dividend payout per share of DKK 4.5 corresponding to a payout ratio of 42%. As we normalize our leverage in the coming years, we intend to create greater capacity for share buybacks, which continue to be an essential component in our overall capital allocation policy.

With this, I will now hand the presentation back to Niels. Please turn 2 slides to Slide #25.

Thank you, Marianne. For 2026, we expect the consumer trends to be unchanged for most of our product categories and markets and broadly similar to historic trends. We do appreciate that uncertainties are elevated and the risk for external disruptions remain high. However, we believe we have established good control of our internal processes and operations following the implementation of the SAP solution throughout Europe, and we are now well prepared to execute on our new strategy.

For 2026, we expect group net sales growth at constant currencies to be in the range of minus 2% to plus 2%. The expectation reflects that total market volumes for machine-rolled cigars in Europe will decline by 3% and consumption of handmade cigars in the U.S. will decline by 4%. Improving our market shares, growing our U.S. retail and nicotine pouch businesses are expected to offset the volume declines in our core combustible categories.

For 2026, we expect the EBIT margin before special items to be in the range of 13% to 14.5% compared with the 14.9% in 2025. The expectation reflects that 2026 will be a year of stabilization and where we will continue investing to facilitate our long-term ambitions in Focus2030. Pricing is not expected to fully offset the impact from cost increases, changes in product and market mix as well as our increased promotional activities to protect and improve our market share positions.

On a more technical note, an increase in the amortization of trademarks of approximately 1 percentage point on the EBIT margin before special items is expected to be largely offset by an expected higher income from certain duty refunds. The increase in amortization reflects the group's new strategic direction with stronger focus on power brands, implying that brands outside the scope of power brands going forward are classified with a finite useful lifetime. For 2026, the free cash flow before acquisitions is expected in the range of DKK 950 million to DKK 1.2 billion, reflecting the expectations for net sales and margins as well as the delayed payments from trade receivables, which Marianne talked to, impacting cash flow positively in 2026 with an expected effect on cash flow during the first half of this year.

Now this concludes our presentation for today's call. I'll now hand the word back to the operator, and we are ready to take questions. Thank you.

[Operator Instructions] And now we're going to take our first question over the audio lines. And the question comes from the line of Niklas Ekman from DNB Carnegie.

First question is regarding the guidance for 2026 because at the Capital Markets Day in late November, you talked about an ambition for a low single-digit growth of EBIT. And it looks now like even the upper end of the full year guidance suggests a decline and the low end, a quite significant decline. So can you elaborate a little bit on this? Is there anything that has worsened since the Capital Markets Day in November?

Thanks for the question. So when we talk about a low single-digit increase in EBITDA, it is over the strategy period. We are believing that 2026, which we also said at the Capital Markets Day is what we call a year of stabilization. We need not only to stabilize the internal disruption that we have seen in '25 but we also need to stabilize both our handmade cigar business and our machine-rolled cigar business. And that will entail investments into regaining market share but also in promotions. So we still believe that over the strategy period, we will see low single-digit growth in EBIT. But in '26, we could see a decline.

Can I also ask about your view on margins and potential cost reductions and particularly given the quite steep margin decline we've seen in recent years. You've now have margins that have dropped below pre-COVID levels and the guidance for '26 suggests a further decline. Are you in a stage now where you are looking more actively at your cost base again and maybe at initiating more significant cost reductions in order to curb the margin decline? Or what's your view on that?

Yes. Thanks again, Niklas. So if we talk margins in '26, margins in '26 will also be impacted by mix, which means that our nicotine pouch business, we expect to grow but we are also seeing declines in our fine-cut business that has very high margins. When we talk about cost programs, we announced at the Capital Markets Day a cost program of DKK 200 million over the coming years. We are, as we speak, executing on these cost programs. We have full plans in place for those DKK 200 million, and we will see that coming in, during '26 and also '27. I would also say that if we see markets are worsening compared to our expectations, we will, of course, look at our cost levels.

Okay. Very clear. I'm also curious, when I look through the report, you used to talk a lot about the growth enablers. And now you talk more specifically about next-generation products and the retail stores. Is this a definition that you have removed? And is this because you don't -- you no longer see the international handmade business as a major growth driver?

Yes, it's a good question, Niklas. I think that with the new strategy, you can say that retail expansion and nicotine pouches still play a central role. But the growth in international handmade cigars is still important to us, but we have prioritized doing well in handmade cigars in the U.S. more. So referring to the growth enablers as we originally defined them makes less sense. We now want to be more focused on stabilizing earnings in the machine-rolled cigars, smoking tobacco, growing the handmade with a focus on the U.S. and growing nicotine pouches. So we will try to articulate the degree to which we succeed with these things in a different way than referring to the growth enablers.

Very clear. And just a final question. Am I right to assume that buybacks are quite unlikely in '26. When I look at your leverage ratio and your aim to get net debt below 2.5x EBITDA, I guess the only way to get there is if you stick to dividends and not buybacks. So buybacks are unlikely in '26. Is that a right assumption?

I think the short answer is yes.

Now we are going take our next question, and the question comes from the line of Sebastian Grave from Nordea.

I apologize for those being broadly in the same line of Niklas. But I'll start off with a question on the margin here. So for the guidance of '26, you're guiding for quite steep margin declines compared to '25, even from a fairly low starting point in '25. And I know you talked about increased investments in market shares. But I mean, on the flip side, I would assume that you should see some tailwind from Mac Baren synergies. There should also be some SAP efficiencies and cost takeouts as highlighted in the Capital Markets Day. So at least in my view, it looks like underlying the margin pressure here is way more pronounced than what is -- we can see from the highlighted numbers here.

So could you maybe help me understand how this works and how exactly this aligns with your articulated ambitions of protecting earnings in the short term?

Yes. Yes. Let me start out, Sebastian. And first of all, thank you for asking questions, and then Niels can also elaborate. But if you look at our guidance range, both when we look at top line and also margins, it is quite wide ranges if you compare to our business. And it is a signal of uncertainty on our total markets, how they're going to develop but also uncertainties in the external world. So we are anticipating a slight decline in margins in '26 due to the reasons that I mentioned to Niklas. We are on track on the synergies for Mac Baren. You talk about SAP synergies. There will also come synergies in on the SAP implementation. But as we are still rolling out, we're focusing on that rather than executing on those synergies for now.

Yes. I can add, Sebastian. I think when you look at Europe and machine-rolled cigars, you have the area where you have a lot of mix of product and market. The thing that is, let's say, not new but is more sustained and we can also see it continuing into 2026 is the promotion pressure applied across all sales channels in the U.S. So even though we take price increases and we continue to have a high focus on that, margins are under pressure simply to stay competitive, both on a, let's say, a brand level to regular retail and on an online level competing in the U.S. So these are some of the key dynamics that are in play and which we are obviously working very closely to improve but that is what is reflecting the margin pressure that Marianne also referred to.

Okay. So what I'm hearing you saying, Niels, is that you are in a difficult consumer environment in a structurally declining category with fierce competition. And hence, is there any reason to believe that invest in these currently elevated investments in market shares that they should taper off in the near term, i.e., in '27, '28?

Yes. I think that the way to think about this is that market conditions have intensified, if I can put it like that. And our strategy aims at protecting and enhancing market shares, and that comes with a higher promotion pressure. Our job over time is to let's say, improve or lower that promotion pressure and still do well on market shares but it requires the market conditions to improve. So you can see the combination of total market declines and the -- let's call it, the fight for market share is what is putting the pressure on the market. And we have, of course, an expectation that over time, that will normalize. We've not seen promotion pressure like this and downtrading on this for some time.

Okay. That is fair. And my last question is going back to the ambitions of harvesting some DKK 200 million efficiency gains as you talked about in the I understand that some of these ambitions have already translated to initiatives but can you maybe help explaining how much of the DKK 200 million is already reflected in the '26 guidance and how much we should expect beyond that?

Yes. So I would -- for the '26, I would think it in the level of around DKK 100 million.

Okay. Okay. So half of the efficiency gains...

Sorry, Sebastian, then going into '27, we'll be closer to DKK 200 million but probably not fully, and we'll see the last part coming in, in '28.

[Operator Instructions] And we're going to take our next question on the audio line. And it comes from the line of Damian McNeela from Deutsche Numis.

The first one is on Canada and Australia because I think in the press release last night, you called out challenging conditions there and the impact that, that's had on the business. You did mention in the presentation. Can you talk a little bit about what's happening in those markets and what the outlook for this year is, please? That's my first question.

Thank you, Damian. And if I start with Australia, for those that follow the industry closely, it's maybe no surprise that we have seen an explosion in illicit trade. So a lot of tobacco companies, including ours, have seen earnings decline by quite a bit in Australia. And this is, let's say, increased for us in the sense that we had because of regulatory changes, a relatively higher sales in 2024 than in 2025. So the net impact of Australia on our profitability is quite distinct. So Australia is very much about a total market that is going illicit. And we are not losing market share, but basically losing volume simply because the legitimate market is lower, and it's a high profit market as we debate that will be discussed.

For Canada, the situation is a little different. Also here, our market share position is strong and broadly unchanged. But in Canada, there is a -- from time to time, a larger sales into the Indian districts and the government have restricted some of those licenses they issue for selling in Indian districts, and that has affected our sales in Canada in 2025. So those are the 2 main explanations around Canada and Australia and them being among our highest margin markets does affect the average margin and total costs.

Yes. And just as a follow-up on that Canada point, that's likely to remain the case for the medium term, is it?

It's been -- over the years, this has been an on and off issue. So there's nothing wrong with selling in the Indian districts but they need licenses and sometimes the government takes it away from them and then a period passes and they get reinstated. So we are still of the view that they may come back but there's no guarantees around it.

Yes. And so the guidance assumes no return for those...

Yes. Yes.

Yes. Okay. And then in MRC Europe, it looks like margins have stabilized, but market share losses have continued. I was just wondering whether you could sort of call out some of the competitive dynamics in your -- a couple of the bigger markets that you operate in. Just to give us a sense of how the business is performing now that the sort of ERP system is up and running and fully implemented?

Yes. Let me try to give a few examples. So 2 of the key markets in our strategy is France and Spain. And as we have been resolving the inventory availability issues up until the end of 2025, we are seeing that market share is responding positively into 2026 but it's also us recovering from a low level. So we are still saying we have to be patient around how fast we can regain market share into 2026. But at least in these 2 markets, you can say that we have inventory availability back to where we would like to have it.

When you look at other key markets in Europe, the situation is a little different. We have markets like the U.K. where there is a higher decline rate of machine-rolled cigars, and there's also a shift from regular machine-rolled cigars where we are strong to increasingly small cigars where we are competing up against some of the larger tobacco companies. So even though those categories grow, the mix in margin become again a net negative.

When you then look to the Central European markets of Benelux and Germany. Here, we are, again, still concentrating on getting customer service levels back to where they need to be. And also here, you have in certain markets, this new dynamic of consumers shifting between what we call mainstream small cigars and little cigars, which are also cigars but sold at a lower price and typically in 10-pack cigarette type packaging formats.

So it's -- what I'm really saying is it's quite a complicated picture when you look across the markets. What's important to remember is we have really strong market positions in many of these places, France, Spain, Benelux, U.K., and that's what we're trying to leverage to get the market share back.

And then you were also asking about the competitive situation. And here, we are seeing -- which we've also seen over the years that our competitors are reluctant to take the same level of price increases, which we think is necessary to cover both volume decline and cost increases.

Okay. So that hasn't changed at all.

No.

No.

No. Okay. And then just on -- I guess this is a slightly more philosophical one. You've changed guidance from EBITDA to EBIT margins. I was just wondering if there was anything behind that decision to do that.

Yes, maybe I can answer that. First of all, we believe also now where we have a more distinct and clear focus on return on invested capital, it goes more in line with giving a guidance on EBIT. Secondly, the EBIT level also includes what we have seen in the past few years, increased investments and therefore, depreciation in especially our retail business. And then we have also noticed from kind of studies we have made with the market that it's a more common practice to guide on the EBIT level. So that's the key reasons for us changing that.

Yes. Okay. That's clear. And then perhaps if I may, one last one, just on the XQS brand. Can you just sort of give a sense of the areas of focus for growth? I mean, obviously, Sweden is pretty strong already. Do you see increased investment behind the brand through the course of '26?

We are seeing increased investments behind the brand, Damian. If you look at the geography, we talk a lot about Sweden. We talk a lot about the U.K., which are 2 important markets for us but we also consider, let's say, Scandinavia at large, and we are opening a new subsidiary in Norway later in the year. They will, of course, also include nicotine pouches in their portfolio. Finland is also in the focus area and certain Eastern European countries. So we are focusing on the European geography to build momentum also outside of Sweden.

Thank you. Dear speakers, I have no further questions. Please continue.

Okay. Yes. Thank you. And I was simply just going to close off the call now. Thank you for listening in. Thank you for the questions. And yes, we will meet again in May after our first quarter results. Thank you, and have a good day.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.

Welcome, everyone. Welcome to Scandinavian Tobacco Group's Capital Markets Day 2025. My name is Torben Sand. I'm Director of Investor Relations and External Communications, and I have the honor of leading you through the next 2.5 hours.

This is a live streamed event, and this will be recorded, so you can both download the presentation on our website, and you can also listen in to the recorded version of this Capital Market Event after it has closed off. Back in 2023, we also hosted a Capital Markets Day that centered around the uniqueness of our company. Today, we will build on that, and we will now unfold our new strategy, Focus 2030.

Let's now jump to the agenda for the day. First of all, we will have our CEO, Niels Frederiksen. He will unfold the highlights of the strategy. He will also have reflections for the past 5 years and explain a little bit on those learnings and experiences that we will carry into the new strategy. Then we will have Régis Broersma, our Chief Commercial Officer, and he will deep dive into what we call our strategic priorities for the next 5 years. We will have a small Q&A session in between, and those Q&As that will only be from the webcast. It will only be a 10-minute Q&A session.

Then we will have a short break and Régis will be back and he will talk into the final of our 3 strategic priorities. He will give the word to Marianne Bock, our CFO of the company, and she will talk to the financials and implications of our new financial ambitions in relation to Focus 2030. When Marianne has concluded, we will open up the floor for a wider Q&A session. We will take questions both from the webcast but also from the telephone conference. And here, we will have a restriction just so you are aware of it that will take 2 questions only to begin with, and then you can line up back into the queue but I will get back to that.

I think with these opening remarks, I will leave the floor to Niels.

Thank you, Torben. Thank you, Torben, and welcome to everyone who have joined us here today. We're going to start by talking about our purpose, which is the foundation for everything we do at Scandinavian Tobacco Group, we craft the rituals that make us more. And this is more than just a slogan. This is about creating memorable moments for our consumers and about being proud of the products we make.

Let me share a recent moment where our purpose resonated particularly well with me and where I, again, was reminded that what we do really matters. Earlier this year, I traveled to Cannes where there is the annual duty-free event of the year, attracting customers from all over the world. On the day before the event, I went down to check out our booth, and I was very proud to find a beautiful booth with a nice smoking terrace. I also met 2 of my colleagues, Sean and [ Marley ], who are busy getting the booth ready for the customers we will receive the following day, and I did my best to help out.

It was good fun. And when we finished, we all gathered on the terrace to share a nice cigar. And that was a great moment where we had the opportunity to catch up on what was happening in our different lives, but also with our different history around Cannes. That was indeed a memorable moment, a special moment that brought us closer together. And that is fundamentally why we exist to create those moments of enjoyment, those moments of reflection and also those small moments that make our everyday life a little better. Our vision is unchanged. It is to be the undisputed and sustainable global leader in cigars.

Let's now turn to the new strategy. It's now almost 10 years ago, we listed Scandinavian Tobacco Group on the Copenhagen Stock Exchange. And in those 10 years, we returned more than DKK 9 billion to our shareholders through dividends and share buybacks. And we've built an even larger and more profitable company. And going forward, STG remains committed to deliver attractive shareholder returns through exactly the same mechanism, dividends and share buybacks as we've done for the past 10 years. That is a strong starting point for our new strategy, which we call Focus 2030, and we do so because we need to do fewer things better.

Our environment has changed significantly over the past 10 years. We are today facing a global economy that is characterized by more geopolitical unrest and also a new global trade order. We also see that consumers have a much wider assortment to choose from within the tobacco and nicotine industry and the industry itself is undergoing significant transformation. And lastly, we see that the regulation of the industry is not only increasing, it's not being harmonized globally, and this is particularly the case for next-generation products.

Combined, these developments reflect a more uncertain and less predictable marketplace. And our response, as I will outline in a second, is to sharpen our focus. We aim to build an even more consumer-centric company capable of supporting fewer but larger power brands. We will be more aggressive in simplifying our portfolios and simplifying our business to make sure that our employees can concentrate on what is really important. And we will focus our investments in the areas where we see the biggest match between the size of the opportunity and our right to win. And finally, we will invest in people, data, digitalization and business analytics to help our organization execute faster and better and drive cost efficiency.

Now let me turn to examine how success will look in 2030. Now the purpose of our strategy is not only to create value by executing the strategy well but also to develop a company that is even better positioned to create value beyond 2030. We are confident that we can do so and success in '30 looks as follows: A sustainable and stable machine-rolled cigar and smoking tobacco business with its primary focus on Europe; a growing and increasingly attractive handmade cigar business anchored in the U.S. but with an even stronger global footprint; and a larger nicotine pouch business with further upside in an attractive category. And in the process, we will turn the negative earnings trend around that we've seen for the past 3 years, and we will create value for consumers, for employees and for shareholders.

Before we start getting into the details of the strategy, let me first review what has worked well over the past 5 years and also where we have struggled along the road. We have grown Scandinavian Tobacco Group through several acquisitions that have strengthened our portfolio, and we did so on the back of the large Agio transaction. We took an important decision to start rolling out our global SAP solution, which we call OneProcess, which is a significant change to our systems and to our ways of working, helping us become more standardized, more globalized and more cost efficient. And when fully implemented, this is a critical enabler for our business that will enable us to scale our business into the future and deliver more cost efficiency.

Our sustainability efforts have also progressed well, especially within compliance and climate. And we are also now focusing on a purposeful packaging program, which will help us reduce our packaging footprint and position ourselves as a sustainable company for the future. And our growth enablers have not only grown, they are also showing more potential. And in the same period, we returned -- in the last period, we returned more than DKK 5 billion to shareholders through dividends and share buybacks. These are all achievements that we are proud of. But as I said before, we have also seen struggles along the way.

Now the strategic period has been somewhat of a roller coaster with respect to earnings with '22 being our highlight and declines seen from '23 to '25. Some elements of this has been driven by industry developments and some by our own mistakes. But first and foremost, we have not succeeded in stabilizing our machine-rolled cigar business. We've also struggled with costs of building capabilities running ahead of benefits. And although we have delivered positive total shareholder returns over the 5-year period, we've not been able to match our industry peers. That must improve going forward, and that is what we intend 0the strategy to deliver.

Let me now take a closer look at where we are today. Scandinavian Tobacco Group is, first and foremost, a market-leading company in machine-rolled cigars in Europe and handmade cigars in the U.S. And then we are, of course, the global leader in pipe tobacco. And if we are not the market-leading company, which is the case for our fine cut and our nicotine pouch business, then we have strong -- we have strong and attractive market positions in selected markets such as Denmark, Norway, Germany, U.S. and Israel for fine cut and Sweden for nicotine pouches. This is a strong starting point for implementing our new strategy.

We are also operating in an industry that is undergoing significant transformation driven by the expansion of next-generation products. And it's more important than ever that the strategy clearly contain choices of what to do and what not to do. If we look at our financial reality, we have to start to turn our earnings development around, and we must show that we have a sustainable and growing business going forward. At the same time, we need to reduce our gearing to the level or below of our target, and we need to make the necessary investments behind our business and our brands.

We are committed to these objectives, and it's also why we have reviewed and changed our capital allocation policy and introduced a more flexible dividend policy that Marianne will return and talk later this afternoon. However, it is important for me to emphasize that the new allocation policy does not change our commitment to deliver strong shareholder returns going forward in the form of dividends and in the form of share buybacks. The new capital allocation policy facilitates a better implementation of the new strategy with more flexibility for us to decide how to use the capital we generate.

Now let's look at the new strategy in more detail. We have identified 3 strategic priorities in Focus 2030. They are to stabilize the performance of our machine-rolled cigar business. They are to fully exploit the growth opportunities we see in handmade cigars, and it is to accelerate our growth in nicotine pouches. The new strategy is anchored in strong brands and strong market positions across our diversified portfolio. However, the market conditions and the strategy call for us to allocate resources differently going forward to ensure that we focus on and capture the largest growth opportunities that we see.

Now the strategy addresses what we need to fix because it's not working according to or not living up to our expectations but it also focuses on what we do well and how we will push that even harder to create even stronger results, all with a combined ambition to create a sustainable and growing company with potential beyond 2030.

Let's now look at how we'll fix the performance in machine-rolled cigar and support our foundation of machine-rolled cigars and smoking tobacco, which together represent around 50% of our net sales. Our single biggest operational problem has been machine-rolled cigars. And here, we've seen multiple challenges. Some have been caused by industry developments, some have been caused by our own mistakes. Market conditions have definitely become more difficult, and we have seen more price competition. And to stay competitive, we have made pricing decisions that have affected margins negatively but they have also reduced the overall size of the profit pool. And finding ways to restore this profit pool is at the very top of our mind.

We also have an underlying structural problem in machine-rolled cigars with Scandinavian Tobacco Group being the strongest in the markets and segments that declined the most. And we are working hard to mitigate this underlying trend. And as I'll talk about in a minute, we are seeing small signs of improvement. We also integrated the Agio factories in 2021, and we made some mistakes in this process that led to a longer period where we had problems supplying enough product to the market. And unfortunately, we saw this again in 2025 as we rolled out the global subs solution in our European markets. This has negatively impacted our market shares in Europe.

And the result of these 3 things is that the bulk of our earnings decline over the past 3 years can be explained by the machine-rolled cigar development and the strategy needs to change this. So why are we confident that the strategy will be successful in doing this? First, it's important to remember that we are still the European market leader in machine-rolled cigars. That's a strong starting point. We are focusing on protecting our strongholds while we are building market shares in the segments and the markets where we are less strong than today. And as I said, we are seeing small signs of improvement, but this is a critical success area.

We have actually finished the rollout of SAP in Europe, which means that we are now concentrating on stabilizing the system and normalizing supply. This should help our performance already in 2026. We are also implementing a significant portfolio simplification, and we are focusing our efforts around 4 power brands. This will enable our supply chain to contain COGS increases and protect margins, and we continue to work diligently with better pricing but this is also contribute to protecting margins. So together with our strengthened smoking tobacco portfolio on the back of the Mac Baren acquisition, we are confident that we can keep earnings stable from this important part of our business over the strategic period. And this is critical for us in order to see the full value of the growth opportunities we see in both handmade cigars and nicotine pouches.

I also think it's important to emphasize that the combined machine-rolled cigar and smoking tobacco business is the foundation for a range of sales companies and distributors that we have across Europe and the rest of the world, and we can use these to leverage growth opportunities for other parts of our business. However, this is the part of our business where we will allocate less resources in the strategic period.

Let me now turn to the handmade cigar business, which represents around 37% of our net sales and which has grown consistently throughout the previous strategic period. Now this is a category where we have a very strong market position, not only through our own brand portfolio but also through our own online sales platforms and through our own retail stores. This is also a category that during COVID saw a lot of turbulence with consumption going up as consumers went home and smoke more cigars. Post-COVID, this market has come down faster than we anticipated, and this has been further disrupted by tariffs, cost inflation and consumer sentiment in 2025.

So we still expect this category to return to a minus 2% annual decline over the strategy period, however, only starting in 2027. Promotion pressure has increased for the handmade cigar category across all channels in 2025. And due to tariffs and cost inflation, we are also seeing more down trading. However, during 2025, we have also adjusted our brand portfolio and our promotion tactics and my assessment is that we will enter 2026 in a very competitive position, and we are well positioned to execute the new strategy in handmade cigars.

Now the strategy aims to accelerate our growth in handmade cigars by focusing our efforts around 4 power brands, Macanudo, Cohiba, Alec Bradley and CAO to make them bigger and to make them even more relevant for consumers. We will give our own handmade cigars more preference across the sales channels that we control. And subject to continued strong performance in our own retail stores, we continue -- we expect to continue to add more stores to our already strong network. The stores deliver attractive economic metrics, and Régis will come back to this a little later this afternoon but we will aim to open more new stores in the next strategic period than the 8 stores we opened in the strategic period we are just closing.

We will invest in production and in distribution to secure quality and availability for our handmade cigar portfolio, and we are tailoring the manufacturing approach to make sure we can compete in both value and premium segments, being cost efficient for value cigars and adding craftsmanship and luxury for our premium brands. The international growth will follow the same approach, applying the U.S. brand strategy and simplification to other markets outside the U.S. So all in all, we are very confident that we can accelerate the growth in the handmade cigar category, primarily in the U.S. but also globally. This is a category where we have a very strong starting point, where we want to invest more and where we feel we can compete well and gain market shares.

Let me now turn to nicotine pouches, which represent around 5% of our business today and which -- but is also a category with significant growth potential and an attractive category. Now this business started a few years ago as a growth incubator project. But in the new strategy, we have made the nicotine pouch business into a core business for Scandinavian Tobacco Group, and we made it 1 of our 3 strategic priorities. So many people have asked me, why is this a good business for Scandinavian Tobacco Group to be in? And the answer is actually quite simple. First, we see consumers increasingly becoming multi-category users, and it's simply too big a risk for us not to be active in any next-generation products at all, especially for our machine-rolled cigars, we are concerned because over time, we expect there to be less cigarette smokers and cigarette smokers are the main source of customers in the machine-rolled cigar business.

Secondly, we have shown that we can compete in nicotine pouches, especially in Sweden, where we now have more than 13% market share, and we are the second largest brand in the nicotine pouch category, and we are also growing outside of Sweden. And finally, this is a fast-growing and financially attractive category with the potential to become a very large business for Scandinavian Tobacco Group and with margins that when fully in-sourced should be at the level of our core cigar business or higher.

The strategy sets out how we intend to grow this business with our primary focus on Europe. Our power brand in this category is XQS. And we have 2 focus markets, Sweden and the U.K., and we have one success criteria, which is to grow market share. We have, as a company, our strength in the flavored segment of the market but we are investing in capabilities to build our mint expertise, which is still the dominant segment of the nicotine pouch business, and this will improve our ability to compete and it will also safeguard us against potential flavor regulation in this category over the years.

We remain asset-light in our approach to this category. And although we expect gross margins to improve over the strategic period, we are not assuming any value from in-sourcing but we will continue to work with our contract manufacturing partners. We are currently generating approximately 30% in gross margin and not losing any money in this business. In-sourcing is assessed to contribute around 15 to 20 margin points in uplift equal to around DKK 60 million to DKK 80 million on the current size of our business. So this is a business where we will keep our options open. And on a regular basis, we will assess whether we are still following the right direction or whether we need to recalibrate our strategy. The Scandinavian Tobacco Group, this is a segment with significant potential globally but it's also a category where we still have a lot to learn.

Now those were the 3 strategic priorities in Focus 2030. And let me now use our strategy leave to summarize what we are setting out to do in the next period. Focus 2030 is about sharpening our focus and doing fewer things better but it's also about turning our earnings trend around and building a more sustainable company for the future. We are confident that we can do so, and we believe that in 2030, we will be a more attractive company to consumers, employees and shareholders.

We will have a business that consists of a stable and sustainable machine-rolled and smoking tobacco business as our foundation. We will have a growing and increasingly attractive handmade cigar business anchored in the U.S. but with a stronger global footprint, and we'll have a larger nicotine pouch business with an upside in an attractive category.

That concludes my introduction for today, and I'll now hand back to Torben, who will introduce the next speaker. Thank you very much for your attention.

Thank you, Niels. And before we jump to the next part of the program, I just again remind you of the Q&A session we're going to have after Régis' presentation. And just again to remind you, I know there's quite many Danes that is also following us on the webcast. You are absolutely okay to typing in your questions in Danish. I will translate them into English. So that's perfectly okay just as a notice.

With that, I will leave the word to Régis for the introduction of our strategic priorities.

Thank you, Torben, and a very good day to everyone on the live broadcast. My name is Régis Broersma, and I'm the Chief Commercial Officer of Scandinavian Tobacco Group. You've just heard the overall direction of our new strategy, Focus 2030 and also some of the highlights of the 3 strategic priorities. So in the next section, I will bring these to life. So how we win by focusing on our consumers, on key brands, on key countries and also to focus on commercial execution excellence. So let me start with the first strategic priority, which is stabilizing our machine-rolled cigar business. So this is a category where we have faced challenges over the recent years.

In the next slide, I will show you how we intend to turn around the performance. As Niels mentioned, shift starts with focus. Instead of trying to win everywhere, we anchor behind 4 power brands: Panter, Signature, Mehari's and La Paz. These are our largest and most distributed brands. They're covering all the spectrum of pricing and also all the consumer need these.

We also concentrate on 2 key markets, which are Spain and France. They are large, strategically important, less restricted from a regulatory perspective, and we have a strong route-to-market capability. We have become more complex over the years, which is mostly driven also by our recent acquisitions. By simplifying our portfolio and reducing SKU complexity, we free up operational efficiency and redirect investments to fewer but bigger brands.

Why will it work this time? As you have heard this before. So because we have a clarified simplification road map across blends, formats, brands and SKUs, all backed by strong internal data and milestones defined. And the good news is the implementation is already on its way. So a few examples. A perfect example is smoking tobacco and the U.S. lack of our acquisition of Mac Baren Tobacco Company. There were close to 2,000 SKUs in that portfolio. At the beginning of this year, we basically rationalized all of them, except for a handful, which we moved to our factory in Svendborg and Assens and Holstebro. And we have migrated those SKUs to SDG brands, which have a higher margin. The second example is our machine-rolled cigar business, where we have identified 50% of the SKUs where we can rationalize, and that is also already in the implementation phase.

So we are well on our way. Our ambition reverse market share erosion and gained 2 percentage points from 27% to 29% in the core 7 European markets. This is a balancing act between pushing for share recovery, volume on one hand and on profitability on the other hand. This to maximize value creation. So let's zoom out and look at the European landscape. The 7 key markets in Europe represent around 4 billion machine-rolled cigars. Core contributors are Germany, France and Spain. Recent market decline shows a CAGR of minus 4%, and we expect in the future that it will revert to around minus 3% CAGR.

In recent years, we have also seen that the STG strongholds are declining faster than the total market average. Those are France, U.K. and Belgium. The good news is in 2025, it looks more favorable because the total market decline in the first 9 months of this year is around minus 0.7%.

So now why has STG struggled? There are many reasons but I will highlight 3 of them. So first of all, Niels already mentioned, we have not been able to adequately supply the market over the last couple of years. So these are because of the decisions we made during the Agio integration, but also with the go-lives with the different waves in our SAP rollout. This has put pressure on our market positions, hence, the decline in volume, net sales and gross profit. The second reason, a negative country mix. So our strongholds are decreasing the fastest, which is again, Belgium, U.K. and France.

Then the third subsegment, the third reason -- sorry, the subsegment dynamics. So the traditional segment is where we are declining. We have strong margins there but the total segment is in decline. Then we are under-indexed in the filter and flavor. The margins are a little bit lower than the traditional segment, and this segment is more resilient. We have made progress in filter and flavor but we need a balanced approach going forward. We need to stay strong in the traditional segment, especially with potential flavor bans coming at the end of the strategic period. We also need to strengthen in filter and flavor, and we do that by our power brands and consumer relevant propositions. Year-to-date, we already see that we are improving. We measure 6 subsegments, and we have stabilized 5 or even growing in 5 of them. The traditional segment, we're still declining, and that is the one we need to fix.

Despite recent challenges, we are still the #1 player in Europe. We have strong market positions across, so we start from a position of strength. Our focus will be on tailoring our strategies to the characteristics of each of the markets. So France, Spain and Italy are push markets. So active selling is needed. Belgium, Netherlands and the U.K. are highly regulated, and that is where it is about profit extraction. Germany is large. It's a combination of push and pull and is very strong in the private label and in the value little cigar segments.

Then let's move to the brands. So our power brand selection is grounded in deep consumer insights, both in functional needs but also in emotional needs. Together, the 4 selected power brands form the right mix for growth, covering all the consumer need states that we have in our category. To remind you, the 4 power brands are Panter, Signature, Mehari's and La Paz.

So a few examples. Signature. Signature holds a distinct stronghold in the consumer territory called enjoyment. Signature performs strongly in everyday contemporary and simple smoking occasions, especially in our stronghold countries, France and the U.K. Each of Signature's sub-ranges drive consumer relevance by delivering on what the consumer needs in functional and emotional benefits. For Signature, that is an original smooth indulgence and elevating everyday moments.

And a second example, La Paz. La Paz holds a distinctive stronghold in the consumer territory called authenticity. So La Paz performs strongly in more sophisticated and upscale smoking occasions. Tradition and authenticity are key for La Paz smoker. The brand equity of La Paz is one of the strongest that we have in our total STG brand portfolio and plays a significant role in increasing value share of our portfolio.

The 4 power brands already represent around 60% of our volume and around 50% of our net sales. They cover, as I said, a wide spectrum of pricing, also consumer needs and also they have a high distribution reach. So to elaborate on the pricing, Panter is our most value proposition, followed by Signature, followed by Mehari's and La Paz is our premium proposition. Selected brands remain important as regional heroes. So for example, Gold and Macanudo, the #1 and #2 brand in Belgium, they deliver super high margins. So it's key that we keep on extracting value. Over time, the wider portfolio will be migrated into the 4 power brands.

Why do we believe the power brand strategy will work? It's because we already see results. Since establishing the one commercial organization last year, we have redirected focus towards some of our key brands. And Signature is a perfect example. During 2025, we have initiated initiatives in both France and Spain, and we see positive results. The initiatives are around consumer activation, trade activation, pricing and distribution. And the results, Signature in the first 9 months of this year has grown 1.5 percentage points in Spain and 0.5 percentage points in France. So good results, and this gives us real confidence that this power brand strategy will work.

Each market plays a distinct role in our Focus 2030 strategy. France is protecting and growing from a strong share base. It's about trade activation and about simplification. Spain, a key growth engine when it comes to value. It's about the 4 power brands and consumer activation. Belgium and U.K., as mentioned before, it is about maximizing profitability through pricing and simplification. And then Germany, Italy and Netherlands is a balanced approach. We need to stabilize and find the balance between a volume push and a margin extraction.

So the road to success comes via focus on key markets, focus on key brands, leading to a 2 percentage points increase in market share in the core 7 countries. The 2 percentage points gain is a deliberate choice is first in stabilizing share erosion and then increasing through a balanced approach between volume push and margin extraction to create the maximum value. On top, efficiency comes from simplification, both commercially and operationally. We are currently too complex. We have too many brands, too many SKUs and almost 50% of our SKUs deliver 5% of our volume and even less in net sales and even less in gross profit.

So we need fewer brands, fewer SKUs, more scale, leading to a streamlined supply chain. So the combination of market share gains and portfolio simplification will lead to margin protection and a clear commercial execution.

So let's continue to our next strategic priority, grow our handmade cigar business. Stabilizing machine-rolled cigars unlocks our ability to fully scale handmade cigars and our nicotine pouch business, the 2 biggest growth opportunities in STG. As with machine-rolled cigars, we will focus on 4 power brands, Macanudo, CAO, Cohiba and Alec Bradley. They cover the full spectrum of pricing and cover most of the consumer need states. We have leading positions in wholesale with a strong brand portfolio. We have a leading position in online, and we have a leading position with our soon to be 15 superstores. The opportunity lies in integrating these channels, especially our STG owned channels into one ecosystem, unleashing the full potential of our STG brands. Retail continues to be strong, is a success story and with more to come. Our ambition is to grow 2 percentage points in U.S. handmade cigar market share from 13% to 15%.

Zooming then out on the global handmade cigar category. The U.S. is the engine of the U.S. -- sorry, the U.S. is the engine of the global handmade cigar category. Around 70% of global consumption is consumed in the U.S. So in order to win with handmade cigars globally, we must win in the U.S. We estimate the market to be around 435 million cigars in the U.S. and we see that pre-COVID, the market were declining with around 1% to 2% through COVID was a mini boom with double-digit increase. And then the market has come down a little bit faster than we anticipated with a mid-single-digit number.

After this COVID volatility, we do expect declines to return to pre-COVID levels. So we start from a leading position. We have 13% market share with our STG owned brands. Our 4 power brands represent 45% of our handmade cigar net sales, yet only 5% of the total U.S. handmade cigar market. So there's a huge runway for growth. The U.S. handmade cigar market is extremely fragmented, and there's only a few brands that crossed the 1 percentage point share. We aim to grow 2 percentage points from 13% to 15% by focusing on our 4 power brands and fully leveraging the ecosystem of our STG owned channels.

Of course, we will continue selling third party but the focus will shift to our own brands in order to capture the full margin chain. Our power brands span all major price tiers. And as I said, most of the consumer need states. We will invest in fewer and bigger brands. And success requires consistent positioning between wholesale, online and retail. And we will do this by aligning KPIs for the different teams and also with new ways of working for the teams.

We will be competitive in both value and premium, delivering on luxury, premium and elevated experience on one hand and cost competitiveness for the value seekers on the other hand. Online will become more distinctive with its own exclusives and even more proprietary brands. And the proof point in the end is a market share gain, as said, with 2 percentage points. Our brand strategy is rooted in deep consumer insights in the U.S., and we did a full refresh in 2025. We understand the emotional and functional needs and drivers behind the handmade cigar consumer even better than we did before.

We have segmented the U.S. handmade cigar market in 7 distinct segments with each its distinct characteristics. We've mapped the STG brands in this landscape, leading to a clear consumer targeting for each of STG's brands. This data will be enriched with vast insights from our online platforms. And to give a few examples. Macanudo attracts consumers and smokers seeking security and approachability, so looking for a safer choice. Cohiba is exactly the opposite. It's about standing out and it's about finding enjoyment in the finer and more premium experiences in life. Because the category is highly fragmented, our broader portfolio remains essential. The 4 power brands cover most consumer need states, but we need a set of other brands to complement this.

So Macanudo. Macanudo is our lead and largest brand, approachable, trusted and unintimidating. Subranges meet different consumer needs and also different occasions. To give a few examples, Macanudo Café is for the everyday smoke. Macanudo Gold label is for more special moments, elevating the Macanudo Café experience and treating yourself. And Macanudo Inspirado is for the younger adult smokers looking for taste variety with a more accessible price point.

With strong consumer and online insights, we can target each consumer with much more precision. So this is all based on strong understanding of demographics, motivations, occasions, interest and the emotional, functional benefits that the consumers hold. And a perfect example on where Macanudo smoker is at ease is at one of our club Macanudos around the world, either in New York or in Jakarta, Kuala Lumpur, and I'm sure more to come.

So STG's unique ecosystem gives us an unmatched strength. We hold a leading position in wholesale with our strong brand portfolio. We have a strong leading position in online with around 40% share. And we have a strong position in retail with our own cigar International superstores, which are close to 15 in the next couple of weeks.

So how will the new strategy come to life? In our own retail, power brands will take center stage. They will be supplemented by our ambassadors by events, by exclusives, limited editions and staff recommendations. In our own online, power brands will be enhanced with exclusive subranges, different price points that are needed to play in the online channel and of course, focused promotion behind it. In own wholesale or in wholesale, focus mirrors our own retail stores. It is about power brands, distribution, visibility, education and focused promotion also. This omnichannel approach will drive scale and will drive margin.

Then retail expansion. Retail expansion is a success story, and we continue to expand our U.S. retail footprint. The majority of our retail stores are in Pennsylvania, Texas and Florida. Soon, stores # 14 and #15 will open in Orlando, Florida and in Newport, Kentucky. During the past strategic period, we have opened 8 superstores. Key locations aligned with population density, favorable tax landscape, more liberal smoking regulations and a high out-of-home beverage consumption. As Niels mentioned before, 2026 is about stabilization. So therefore, we take a pause in our retail expansion in 2026 as it is CapEx intensive. That is a clear choice. Marianne will later explain the strong financial returns behind retail.

So this concludes the second strategic priority. After the break, I will come back with our third one, which is accelerating our growth in nicotine pouches. But for now, I hand back to Torben, who will open the floor for questions.

Thank you, Régis. And I can at least conclude that there is a sense of speed for the presenters because we are a little ahead of schedule already. But that's actually great because that we have a little more time for questions.

And as I addressed in my opening remarks, the first questions will take only from the webcast. And I can see already a lot is coming in. I will try to focus the questions for now on what has been presented. And I can assure you that we will get back to the more financial-related questions in the second round.

But let me start with a question for you, Régis. And this is basically concerning how we will assure that we attract new consumers to our various categories and is there special assessments to -- in relation to younger consumers?

Okay. So let's look at this from a category perspective. So when we look at handmade cigars and machine-rolled cigars, the recruitment is majority coming from combustible categories, so from cigarettes and from smoking tobacco. If you look at the youth aspect there, the average age group of these categories is relatively high. So the youth aspect is not relevant in these categories.

Then if you look at nicotine pouches, category is more -- the consumer becomes more of a poly category user. So recruitment comes from cigarettes, comes from even cigars, cigarillos, pipe tobacco. So that's where the recruitment is coming from. And then, of course, also from traditional snus and we are gaining market share. So we're also gaining from competitive brands. When it comes to the youth aspect, everything we do will go via our legal department. We have marketing principles in place, and there are, in many cases, more strict than the local regulations.

Thank you, Régis. And I think actually, you should not walk away too long because we do have a number of questions also relating to the rationalization of our portfolios. So let me start off with one we have here. How many -- or how will you actually manage the reduction in the SKUs? Do you expect this to have an impact on volumes and market share even in the shorter-term perspective?

So we have programs in place. So we have started with -- first with the smoking tobacco portfolio, especially after the acquisition of Mac Baren Tobacco Company. And there, we are already well on our way. And we have different phases with different KPIs. We have the financials behind it that indeed, we will lose the volume, of course, for the rationalized SKUs, but a big part will actually migrate to other brands, which have a higher margin. So the higher margin will compensate for some of the volume losses.

The machine-rolled cigars, we have done similar exercises. And there, we are in the beginning phases of the rationalization. And we have KPIs in place that if we see something going off, then we pivot and we actually evaluate again and redefine the plan.

Yes. And I think there's a build on this from another -- from the audience, and that's basically also again, on the machine-rolled cigar portfolio with our kind of focus to 4 power brands, is it that we're going to migrate into the power brands? And how can we expect to minimize any losses of revenue when we do that exercise?

Yes. And we do have a lot of brands in basically every category. When it comes to machine-rolled cigars, we have about 50 brands. So there's a long way to go from 50 to 4. So the overall intention is to indeed the wider portfolio to migrate into the 4 power brands but we have also a lot of regional heroes that we want to leverage. They are important. They just have a different role, which is about maximizing the profit from it. So again, we also have here the business cases, the financials, the milestones, and we will pivot when we see things going off track or even when it goes better, we can accelerate. Yes. So I think that answers.

Okay. Thank you. Then I will get you off the hook for a moment, Régis, and ask Niels to come in because I think the comments you made about nicotine pouches and what potentially could trigger that we in-source the production. So the basic questions that is being addressed here, what will it really take for you to -- or us to in-source a different -- certain level of sales. So how do you think about that?

Yes. Thank you. So I think maybe start by saying that we already have a small nicotine pouch factory that we acquired together with Mac Baren. So we're already producing part of our portfolio today. And we could in-source everything today. We have a large enough volume now to run our own factory but it's really not our priority. There's also a lot of benefits of working with competent contract manufacturers, and we have a number of them. And our focus is simply somewhere else at the moment. It's much more important for us to drive growth in Sweden, in U.K. and outside of these markets. So we will get to in-sourcing down the road, but it's not really volume driven.

I think it's about when we think the timing is right and when we think that there is value in actually controlling a larger part of the value chain ourselves.

Okay. Thank you. And then Régis, we will have another one for you. A lot of good interest around these strategic priorities. This is more about consumer insights. So can you talk a little bit about the investments we make in consumer insights? And how do you think this differentiates you or us from competitors?

Yes. And we have a lot of consumer insights. So we don't start from scratch. We have a lot of total market insights, especially in our 7 key markets, also in our online and also in our mass market in Europe. We have a lot of information from our online platforms. So we do understand the consumer better than anyone else. So this is a competitive advantage. And this is also one of the reasons that we mentioned is that we can use this and leverage this more across the different entities in handmade cigars, either in retail, online or in the wholesale business. So it is a competitive advantage.

Did I answer the question?

I think it did. But also -- and we're building again on kind of the SKU rationalization part. You mentioned a little bit about how many SKUs we intend to potentially reduce. But are we prepared to differentiate between machine-rolled cigars and handmade cigars? Is it across? How do you think about that?

Yes. So both for smoking tobacco and machine-rolled cigars, we have identified 50% of the SKUs, different phases into it. So we've started with smoking tobacco first. Then with the machine-rolled cigars, that's where the most value can be created by simplification. Handmade cigars, also in the plans. We have not crafted the full plan yet, but that will come next year. So it's a phased approach. And the number of SKUs will most likely not be the same as what we do for machine-rolled cigars and smoking tobacco but definitely in the plans.

Okay. And then one for you, Niels. Before I think we will take the break. So this will be the final question for now. Niels, this is about kind of -- in the past, we have had production issues. We have had issues with availability. And now Régis talks a lot about how to grow our business. So how are we actually going to solve that? Can we be assured that the problems are kind of solved?

Yes. I think it's not only investors but also us that are disappointed about how long we've been struggling with supply issues in machine-rolled cigars. But I think it's important to understand there are 2 main reasons that have driven the supply issues, and they are actually almost behind us, both of them. The first one was the merger of the Agio factories into the STG factories. There, we made some mistakes. We had a prolonged period of supply issues. When we solve that, we were okay for a period. And then in 2025, we saw new supply issues as we roll out the global subs solution in Europe, and we are also almost solved those problems. And what we are doing in these months as we speak, is we're having full focus on stabilizing the system and getting inventory back to normal so that when we enter 2026, we do so from a stronger perspective.

So these 2 things that are behind us. We are still working a lot on improving our planning, getting demand accurate, getting supply conversion to work better. This is what we are focusing on now. But the bigger issues that have caused the supply issues, we actually think we have put them behind us.

Okay. Thank you. And I think we will conclude now for at least this short Q&A. Again, there will be a larger one by the end of the presentation today. I suggest we take a break to 10 minutes past the hour, so 10 minutes past 3, and then we will be back and we'll start off by showing you a little video.

[Break][Presentation]

Welcome back. Now we are ready for the second half of the Capital Markets event. I hope you enjoyed the video here that basically showed a little bit about the uniqueness of our handmade cigars. Now it's time to move on. Régis has told a little bit about how we would stabilize machine-rolled cigars. We have also delved into how we are going to grow our handmade business. And now it's time to put some more details to how we want to accelerate our nicotine pouch business.

So with that, I leave it for you, Régis.

So welcome back, and let's continue with strategic priority #3, which is accelerating our growth in nicotine pouches. And this one, like the other 2, is actually close to my heart because it's only a few years ago that we hired the first person in the growth incubator. And here we are a few years later, and we're aiming to reach over DKK 400 million in net sales in 2025.

So Niels already talked about the strategic rationale around nicotine pouches. Marianne will cover later the financials behind this growth opportunity. And I will, as with the other 2 strategic priorities, dive deeper into the commercial aspects. It starts with understanding the consumer and developing capabilities to deliver to the consumers what they desire and what they need.

Our primary focus is on Europe with key markets, Sweden and the U.K. We have shown that we can compete by using our existing route-to-market capabilities and also our strong trading partner relationships, for example, in Sweden. This is a business where we keep our options open. We will regularly evaluate and decide on where and how to invest. This is a segment that has significant potential globally and for the future.

So let's look at the total market development like the other 2 strategic priorities. So here, we are showing the retail value of the 3 categories that STG is active in. nicotine pouches, cigars and cigarillos and smoking tobacco. All 3 categories are increasing its retail value, but nicotine pouches really stands out. Over the last 5 years, a CAGR growth of 77% and an expected CAGR growth in the next 5 years of 18%, overtaking already smoking tobacco and closing in fast on cigars and cigarillos.

The consumer landscape is changing fast, and the consumers are becoming more and more multi-category users. Traditional combustible regulations are limiting the moments in an occasion where a consumer can enjoy her or his nicotine experience. Nicotine pouches serve as a less harmful alternative and expands the number of permissible moments of enjoyment. Nicotine pouches allow us to reach new consumers and extend usage occasions. Sweden is our proof case. XQS is now the #2 brand in the market and the fastest-growing brand in the market but more about that later.

So we have learned a lot over the last years. So we launched STRÖM in 2022. We acquired XQS in 2023, and we acquired [indiscernible] with ACE and GRITT in 2024. So 4 brands but the future brand portfolio is centered around power brand, and that is XQS. We have strong in-house Mint capabilities, and we have strong capabilities in flavor with our external partners. On top, we have built digital marketing and e-commerce capabilities, and we will continue to do so in the next 5 years. We use these capabilities to deliver a strong competitive product and to build a stronger brand with efficient and disciplined investments. We continue to focus our effort on Sweden and the U.K., while we also evaluate new markets based on total market size, regulatory landscape and our route-to-market strength. XQS and Sweden is a remarkable success story, and one can even call it a love story. Two years ago, less than 2% market share. Today, we have over 13% market share, and we are the #2 brand in Sweden. XQS is seen as a highly innovative brand with a strong flavor and novelty appeal. Momentum is strong, and we plan to continue it.

So over the last years, we also have gathered a lot of detailed consumer insights. Each XQS subrange is designed to meet the different motivations of each of these segments. For example, the experience seekers. This is the stronghold of XQS. This segment is driven by novelty, freedom and community. XQS' fruity and nostalgia ranges fit perfectly into this. XQS delivers on demand for exciting taste, limited taste additions and regular innovations. XQS will continuously expand and develop its portfolio to deliver on the consumer needs that exist. XQS covers that with 4 portfolio brand pillars: Nostalgia; core; Mint; and functional.

Geographically, our expansion strategy is focused and disciplined. We cannot be everywhere, so we need to focus where it matters most. And the U.K. is a perfect example of this, which is one of our key strategic markets. The U.K. is a key market for the future when it comes to total market size and also profitability. We have a strong leading position in machine-rolled cigars and in pipe tobacco, and we use that base to leverage the launch of XQS while expanding our universe coverage by extending our sales force.

We adapt the core XQS portfolio to the U.K. consumer needs. This to increase relevance. We keep on evolving and we never stand still. We recently crossed the 1% market share in the U.K., and we are intending to accelerate with currently implementing new key account listings. Outside of Sweden and U.K., we have progressed in selected markets with strong distributor partners. For example, Iceland, Norway, Finland, Poland and Czech Republic.

So in summary, we stabilize our machine-rolled cigar business by focusing on 4 power brands, focusing on selected European markets, Spain and France, and by focusing on simplification. We grow our handmade cigar business with key focus on the U.S., with key focus on our 4 power brands, retail expansion and making the ecosystem work to unleash the full value of our STG brands. And we accelerate our nicotine pouch business by focusing on selected markets and focusing on power brand, which is called XQS.

On that note, thank you very much. Those were the 3 strategic priorities. And thank you for your attention, and I'll hand over back to you, Torben.

Thank you, Régis. And that concludes kind of the first 2 sections of today. Niels talked about the overall strategic purpose of our Focus 2030, and Régis has now unfolded on how we actually are going to make the strategic priorities alive.

So next up, that's our CFO, Marianne, that's going to talk more to the financials and our financial ambitions. So Marianne, please.

Thank you, Torben. So I'm Marianne Bock, and I am CFO at Scandinavian Tobacco Group, and I have really been looking forward to present to you today. So Niels and Régis have outlined our strategy and the initiatives that are essential for our success. I will translate these into financial ambitions and performance metrics. So drawing on our insights from our recent previous strategy rolling towards 2025 and changes in consumer behavior, we recognize that we need to make deliberate choices and set clear priorities when investing.

Return on invested capital is a critical KPI for us. ROIC ensures that we maintain discipline in our investments, whether in organic initiatives or mergers and acquisitions. Making the right decisions is essential to deliver long-term sustainable profits and strong cash flows. Our strategy, Focus 2030 provides a solid foundation for progress, although the journey will also present challenges. To enable the necessary changes, ongoing investments is required. Therefore, maintaining financial flexibility is vital to seize the opportunities as they arise. With a more flexible dividend policy that balances shareholder payouts with short-term profit developments, we remain committed to our shareholders while maintaining flexibility.

I'd like to start by highlighting our current performance as we announced last week. Net sales for the first 9 months of 2025 declined organically by 4% compared to the same period last year, although the rate of decline have improved during the year and especially in the latest quarter. Excluding the discontinued distribution of ZYN, which affected growth in the first half year, organic growth was negative with 2% for the 9-month period. We are on track to deliver on the full year net sales in the range of DKK 9.1 billion to DKK 9.2 billion.

The EBITDA margin fell from 22% in 2024 to 19.9% in 2025, mainly due to lower volumes and changes in product and market mix. Free cash flow before acquisitions was DKK 448 million for the 9 months, supporting our expectation of more than DKK 800 million in free cash flow before acquisitions for the full year. Adjusted earnings per share, excluding special items, stood at DKK 8.2 for the first 9 months, and we anticipate this will reach between DKK 10 and DKK 12 for the full year.

So before discussing the coming strategy period, I will talk to the financial performance in the recent strategy period. We have increased the size of STG as measured by net sales through acquisitions and by leveraging our growth enablers, retail expansion, international handmade cigars and nicotine pouches. Although net sales have grown, our margins have declined and both free cash flow and ROIC are below our desired levels. Since 2020, net sales have increased to DKK 1.1 billion, primarily due to acquisitions, our growth enablers and tactical pricing. The EBITDA margin has decreased from its peak in 2021 during the pandemic. Multiple factors contributed to this.

While acquisitions had a positive effect, these were offset by unfavorable mix changes and operational challenges. Our operational challenges has been affected by -- our operating performance has been affected by declining volumes, a trend impacting the entire industry as well as internal challenges related to factory closures in Europe and the implementation of SAP. Lower margins and ongoing investments in growth and transformation have led to reduced free cash flow.

ROIC improvements have come from retail expansion and acquisitions but has been offset by lower operational performance. But still, over the strategy period, we have returned over DKK 5 billion to shareholders. We are addressing these issues as part of our strategy, Focus 2030. And with a focused approach and lesson learned from the past, we expect to be better positioned to achieve our ambitions.

So now I will focus on our strategy, Focus 2030. We will assess the financial success of our strategy using 3 distinct KPIs, each carefully aligned with shareholder feedback. These KPIs directly reflect our Focus 2030 priorities, emphasizing the need for investments that drive both top line growth and margin improvements. ROIC is key for us to measure how effectively we convert invested capital into operating profits. This aligns with Focus 2030 of disciplined investments and value creation, ensuring every investment, whether in assets, acquisitions or projects contributes positively to shareholder returns.

EBIT is critical for improving ROIC and demonstrates our ability to enhance underlying profitability through stronger profitability, effective cost control and optimized volume and mix strategies. We have chosen EBIT as a key KPI instead of EBITDA. Since EBIT is a denominator in ROIC and as we invest in retail expansion and potentially also in manufacturing nicotine pouches, it is more prudent to use EBIT because it reflects depreciation. Free cash flow remains the most important source of funding for our strategic priorities, maintaining our flexibility and enabling sustainable dividend payments as well as share buybacks.

I will now discuss each of our metrics included in the financial ambitions. Our ambition is to achieve at least 11% ROIC by the end of the strategy period. We are making deliberate choices as part of Focus 2030. These choices require clear prioritization with ROIC serving as a key KPI to evaluate our investment decisions. One of our main drivers for improving ROIC is growth in EBIT, fueled by our strategic initiatives. And we do not anticipate any special items in 2030 as we have made the necessary investments in both infrastructure and technology in the previous strategy period and in the beginning of the coming strategy period.

A critical part of our strategy is tight management of working capital, ensuring it is closely aligned with our strategic priorities. For example, reducing the numbers of brands and SKUs will naturally lead to lower inventory levels. In Focus 2030, we will prioritize potential divestments while acquisitions continue to be an integral part of the strategy. We're also committed to maintaining a disciplined approach as in the past, ensuring that both acquisition and divestments are accretive to ROIC.

Let me turn to the strategic KPI, EBIT. Our ambition for the strategy initiatives is to drive EBIT growth throughout the strategy period. We are seeing early signs of stabilization in volume declines for both handmade cigars and machine-rolled cigars, and we anticipate a structural decline rate of minus 2% for handmade cigars and minus 3% for machine-rolled cigars. Strategic actions such as focusing on power brands, streamlining our brand and SKU portfolio, prioritizing our own brands and expanding market share will contribute to increased EBIT. We are prioritizing stabilizing the machine-rolled cigar performance now by addressing delivery issues and ensuring reliable supply from the outset of the strategy period.

Our retail expansion has proven to be accretive for both EBIT and ROIC. And as we continue to develop our nicotine pouch business and grow market share, profitability will shift from neutral to positive. Our technology transformation is scheduled for completion in the beginning of 2027, which will further support business performance and allow us to fully focus on strategy and operations. Additionally, our licensed machine-rolled cigar brand sale is projected to return to STG in 2027 with a strong double-digit profit increase.

Finally, we plan to achieve cost improvements of DKK 200 million over the next 2 years. In summary, we are confident in delivering EBIT growth at a low single-digit CAGR over the strategy period with depreciation and amortization approximately 5% of net sales.

The third financial ambition metric is free cash flow. We are committed to generating stronger free cash flow. As previously stated, free cash flow remains the primary source for funding our strategic priorities, maintaining our flexibility and supporting sustainable dividend payments as well as share buyback. We anticipate an incremental EBIT growth from strategic initiatives, along with the elimination of special costs of DKK 200 million during the strategy period. We expect to invest DKK 300 million to DKK 400 million annually with DKK 100 million to DKK 150 million allocated to maintenance CapEx and DKK 200 million to DKK 250 million dedicated to growth and efficiency improvements.

Our ambition is to achieve DKK 1.2 billion in free cash flow within Focus 2030. We remain fully committed to delivering strong returns to our shareholders. Since 2016, we have returned over DKK 9 billion through ordinary and extraordinary dividends as well as share buyback programs. Our capital allocation policy is guided by a leverage of 2.5x, which determines the level of investments and payouts to shareholders. This target provides us with the financial flexibility to pursue growth opportunities while ensuring solid shareholder returns. It also underscores our commitment to maintaining an investment-grade rating. At the end of the third quarter, our leverage stood at 2.9x. While we anticipate this will decrease during the fourth quarter, it is essential that we secure a sustainable path to reduce leverage to 2.5x to reestablish our financial flexibility.

Looking ahead, we will implement a payout ratio-based dividend policy, closely aligning dividend distributions with our underlying financial performance. This approach will take effect starting with dividend allocations in 2026. As we normalize our leverage, we are creating greater capacity for share buybacks, which have been a consistent request from our investors.

So now I'd like to discuss how our growth initiatives and how they align with our financial expectations or financial ambitions. Expanding our retail footprint is a major priority, and we are committed to accelerating the opening of new stores. The strategy supports growth in the handmade cigar category and contributes to our overall business expansion. This slide highlights stores that have been operating for more than 3 years. These established stores consistently deliver strong financial results and are accretive to both group margin and return on invested capital. While there are differences among the individual stores, all achieved a return on invested capital of above 15%. We will use this benchmark to guide our future store openings and continuously monitor in each location to ensure our models and value assumptions remain accurate.

Régis has outlined our strategic position in nicotine pouches, where for 2025, we expect to exceed DKK 400 million in net sales, representing almost 5% of group net sales. We are seeing a strong market performance over 13% in the Swedish market, ranking second. In the U.K., our market share is steadily increasing and has now reached 1%. Gross margin remains between 25% and 30%, and we are currently EBIT breakeven with an objective of EBIT to grow during the strategic period. While this segment is currently margin dilutive to group, it offers significant upside potential through increased scale and the in-sourcing of production. Currently, we have invested approximately DKK 250 million in this business, primarily through the acquisition of XQS.

Projecting financial performance for nicotine pouch segment in 2030 is challenging as it will depend on regulatory development and access to new markets. We consider this business successful if we can continue to grow market share, expand into new markets and consistently deliver financial evidence of value creation.

So let me conclude the presentation before we turn to the Q&A session. The strategy, Focus 2030 entails a very strong focus on deliberate choices for STG. We aim for a return on invested capital of at least 11%, EBIT growth at a low single-digit CAGR and DKK 1.2 billion in free cash flow by 2030. Retail expansion and growth in nicotine pouches underpin these targets. The strategy prioritize disciplined investments, financial flexibility and strong shareholder returns, including a shift to a payout ratio-based dividend policy and share buybacks.

And with this, thank you very much, and I'll hand over to Torben for the Q&A session.

Thank you, Marianne. And before we enter into the Q&A, I think for those that has been watching on webcast and would like to ask questions through the telephone conference, we'll just give you a minute or 2 to reconnect before we get back to the actual Q&A. So we'll just take a short break here.

[Break]

Welcome back. Then we are ready to the Q&-answer question. We would take or will take questions from the telephone conference just in a second but I can see on the webcast, there's quite many questions, both on dividends and margins. So I think we'll take at least those first, and I'll try to bundle them into 2 questions.

So this obviously is for you, Marianne. Quite many asked around we have now this payout ratio of 40% to 60% payout ratio. So what basically determines whether we end up in the 40% compared to the 60% range? And can you kind of talk a little bit also about whether we'll see kind of growth in the dividends as we kind of reset now for next year?

Yes. Thank you, Torben. So maybe allow me to start a little different and starting by saying our capital allocation policy is, as I also said in my speaking, guided by a leverage of 2.5x. We will distribute excess cash to shareholders either by dividend or share buybacks. Nothing have changed in that. What has changed is that our original capital allocation policy was talking about an annual growth in dividend -- ordinary dividend per share. We have changed that to now a payout ratio. And we are still committed to deliver a solid shareholder return.

So what determines whether it will be 40% or 60% comes down to performance but also to our leverage level that is, as I said, guided by the 2.5x. And whether the dividend will grow over time, we do expect, which we also have noted in the financial ambitions, we do expect that EBIT will grow over the strategy period and also cash flow will grow over the strategy period. And that would, as an assumption, also entail that dividends will grow unless we have investments internally that we believe can create even more value.

Just a short follow-up to that, and that is, are we considering making maybe interim dividends, not only annual dividend payments?

No. So for now, we stick with the annual dividends, and we have no plans of paying dividends several times during the year.

Okay. Final question for you before we jump to the telephone conference, and that's about the margins because the question relates to, we seem to talk about growth in handmade cigars, growth in nicotine pouches, i.e., growth in net sales but very limited growth in our EBIT. So basically, are we saying margins are going to decline?

Yes, it's a good question. So again, our financial ambition, we have decided to focus on 3 financial ambitions. We believe that growth in EBIT is important and also growth in free cash flow and also ROIC. And that is what is guiding our strategic initiatives. We are also occupied about margins. So if I should give kind of a guidance on margins, the way that I would ask you to think about it is if we look at our machine-rolled cigar business, we need to stabilize that and we need to stabilize margins in that business.

For our handmade cigar, we expect to grow. We expect to grow market share. We expect to open new stores. So here, we expect to see an increase in margin. On our nicotine pouches, more difficult. If we look at the business that we have today in those markets where we are today, we expect that they will grow and thereby also margins will grow. As soon as we enter into new markets, that will be diluted to margin in such a business because we need to invest to establish our market presence in new markets.

Thank you. And then I think, operator, we are ready to take the first questions from the telephone conference.

[Operator Instructions] And now we're going to take our first question and it comes from the line of Niklas Ekman from DNB Carnegie.

Can I ask about the DKK 200 million in cost savings that you mentioned here? Can you just -- and I know you've said that you're going to come back to this further down but can you just elaborate a little bit on what type of costs you're looking at reducing? Is this mainly overheads or administration costs? Or are you looking at a further merger of production facilities? Or can you give us some few details?

So thank you, Niklas, and thank you for the question. So we have determined that it is important for us to establish a cost improvement program of the DKK 200 million. As we also said and you also alluded to, we don't have all the plans yet. So the way that I think you should think about it is that it could take out cost in all cost lines in our P&L, both in gross profit but also in the OpEx line. And we will come back, hopefully, beginning of the new year with more details around these programs. I hope that was helpful.

Super. Absolutely. Second question is on XQS and the strong success you seem to have had in flavors. How worried are you about potential regulation of flavors since that seems to have been a key driver of your sales? And what are you doing to kind of mitigate the risk related to that?

Yes, I can take that question. So of course, we are thinking about potential flavor regulation. And that is also why we are increasing our Mint capabilities. And that part of the plan is also to grow our segment share there. So that is our mitigation. The plans are in place with also a lot of the new launches coming into this men's segment. So we're preparing for it.

Could I -- Niklas, can I maybe add to that, that I still think that the one market in the world where flavors are least likely to be regulated is probably Sweden because it's such a mature market already with these categories that I would be surprised at least if flavors became a regulatory issue.

Now we're going to take our next question. And the question comes from the line of Sebastian Grave from Nordea.

Thank you for Capital Markets Day. First question on the free cash flow guidance on Slide 53. So it looks to entail a total of DKK 1.5 billion investments between '26 and 2030, i.e., a CapEx of DKK 300 million per year. So I was just wondering how does this number look throughout the period? And is it front-end loaded, back-end loaded? Or -- and more importantly, also, does this number include potential investments in ramping up own production in nicotine pouches? That will be my first question.

Yes. Thank you, Sebastian. Let me answer that. So the main part, so what I also said in my presentation is we expect to invest DKK 300 million to DKK 400 million annually, but that number will be lower in 2026. It's important for us in 2026 to get to a more healthy leverage ratio or leverage level around the 2.5x. So for the remaining period, we will invest, and it is primarily in retail stores. We are also investing in the Mac Baren integration, so production in Denmark. And in this investment, they are not included any production in nicotine pouches.

Okay. That's very clear. And at this point, you can give a sort of indication what would that sort of investment in nicotine pouches, what would that entail number?

So I don't think we are ready to give such a number for now, Sebastian. It both depends on size and whether it's a new factory or whether it is built in one of the current factories. It is also dependent on -- we're not saying that we are in-sourcing to own manufacturing. It could also be partnerships that we would go into. So I think it's too early to put any numbers to that.

Sure. That's completely fair. And then my next question for now would be on your earnings bridge on Slide 52, that is. So you alluded to growth in investments and depreciation and amortization to increase by DKK 100 million annually. And then you alluded to the efficiency program of DKK 200 million. So does this mean that your net-net see your cost base to increase by roughly DKK 300 million towards 2030? Is that a way to look at it?

So I'm not sure I completely follow all your numbers, but let me try to talk anyway. So we are seeing -- we will see an increase in depreciation and amortization coming from the investments, but also the investments that we're right now doing in the OneProcess SAP rollout. The DKK 200 million that you're talking to in savings program can both be, as I said, in gross profit but also in OpEx. And they will lower the increase in OpEx that are coming from natural inflation. And let me know if that didn't answer.

Yes, sure. But I was just -- you stated that growth in investments and depreciation and amortization to increase about DKK 100 million annually. And then I say, okay, I compound that by DKK 500 million for 5 years, then it's DKK 500 million more costs in investments and D&A. And then I take out the DKK 200 million efficiency. That's how I got to the DKK 300 million number, if that makes sense.

Yes. So our depreciation is not increasing by DKK 100 million annually. Our depreciation is increasing DKK 100 million over the strategy period.

Okay. Okay. That's very clear. And then my last question is on -- in previous strategic period and now also alluded to the sort of the optionality in expanding in global handmade cigars. And I was very kind to show your market shares in the U.S., if I remember correctly, 13% -- could you expand a bit on sort of your position outside the U.S.? And how could that market share position look like in 5 or 10 years from now?

Yes. So internationally, outside of the U.S., we have grown every year quite considerably over the last decade. So also in the new strategic period, we aim to continue that. So that is still, of course, in the plans. We are -- the data is actually not really that readily available internationally. And we are estimating that we are at about 6% internationally, which is rough calculations and a distant #3 compared to our main competitors.

Yes. Thank you, Sebastian. I think we'll jump to the next one in line, if there's any more on the telephone conference.

Yes, of course. [Operator Instructions] And we're going to take our next question. And it comes from the line of Damian McNeela from Deutsche Numis.

My first one is just on the observation on your gross margin in nicotine pouches. I appreciate that there's sort of a margin drag from outsourcing production of a lot of your pouches. But that number looks a little bit low by sort of other industry standards. Is there anything else that we need to think about in terms of pouch gross margin and how that may improve over time with volume increases?

The second question is on -- is there any indication about how big your power brands, particularly in the MRC category will be as a proportion of overall MRC sales by the end of the 2030 focus period?

And I guess my last question is around the sort of low single-digit EBIT growth. And just trying to get a sense, this might be one for you, Niels, about how much flexibility you've built in to be able to deliver that over the next 5 years?

So maybe I can take the XQS. one first. So of course, our margins are indeed lower than some of the big companies. This is because of what you mentioned also that we have outsourced the majority of our production. So that is a big contributor. But also the key KPI for XQS. is that we grow market share, and that also comes with quite some investments into discounting into listing fees. So that's also suppressing the margin currently. And over the strategic period that, of course, per can that will lower over the 5 years. And then, of course, we are not present in the U.S., where it is also about scale. And U.S. is by far the biggest market. So that combination shows that we have a lower margin than industry standard.

And the question on power brands, machine-rolled cigars, what proportion it's going to hit by the end of the strategic period.

So the 4 power brands currently has about 60% of our global machine-rolled cigar volumes. Signature, for example, is about 25% of our total. So we do have indeed the market shares currently. I don't have the number top of my mind what that number is in 2030 but we can always supply that on a later stage.

And then the margin one?

Yes. So as I said in my introduction, Damian, I think we are looking at a quite unpredictable future. And when you look at our ability to turn our earnings trend around and deliver EBIT growth over the strategic period, it's very, very critical that we stabilize the earnings coming from our combined machine rolled and smoking tobacco business. And that is going to be the big driver in terms of whether we will meet or exceed the current financial ambition. But we have put out the ambition that we have because we think that is what we are capable of delivering.

Dear speakers, there are no further questions at this time. Please proceed.

Okay. I think we will take a few more questions from the webcast because there's quite many coming in here. The first for you, Marianne, that's on the leverage side because how quickly are we going to kind of delever to 2.5? And will we actually in our aim to get to 2.5 have an even lower dividend in the short term?

Yes. So it is our priority in 2026 to get to the 2.5x in leverage. And that will also steer how we invest. I've talked to that in the previous question. So we will not have a lot of investments in 2026, but roll that into 2027. The dividend on the payout ratios that I was talking to, that is our policy from now. It still stands. So that is what we're going to determine the level of dividend in the beginning of 2026.

Thank you. And then I think, Niels, for you, maybe a few questions on, again, regulation on nicotine pouches. There's one very specific one here. Some European markets have already banned nicotine pouches like Belgium or at least planning to ban nicotine pouches. So how will this potentially impact our strategy?

Yes. So I think it's important to understand that the regulation of nicotine pouches is not complete. And this is one of the things I was talking about in the beginning that this is not harmonized globally, and we see one regulation in the U.S., one in the Nordic areas and different one in Europe and Southern Europe. I think that the scenario that we believe is most likely is that there will be countries that will ban nicotine pouches but we also think that there's such a compelling argument for legalizing these products that we'll see more European countries doing that once they find a reasonable way to do it.

So we are still confident that there will be an adequate number of European markets for us to compete in. We are just unsure about the timing of that.

And follow-ups on this one is specifically on both the U.K. and Sweden. Do we see a kind of a risk that there will be some bans here or potentially just a flavor ban that could hit us?

I think that nicotine pouches will be no different than the other categories we compete in that we will see regulation evolve over the years. Right now, we are mostly occupied with what countries decide individually, will it be legal or not legal and under what circumstances if it is legalized. So we -- right now, we don't see a lot of pressure in the markets that we are competing in from a regulatory point of view but that can change.

Then we shift to another topic that is mentioned here, and that is our potential divestments that is mentioned here. So what areas are we thinking about? What markets are most relevant when we talk to divestments?

So I think we have bought over the last 10 years, quite a number of companies, and we are very happy about everything we bought but these acquisitions have also created more complexity. And what we've decided now in the context of Focus 2030 is that we will look to divest certain businesses that are less core. I'm not going to debate what those businesses are today but we'll have to see how we are able to find potentially better owners of these assets. And if not, we'll retain them.

And any special financial criteria that we're going to put into the evaluation?

So whatever we do on acquisitions and divestment, they need to be ROIC enhancing.

Then we are having a question here also, and that's about our financial ambitions again. How should we look at those as kind of steadily improving over the 5 years linearly? Or how should we think about that?

Yes. So I've already talked about our priorities in 2026 that will be around stabilizing our machine-rolled cigar business and the supply going into 2026 and in 2026, get our leverage level to a much more healthy level around our target. So that will impact our investments. It will also impact how much we can push our strategic initiatives and thereby also the results for 2026. So the way that I would think it is not a linear development from the start, but it is more skewed to the last 3 to 4 years.

Okay. And another one on the KPIs here. Our target now is more focused on EBIT rather than EBITDA. Does this actually mean we will also change reporting to EBIT for our reporting divisions?

No. So we will not change it. We will measure EBIT on group level and not put EBIT into each of the divisions.

Okay. We still have a few questions here on the web. I just want to make sure if we have any more on the telephone conference. That doesn't seem to be the case. So I think I'll just continue with the list here we have.

And Niels, your response on in-sourcing on pouches was a little unclear to me. EBITDA breakeven is not a success criteria, isn't it? So is it a subscale problem we are looking at? And in case, how much sales should we actually deliver?

Yes. As I mentioned before, we already own a nicotine pouch manufacturing unit, and we produce part of our portfolio today. And we could in-source the rest. We have quite adequate volume to build a larger factory than what we have today. But this is also, again, something that will take resources and attention, and we want to make sure that the day we in-source or partner with somebody around the manufacturing, we have all the capabilities we need to do that. So right now, it's more important for us to show that we can keep driving the top line, that we can show, let's say, the commercial evidence not only in Sweden but also in other markets. So the decision on in-sourcing is really one that we will determine when the timing is right. So it's not a reflection of us not having the scale even today.

Okay. Thank you. Then we still have a few on our nicotine pouch business and XQS. So what's the expected pace of rollout into new countries? And how many countries could we actually be in, in 2030?

Yes. So we are already in more countries than only U.K. and Sweden that we have talked about. So we have launched in quite a few countries already this year, which is mostly with distributor partners. So I mentioned Czech Republic, Poland, Finland. So we have a lot of work to do. So the key KPI is that we -- where we go, we are focused and we grow our market share there. So we have a lot of work to do already in these countries. We will evaluate on a continuous basis if we should enter a new market. And that depends, of course, also on the financial business case, the ROIC and our ability to actually win in the market with route to market. So there's not a specific target for how many countries we will be in, in 2030 but we will, of course, evaluate on a country-by-country basis.

And maybe to follow up, and I think it's more for you, Niels but talking about the potential new markets, there is a question here about our kind of position around the U.S. market because now we are talking about the regulatory kind of what do you call it, blocks on the road for us in Europe potentially, why not focus then on the U.S. full speed ahead?

Yes. So again, I've explained before, the biggest challenge we have with respect to the U.S. market is we don't have the XQS trademark. We own that in every single country, except for the U.S. Now we could launch another trademark, but we also don't have an FDA-approved product. So whereas we follow the U.S. and the regulation in U.S. very carefully because we do obviously see the potential of that market. The strategy clearly outlines that we'll focus on Europe first, and then we will keep an eye on the U.S. And if things change, we'll come back and explain if we start to get more concrete plans. But for now, the focus is Europe. The U.S. is interesting, but we are waiting.

Thank you. And then it's about XQS and the rollouts in both Sweden and U.K. because the one asking the question here basically got the impression we don't have a 100% rollout distribution in these markets. So could you give kind of an idea of how well penetrated we are in this market, i.e., is there an upside here? And maybe also touching a little bit on the other markets that was mentioned where we are active today.

Okay. So let's take it market by market. So we have 3 markets where we have our own sales force, pushing, of course, XQS. Sweden, we're actually at a very high distribution margin, both numerical and weighted. So there, we're good. The increase of market share that we're seeing currently is about rotation on the shelf. Denmark, we have not talked much about that. We also crossed the 1 percentage point share there. And together with ACE and GRITT, we are actually at 4.5%. There also distribution, it is a very high level. So if we then go to U.K., that is, of course, a much larger market. It is key account based but it's also a huge part is the independent channel.

So there, we're definitely not yet at full capacity. We have KPIs that show when we can accelerate, and we will evaluate that, of course, when we reach each line of that line KPI.

And a follow-up for the same person, and that is about 13% market share in Sweden today. What are we going to hit in 2030?

So, so far, if you look at each month, we are increasing nicely at the same pace. So what we're looking for in 5 years is to have a 20% share or higher. That is the target that we've put in place.

Okay. I think we have one more question, and that is probably for you, Niels. We are not talking much about acquisitions. So what is our stance on this because that was part of the rolling towards 2025?

Yes. So acquisitions are still part of our strategy but it's also clear that we have built quite a lot of complexity over the years with what we bought. So on the one hand, we really want to exploit the opportunities in the companies we bought. On the other hand, we still want to make acquisitions. We just want to be more selective. So it's still in the plan. It plays a not so significant role, but it's still there.

Thank you. I think that basically concluded the list of questions from the webcast, and I don't get kind of a message. There's more on the telephone conference.

So that basically concludes this Capital Markets Day from our side. We are pleased that you have joined in, and we definitely want to do whatever we can in order to fulfill all our aims and objectives with this Focus 2030. We will be back and talk more in detail, of course, in relation to the full year report next year. But should you have any further questions, would you like to reach out, you're more than welcome to do that to me or Eliza from Investor Relations, and we'll be more than happy to assist you.

So with that, thank you very much.

Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Q3 Results 2025 Conference Call. [Operator Instructions] Please be advised that today's conference is being 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 9 months 2025 results. My name is, as said, Torben Sand, and I'm leading the Investor Relations and External Communications. And I'm, as usual, joined by our CEO, Niels Frederiksen; and our CFO, Marianne Rorslev Bock. Please turn to Slide #3 for today's agenda.

Niels 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 3 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 preprepared 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 you can -- 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 #5.

Thank you, Torben, and welcome to the call. The results in the third quarter continued 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 same quarter last year are for the first time in more than a year, what I will call more clean comparisons.

On the third quarter, it is more than 1 year since we acquired Mac Baren, and it's more than 1 year since the distribution of ZYN 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-rolled cigars and our online business. The free cash flow before acquisitions developed as expected and is on track to reach our expectation of DKK 800 million to DKK 1 billion 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 #6. We are approaching the end of the current 5-year strategy rolling towards 2025. And in just 8 days on the 20th November, we will launch an updated strategy where we will host a virtual capital market event. More details to be found on the investor website. Now let me give a brief update on the progress we made with our existing strategy. The integration of Mac Baren 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 brand, Ace, and Gritt. Overall, the integration is progressing well, and we are on track to deliver almost DKK 150 million 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 of our 3 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 during the fourth quarter are opening another 2 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 group net sales in the quarter compared with 9% for the full year of 2024. Further, we continue to invest in the future through increasing spending on improving our market share positions in machine-rolled cigars and the implementation of the ERP system [ SAP S/4HANA ]. The ERP implementation is progressing well with the 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 markets -- sorry 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 2 slides to Slide #8.

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 comprised 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 are not directly linked to a product category is included in other and account for 10% of group net sales.

Please turn one slide to #9. The market for handmade cigars in the U.S. continues to contract, but the decline rate appears to have stabilized. For our 4 different business streams all have achieved positive organic growth during the quarter, resulting in an organic net sales growth for the category of almost 6%. For the 9 months period, organic net sales were broadly unchanged. Firstly, the sales of handmade cigars to U.S. 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 continue 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 #10.

Based on the preliminary data, the total market for machine-rolled cigars in Europe in our 7 key markets is estimated to have decreased by 0.6% during the third quarter, whereby the total market decline in the first 9 months of the year is estimated to be down by close to 1%. The quarterly data has improved for the category during the past 2 quarters. However, let me remind you that the data can deviate somewhat quarter-by-quarter on 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 Wave 2 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 9-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 ZYN 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 9-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 Mac Baren, where we have reduced the geographic footprint for the brands Ace, and Gritt.

However, for the XQS brand, which 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 U.K., we continue to slowly improve our position. With this, I will now leave the [ word ] to Marianne for more details on the divisional performance. Please turn 2 slides to Slide #13.

Thank you, Niels. We will now turn the attention to the financial performance of our 3 commercial divisions, beginning with an overview of Europe Branded. Reported net sales for the third quarter declined by 2%, reaching DKK 829 million, while organic net sales fell by 3%. For the first 9 months, organic net sales growth was also negative, down by 3%. During the quarter, nicotine pouches, driven by the brand XQS continued to achieve double-digit growth, while handmade cigars and machine-rolled cigars and smoking tobacco categories experienced declines compared to the previous year.

EBITDA before special items remained nearly unchanged at DKK 190 million compared to DKK 189 million in the same period last year. The EBITDA margin increased to 22.9%, up from 22.3% in the third quarter of '24. This marks the first margin improvement for the division in over a year. For the first 9 months of the year, the margin was 19.5% compared to 21.3% last year. The margin development during the third quarter, despite continued investments to regain market shares reflects changes in the market mix compared to the same quarter last year.

However, the ongoing expansion of our nicotine pouch business continues to place downward pressure on the division's [ margin ]. With this, please turn to Slide 14, where I will address the performance in North America Branded and Rest of the World.

During the quarter, reported net sales for this division declined by 4%, primarily due to exchange rate fluctuations, especially the weakening of the U.S. dollar. As a result, organic net sales were slightly positive for the quarter compared to a 4% decrease over the first 9 months. The main drivers influencing organic growth this quarter were high single-digit growth in handmade cigars, while machine-rolled cigars and smoking tobacco experienced a low single-digit negative growth. EBITDA before special items declined by 12% to DKK 265 million with an EBITDA margin of 33% compared to 36.1% in the third quarter of last year.

The change was primarily driven by a shift in sales mix with decreases in high-margin businesses such as smoking tobacco and increases in sales in handmade cigars. For the first 9 months, the margin was 31.5%, down from 34.5% last year. I'll now turn the attention to the financial performance in our North America Online and Retail division. Please turn to Slide #15.

Reported net sales for the third quarter declined by 3%, primarily due to fluctuations in the U.S. dollar. However, organic net sales showed a positive growth of 4%. Organic sales increased in both our online and our retail distribution channels. Although competitive pressure remains high in the online segment, our pricing strategies are gradually improving the channel's market share. In retail, we are seeing benefits from the recent opening of new stores over the past year as well as higher same-store sales. EBITDA before special items declined to DKK 100 million, resulting in EBITDA margin of 13.7% compared to 14.6% in the previous year. The decline in EBITDA margin reflects the higher level of promotional activities.

I will now move to an update of group financial performance. Please turn to Slide #16. Reported net sales for the third quarter decreased by 3% compared to the previous year, primarily due to exchange rate fluctuations, which accounted for more than 3% impact. Organic net sales showed a modest increase of 0.3% compared to a 4% decline over the first 9 months of the year. The discontinued distribution of ZYN negatively impacted organic growth by approximately 2% during the 9-month period. Earlier, we provided a detailed breakdown of net sales performance by the product category and by division. So I'll now focus the developments in selected parts of the profit and loss and cash flow statements.

Special costs were DKK 41 million in the quarter, primarily due to our implementation of new technologies like the SAP. The expenses were DKK 31 million of this implementation. Additionally, special costs related to reorganization and the integration of Mac Baren amounted to DKK 10 million. For the first 9 months, special costs were DKK 146 million. Net profit for the third quarter was DKK 227 million with adjusted earnings per share, excluding special items of DKK 3.4. For the first 9 months, adjusted earnings per share were DKK 8.2. The free cash flow before acquisitions was positive at DKK 173 million with no impact from changes in working capital. Over the 9-month period, the free cash flow was DKK 448 million with a negative impact of DKK 197 million from working capital.

The cash flow development supports our expectations of free cash flow before acquisitions of more than DKK 800 million for the full year. Before moving to the next slide, I'd like to comment on the 10% decline in reported EBITDA for the first 9 months as illustrated in the chart next to the financial data. If we exclude negative impact from the discontinued ZYN contract and the impact from the weakening U.S. dollar, where a 10% decrease in the U.S. dollar reduces our EBITDA by 2.5%, then the decline in the operational results would have been less pronounced. We estimate that the underlying decline would have been closer to 6%.

Now please turn to Slide #17. The EBITDA margin before special items was 22% for the quarter compared to 23.4% in the same quarter of '24. For the 9-month period, the margin was 19.9%. The reduction in the margin during the quarter was primarily due to a combination of changes in product and market mix as well as continued investments in regaining market shares from machine-rolled cigars in key European markets. At divisional level, the margin decline was mainly due to lower margins in both online and retail and North America Branded & Rest of the World, where while Europe Branded saw a slight improvement.

Now please turn 1 slide to Slide #18. During the third quarter, the interest-bearing debt increased -- decreased by approximately DKK 100 million to DKK 5.6 billion, primarily due to a positive cash flow generation during the quarter. As a result of the slightly lower net debt and a modest decrease in EBITDA for the 12-month period, the leverage ratio remained unchanged at 2.9x compared with the second quarter. At the end of 2024, the leverage ratio was 2.6x. Based on our cash flow projections for the remainder of 2025, we expect the leverage ratio to decline during the fourth quarter, though it will still be above our target of 2.5x.

I will now hand the presentation back to Niels. Please turn 2 slides to Slide #20.

Thank you, Marianne. The financial performance during the first 9 months of the year and in October supports the expectations for the full year 2025, which were communicated in May and confirmed in August. Our base scenario, as we discussed following our second quarter results in August remains unchanged. The decline rate in the consumption of handmade cigars has stabilized and volumes of machine-rolled cigars in Europe decreased by a low single-digit percentage, albeit with variations from market to market. The uncertainty related to the U.S. consumer sentiment, down trading and retailer decisions on inventory across our product categories remain a risk to our full year expectations.

However, as we are 3 months closer to the year-end, we narrowed the ranges for net sales, EBITDA margin and EPS. And as the U.S. dollar have not changed to a higher level, we narrowed the expectation to reported net sales for 2025 to be in the range of DKK 9.1 billion to DKK 9.2 billion from DKK 9.1 billion to DKK 9.5 billion previously. The financial development during the third quarter and in the beginning of the fourth quarter was as expected. But as we communicated in August, the reported net sales would end in the lower end of the range based on constant exchange rates for the remainder of the year. And the updated range for reported net sales reflects that the U.S. dollar has remained almost unchanged since then.

The range for the full year EBITDA margin is also narrowed to be in the range of 19.5% to 20.5% from previously 18% to 22%, reflecting the higher level of visibility for the rest of the year. Free cash flow expectation is maintained in the range of DKK 800 million to DKK 1 billion. The cash flow generation will be stronger in the fourth quarter of the year as a result of the operational performance and as cash tied in inventories and trade receivables will normalize. Now this concludes our presentation for today, and I'll now hand the word back to the operator, and we are ready to take questions.

[Operator Instructions] We will now take the first question from the line of Niklas Ekman from DNB Carnegie.

Can I start with a question about the full year guidance? Because if -- correct me if I'm wrong, but this seems to imply expectations of an organic sales growth of at least 2% in Q4 and at the same time, the margin guidance seems to be quite cautious, implying a margin contraction of at least 2 percentage points or up to 6 percentage points in Q4. So can you elaborate a little bit on this? This seems to suggest that you are investing a lot in regaining sales in Q4? Or is there anything else here in phasing or timing effects that we're missing?

Thank you, Niklas. So yes, we are expecting net sales growth also in the fourth quarter as we did show a slight growth in the third quarter. So on the EBITDA margin, where we narrowed the range to sort of the mid of the previous range, we believe that is a realistic range for EBITDA margin. We are opening 4 new stores in -- or 2 new stores in the fourth quarter of this year, and they will come with additional costs without having the same level of net sales attached to it. So I believe we will be within this guidance range.

Okay. Very clear. Can I also ask about nicotine pouch products with the strong success you've seen now in Sweden, in particular, and in Europe and some relaxed regulation in the U.S. market, what are your thoughts on introducing XQS in the U.S. market?

Yes. Thanks for that question, Nicklas. I think we have previously explained that we actually do not own the XQS trademark in the U.S. When we acquired XQS a few years back, we acquired all trademark rights with the exception of the U.S. So our focus on nicotine pouches is Europe.

Okay. Very clear. Sorry if I missed that. Can I also ask about, in handmade cigars and I think the rollout to -- the international rollout of handmade cigars, I think this has been enabled partly because of significant Cuban issues, Cuban supply issues. Are those still intact? Are you still seeing a clear shortage of Cuban cigars in the European and Asian markets? And is that still providing a big opportunity for you to roll out your products instead of your Cuban competitors? Or can you just describe the market dynamic if there have been any changes in the past year?

You can say that the supply of Cuban cigars has been somewhat normalized over the past 6 months. And also, you can say the organization that promotes Cuban cigars have also supplemented the portfolio with non-cuban cigars made out of the Caribbean. So overall, you can see that the organization is, let's say, normalizing their market approach. So we still believe that the long-term trend of non-cuban cigars gaining market share over Cuban cigars will support also our performance outside the U.S. But I think it's also important to remember that even though we are very pleased with the growth we are seeing on the international markets, the U.S. market is by far the more dominant market for us and more important one to succeed in.

Very clear. And can you -- ahead of the CMD here next week, do you have any indication of what kind of topics you are aiming to bring up here and not least in light of the pretty sharp margin decline that we've seen over the past 4 years. Is this going to be a key topic at the CMD?

I think that what we can say today, Niklas, is that we will keep our powder dry until we get to the Capital Markets Day, and then we will try to outline how we will bring the company forward.

[Operator Instructions] We will now take the next question from the line of Damian McNeela from Deutsche Numis.

The first question is on European machine-rolled cigars and your loss of market share there. I appreciate that some of that is down to SAP issues. But can you just provide a little bit more color on whether you're seeing a stabilized market share in markets that haven't been impacted by SAP and what your sort of plan is going forward to recover market share, is the first one. The second one is, can you talk about what's behind the acceleration in growth in your XQS brand in Sweden in the third quarter? What are the market dynamics that are sort of particularly helping that brand there? And then just one last one on investment, I know sort of new store openings require further investment, but it sort of feels from reading the results and listening to the commentary this morning that overall levels of investment seem to be stepping up. And I was wondering whether this is more temporary in relation to specific market dynamics and store openings. Or is this something that we should start to factor in into our margin sort of thoughts for the outer years, please?

Yes. Thank you, Damian. Let me start by saying that it is, of course, super frustrating for us that we have, let's say, again, for different reasons now, supply issues into the European machine-rolled cigar market and -- and we are confident that these will be resolved in the course of the fourth quarter and being resolved as we speak. So once that is said, I think what we feel is the efforts we are doing on market share recovery when we have inventory is working. And some of -- the 2 key markets that we are focusing on is France and Spain. And in Spain, where we have been less affected by inventory availability, we also see nice market share progression. In France where the opposite is the case, that is part of what is holding us back. And then we have some very specific issues in the Benelux that we also need to resolve.

So this is also why you can say that even though we are not helping ourselves in this particular case, we are confident that once we have inventory availability stabilized, we should see market share progressing from -- unfortunately, from a lower level. But that is kind of where we are right now. It's a high priority for us because our machine-rolled cigar business is still a very profitable business and it's still a business where we are the market leader.

If I move on to the XQS question, I think it's maybe more important to focus on the 9 months growth rate of 45% as we still have some quarterly fluctuations on growth rates. So you should not factor the 75% growth in the third quarter into our new growth rate. There is no doubt that Sweden is still the driver. The market is growing, and we are growing and we are successfully growing by providing consumers with let's say, with flavor experiences that they appreciate. And again, you have a very mature market in Sweden, and we are very strong in what you can consider the non-Mint flavored segment. And of course, you can say that the major segment in all these nicotine pouch markets is Mint, and this is also one of the growth opportunities we see for our nicotine pouch brand over time. We have our strength in the flavor. We would also like to be better in the Mint area.

On the new store openings, this is not a new investment level. This is just the practicality of when we open new stores, they tend to draw higher on the cost side in the first 3 months as we get these shops going. But on a full year basis, all our shops are profitable 1 year into a launch and beginning to contribute nicely.

And maybe, Damian, Marianne here. Let me add also. So when we look at investments, we also will have investments from the ongoing Mac Baren integration. But we are also very occupied about our leverage level. And thereby, we will be very disciplined on investments for the coming year.

There are no further questions at this time. I would now like to turn the conference back to Torben Sand for closing remarks. Thank you. There are no further questions.

Sorry, sorry, I was on mute here. We have one question from the webcast that I would like to share. And the one part is on smoking tobacco, which was down in the quarter compared to growth in the past 5 quarters. So maybe if you can comment on the respective geographic performance in the U.S. and Europe within this category and what the prospects are going forward?

The second question is also around little cigars, specifically in the U.K. where crushball flavored cigarillos have performed very well in the past years. I noticed that STG have increased the offering in this segment. So how is this performance going? And what's the plan to regain market share in the U.K.? I'll leave that for Niels.

Yes. Thank you for that question. Let me start by saying that year-to-date, the smoking tobacco is growing. And it is true that the third quarter represented a decline. But when you look at it year-to-date, smoking tobacco is growing. And remember, smoking tobacco is a combination of fine cut tobacco offerings and pipe tobacco. So we are very pleased with our combined position in this. When you look at Europe, most of the growth in smoking tobacco is driven by Germany, where we have, over a number of years, successfully grown our Break brand to now have, if I recall, around 7% or 8% of that market and is continuing to grow. We also have a nicely growing business in other parts of that smoking tobacco.

Pipe tobacco is a little bit of a mixed picture in the sense that this market is fundamentally declining. But in the early parts of the year, we did see quite high sales in the U.K. -- sorry, in the U.S., where we merged our activities between Scandinavian Tobacco Group and Mac Baren. And therefore, we have seen sales of this product front-loaded in the first 6 months, and we expect a little less sales in the last 6 months of the year. But overall, we expect this category to deliver growth for 2025.

When you look at the U.K., it's correct. We have an offering of little cigars with crushballs as a flavor. And this is a market that is growing. I should also be fair to say that we have a very small position in this market that is dominated by other larger [ cigarette ] companies, but our position is growing, and we are quite pleased with the performance we are seeing.

Okay. And I think that from our side then concludes. There's no further questions from the website. And thank you very much all for listening in. I'll just again remind you of our upcoming Capital Markets event on the 20th, and you will find registration details both in the quarterly statement we have sent out, but also on the website. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Second Quarter Results 2025 Conference Call and Webcast. [Operator Instructions] 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, Head of Investor Relations. Please go ahead.

Thank you. Welcome to Scandinavian Tobacco Group's webcast for the second quarter and first half 2025 results. My name is, as said, Torben Sand, and I am Director of Investor Relations and External Communications, and I am joined by our CEO, Niels Frederiksen; and our CFO, Marianne Rørslev Bock.

Now please turn to Slide #3 for today's webcast agenda. Niels will start the presentation by giving you a brief overview of the highlights of the quarter, followed by an update on our strategy. The focus will then be switched with Niels giving an update on developments in our core product categories, followed by Marianne, who will give you an update on the financial performance in our 3 reporting divisions.

Marianne will then turn the focus to key financial developments for the group, including an update on cash flow and leverage. Niels will conclude by giving 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.

Before we start, I ask you to pay special attention to our disclaimer on forward-looking statements, which can be found at the end of this slide deck.

Now please turn to Slide #5, and I'll leave the word to Niels.

Thank you, Torben, and welcome to the call. The results in the second quarter did improve compared to the soft start we experienced in the first quarter of the year. The financial performance, including the development in July, supports our expectations for the full year. Reported net sales were almost in line with the last year. The inclusion of Mac Baren enhanced reported sales growth, whereas the U.S. dollar and organic growth contributed negatively.

However, as we have pointed out in the previous 3 quarters, organic growth has been significantly impacted by the discontinued distribution of ZYN in the U.S. In the second quarter of this year, the impact was minus 3% to our net sales just as our margins have been impacted negatively. In addition, the organic performance was also negatively impacted by no sales in the profitable Australian market.

Focusing on the continuing business, the 3 product categories all delivered growth in the quarter, reversing the negative trend in the first quarter. And in a moment, I will talk more to the drivers behind the development in each product category.

EBITDA margin decreased to 21.1%, which was impacted not only by ZYN but also by changes in product and market mix, where the high growth of our nicotine pouch brand XQS reduces short-term margins. Our continued investment in strengthening our market positions in the core categories also affected margins negatively. The free cash flow before acquisitions developed as expected and is on track to reach our expectation of DKK 800 million to DKK 1 billion for the full year.

Please turn to Slide #6. We are approaching the end of the current 5-year strategy, Rolling Towards 2025. And as we have communicated previously, the plan is to launch a 2030 strategy before the end of the year. Currently, we aim to launch our 2030 strategy on November 20, where we intend to host a virtual capital markets event. More details to follow on this later, but now let me give you a brief update on the progress we made with our existing strategy.

The integration of Mac Baren is progressing according to plan. In the U.S., we have consolidated the distribution of goods in our Bethlehem facility, and we have closed the pipe tobacco factory. Furthermore, we have streamlined all acquired online sales channels into one single platform, pipes and cigars. And we have reduced the geographic footprint for the nicotine pouch brands, ACE and GRITT.

So overall, the integration is progressing well, and we are on track to deliver almost DKK 150 million in synergies from the integration and to improve the group ROIC when the integration is completed in 2027.

Two of our three growth enablers continue to deliver meaningful growth to our net sales. Retail stores in the U.S. and our nicotine pouch brand XQS delivered double-digit sales growth, whereas sales of Handmade Cigars to the international market temporarily have experienced a setback. I'll talk more to each of the growth enablers when I turn to the update for our product categories in a moment.

Combined, the growth enablers account for 10% of group net sales in the quarter compared with 9% for the full year 2024. Further, we continue to invest in the future through increasing spending on improving our market share positions in Machine-Rolled Cigars and in the implementation of the ERP system, SAP 4/HANA.

The ERP implementation is progressing as planned with the inclusion of our European factories earlier in the year. And in September, the rollout to all our European sales operations will be completed. As we saw in Q1, the rollout does create ongoing but manageable issues.

Please turn to Slide #8. 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, our Next Generation Products remain a relatively small part of the group net sales with 4% in the second quarter, whereas Machine-Rolled Cigars & Smoking Tobacco, following the acquisition of Mac Baren, now comprises slightly more than 50% of group net sales. Sales of accessories, bar sales, amongst other, which is not directly linked to a product category; is included in Other, as outlined in the interim report.

Please turn to Slide #9. The market for Handmade Cigars in the U.S. continues to contract. And currently, we project no major changes in the coming quarters. The volume development continues to reflect the consumer sentiment, which is impacted by overall economic uncertainty as well as higher product prices, a direct consequence of the increasing tariffs for products being imported from the three main cigar-producing locations in Nicaragua, the Dominican Republic and Honduras.

However, organic net sales for the category recovered in the second quarter compared to a weak first quarter. Organic net sales growth was 1% in the quarter and minus 4% for the first 6 months of the year, with the Q1 performance impacted by the timing of the large U.S. trade show and particular bad weather.

The sales of Handmade Cigars to U.S. wholesalers and distributors, the business-to-business market recovered well in Q2, driven by pricing. Our online sales of Handmade Cigars were slightly down in the quarter, whereas sales of Handmade Cigars in our retail stores continue to increase, driven by new store openings. And sales to our international markets declined for the second quarter in a row, primarily due to lower shipments to our Asian markets.

Please turn to Slide #10. Based on the preliminary data, the total market for Machine-Rolled Cigars in Europe in our 7 key markets is estimated to have increased slightly during the second quarter. For the first 6 months, total market volumes are estimated to be down by close to 1%.

Although the quarterly data has improved for the quarter -- for the category, I must 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 sustainable improvement. Our base scenario of 2% to 3% general volume decline rate is maintained.

Measured by our market share, we experienced a temporary setback during the first quarter, primarily driven by delivery issues experienced during our large wave 2 go-live for SAP. However, during the second quarter, our market share recovered as expected. Our market share index for the second quarter was 27.7% compared with 27.9% for the full year of 2024. We continue to invest in strengthening our positions further as stronger market share positions are crucial for delivering long-term value in this category.

Smoking Tobacco delivered 10% organic growth, driven by fine-cut tobacco, and 42% growth when including the impact from Mac Baren and exchange rate developments.

With this, now please turn to the next slide. Moving on to Next Generation Products, which comprises our nicotine pouch business. As the previous -- as in the previous quarters, the headline performance is significantly impacted by the discontinuation of the ZYN distribution, which in the quarter impacted organic net sales growth negatively by 47%. However, as ZYN from the third quarter onwards no longer will impact our growth comparisons, I will address the development in the continuing business streams.

During the second quarter, the continuing businesses delivered 4% organic net sales growth with the XQS brand delivering 17% growth. The growth rate continues to be impacted by the streamlining of the nicotine pouch portfolio we took over from Mac Baren, where we reduced the geographic footprint for the brands ACE and GRITT. This impact will also impact growth in the coming quarters.

However, for the XQS brand, volumes and market shares continue to improve. And in Sweden, the brand has now exceeded 12% of the total market. And in the U.K., we continue to slowly improve our position.

With this, I will now leave the word to Marianne for more details on the divisional performance. Please turn two slides to Slide #13.

Thank you, Niels. We will now turn the focus to look at the financial performance for the 3 commercial divisions. I'll start the overview with Europe Branded.

Reported net sales for the second quarter increased by 10% to DKK 851 million with organic net sales decreasing by 2%. The inclusion of Mac Baren impacted reported net sales by almost 11%. For the first 6 months, organic net sales growth was negative by 2.8%.

For the quarter, nicotine pouches driven by the brand XQS continued to deliver growth, while the product categories, Handmade Cigars and Machine-Rolled Cigars, Smoking Tobacco delivered negative growth compared to last year, though improving compared with the development in the first quarter.

EBITDA before special items increased to DKK 207 million with an EBITDA margin of 24.3% compared to 24.9% in the same quarter for 2024. The first 6 months of the year, the margin was 17.7% compared to 19.9% last year.

The margin stabilization during the second quarter largely reflects a more favorable production and sales development compared with the first -- with the weak first quarter as well as pricing. However, the ongoing expansion of our nicotine pouch business continues to place a downward pressure on margins for the division.

With this, please turn to Slide #14. In the quarter, reported net sales for the commercial division, North America Branded & Rest of the World increased by 4% with a positive contribution to net sales from the inclusion of Mac Baren of almost 9%. Exchange rate developments, particularly the decline in the U.S. dollar, impacted negatively by 4%. As a result, organic net sales were minus 1% in the quarter compared with minus 7% in the first 6 months.

The main drivers for the organic development in the second quarter were mid-single-digit growth in both Handmade Cigars and Machine-Rolled Cigars, Smoking Tobacco, primarily driven by pricing. Expected lower sales of accessories to Australia impacted growth negatively for the division.

EBITDA before special items decreased to DKK 235 million with an EBITDA margin of 30.2% compared with 36.6% in the second quarter last year. The development is primarily a result of mix changes, with sales decreasing in high-margin businesses like accessories sold in Australia and fine-cut tobacco in Norway. For the first 6 months, the margin was 30.7% compared with 33.9% last year.

I will now turn the attention to the financial performance in our North America Online & Retail division. Please turn to Slide #15. Reported net sales for the second quarter decreased by 13% compared with 2024 with an organic net sales growth of minus 10%. The discontinuation of the ZYN distribution, which was operated by our online business, impacted organic growth by -- negatively by 10% in the quarter, which implies the underlying ongoing business delivered a flat development.

Although the number of active consumers continued to decline, net sales were stable compared with the second quarter last year. An improvement in retention rate is offsetting a declining level [Audio Gap]. Pricing in our online business continued to be more tactical, reflecting the competitive environment.

In the Retail business, organic net sales continued to be enhanced by the opening of new stores within the past year. Same-store sales declined slightly compared to last year. EBITDA before special items decreased to DKK 96 million with an EBITDA margin of 13.1% compared with 18.1% last year. The declining EBITDA margin reflects the discontinued ZYN distribution business as well as a higher level of promotional activities.

I'll now move on to an update on group financial performance, please turn to Slide #16. Reported net sales for the second quarter were on par with last year. The inclusion of Mac Baren enhanced growth by 7%, whereas exchange rate developments had a negative impact of 3% and the organic net sales growth was negative by 4%.

The discontinued distribution of ZYN impacted organic growth by 3%, and the decline in accessories for Australia impact was minus 1%, implying the underlying like-for-like growth was flat.

From the third quarter, ZYN will no longer impact year-on-year comparisons just as the acquisition of Mac Baren, which was included from July last year. Hence, net sales and margin comparisons to last year will become easier going forward.

In the previous comments, we have shared details about the net sales performance, both by product category and by division. So I will now talk to the development in selected parts of the profit and loss and cash flow statements.

Special cost was DKK 35 million in the quarter, primarily related to the SAP implementation. Special costs for the first 6 months were DKK 105 million, primarily relating to the SAP implementation and the integration of Mac Baren. Net profit for the second quarter was DKK 227 million with adjusted earnings per share, which excludes special items, of DKK 3.30 per share. For the first 6 months, earnings per share was DKK 4.70.

The free cash flow before acquisitions was positive by DKK 119 million despite a negative impact from a change in working capital, impacting the cash flow negative by DKK 238 million. The development in working capital relates to an increase in inventories and trade receivables, which will be reversed in the second half, supporting our expectation of a free cash flow before acquisitions between DKK 800 million to DKK 1 billion for the full year.

Please turn to Slide #17. The EBITDA margin before special items was 21.1% in the quarter compared to 24.5% in the same quarter of 2024. For the 6 months, the margin was 18.8%. The decrease in margin in the quarter relates to a combination of product and market mix changes, the discontinued ZYN distribution and continued investments in regaining market shares in Machine-Rolled Cigars in key European markets.

Measured by divisions, the development in the quarter primarily relates to lower margins in Online & Retail as well as in North America Branded & Rest of the World, whereas the margin was almost unchanged in Europe Branded.

Now please turn one slide to Slide #18. During the second quarter, net interest-bearing debt increased by about DKK 0.5 billion to DKK 5.7 billion, primarily due to payment of dividends in April of close to DKK 670 million.

As a result, the leverage ratio increased as anticipated during the quarter. By the end of June, the leverage ratio stood at 2.9x compared to 2.6x by the end of 2024. Based on our cash flow projections for the remainder of 2025, we expect the leverage ratio to decrease during the second half of the year, although it will remain higher than our target of 2.5x.

I will now leave the word back to Niels. Please turn two slides to Slide #20.

Thank you, Marianne. The financial performance during the first half of the year and in July supports the expectations for the full year of 2025, which were communicated in May. Our base scenario is unchanged, with the consumption of Handmade Cigars continuing to contract and volumes of Machine-Rolled Cigars in Europe decreasing by a low single-digit percentage.

There will be variations from quarter-to-quarter. And at this point, we don't regard the volume improvement experienced in Machine-Rolled Cigars in Europe during the second quarter as sustainable. And we continue to regard the uncertainty as high in relation to U.S. consumption of Handmade Cigars.

We maintain expectations for the full year net sales in the range of DKK 9.1 billion to DKK 9.5 billion. And based on the current level of the U.S. dollar, it is more likely closer to the lower end of the range.

We expect to deliver positive organic net sales growth in the second half of the year, driven by the opening of 2 retail stores in the U.S., a continued stabilization of our market shares in Machine-Rolled Cigars, a continued double-digit growth of XQS, and pricing will support net sales performance. And please note that ZYN will no longer impact our organic growth performance in the second half of the year as it's done for the past 4 quarters.

The range for the full-year EBITDA margin is maintained in the range of 18% to 22%. A continued recovery of margins in Machine-Rolled Cigars, integration benefits from the Mac Baren acquisition, pricing and cost discipline are expected to enhance the EBITDA margin during the second half of the year compared with the first half. However, the relatively broad range for the margin is unchanged as we want to maintain flexibility to protect our market shares and develop our business if deemed necessary.

Free cash flow expectation is maintained in the range of DKK 800 million to DKK 1 billion. And the cash flow generation will be stronger in the second half of the year compared with the first half, primarily as a result of the operational performance and as cash tied in inventories and trade receivables will normalize.

Uncertainties to our base assumptions for the year remain high. And as indicated by our sensitivity to currencies, reported net sales and EBITDA before special items are sensitive to the development of the U.S. dollar.

Now this concludes our presentation for today's call, and I'll now hand the word back to the operator, and we're ready to take questions.

[Operator Instructions] And we'll take our first question on audio line, and it comes from the line of Niklas Ekman from DNB Carnegie.

Can I start asking about the sales guidance here? As you mentioned -- even the low end of your guidance range requires an organic growth, according to my calculations, at least 1% in H2. How confident are you that you can reach this if we look at the trend over the last couple of quarters? That's my first question.

Niklas, good to hear from you. Yes, if we look at the second quarter and the sales guidance, you're absolutely right. We do expect to see growth in the second quarter. If we look at the Online business, we have new stores that opened last year, that will impact the second quarter, and we will also open stores in the second quarter. So here, we will also see growth.

Further, we do not have any impact from ZYN in the second quarter, which will also help our organic growth. We have also, in the first half year, been impacted, as we've said many times, by the high profitable Australian market due to changes in distribution model there, but we also expect sales to revert in the Australian market in the second quarter.

So yes, we do expect to see growth in the second quarter. It might also be important for me to say, we also wrote it in the report, with the current dollar, we do expect us to be in the lower range of the reported net sales, the lower part of the guidance range.

Very clear. And I guess the same question on margins. Given a pretty sharp decline here in Q2 with negative mix and investments, any risk that this will continue in H2?

Yes. So on the margin side, we will still be impacted by our growing nicotine pouch business that do have a downward pressure on our margins. We will also continue in the second half to protect our market shares in key European markets, which will also have an impact on margins.

So we expect to see a slight improvement of margins in the second half, but we will not revert to, you can say, pre-COVID levels of margins.

Okay, very clear. And you mentioned here -- on the first question, you mentioned your superstore expansion. I think you currently have 13 stores. Is that correct? You didn't open any new stores in Q2. Are you -- how many stores are you expecting to open in H2?

So that's correct. We have 13 stores now, and we expect to open 2 stores in the second half.

Very clear. Can I ask also about the new strategic agenda? If you could just -- without spoiling too much on your plans here, but given that margins have dropped now by almost 6 percentage points in the last 3.5 years, do you think that this new agenda will maybe be more focused on cost reductions than you've seen in the past? Or do you think growth is going to be a key priority for you going forward?

I totally understand the curiosity, Niklas. I think that we will have to wait until we are ready to announce the new strategy, to be specific. What I can say in general terms is, of course, when we look at developing strategy, we look at three basic things. We look at how do we drive growth, and this is about looking at our market positions, it's about seeing where we see growth opportunities that we believe we are qualified to approach.

Then it's about driving efficiency across our value chain, which is something we're always occupied with, and that can include a wide range of initiatives. And then it's about making sure we have the organization in place to actually execute. And those are really the three things that we will talk to when we come back with the 2030 strategy in November.

Excellent. Looking forward to hearing more about that. And just a final maybe quick question. You mentioned in the presentation or in the results statement, you mentioned a dispute with the Belgian excise authorities. When was this raised? And have you made any provisions for this? And can you say anything about kind of the time linehere when we can expect any kind of news on this?

Yes, thanks for the question. So the Belgium authorities have been auditing STG, so we have become aware of this during Q2. Maybe to put a little words on what it is -- the dispute is about, when we restructured our factories after the acquisition of Agio, we changed some processes with recycling tobacco to being waste processes. And when we had the audit from the authorities, which we have ongoingly, they discovered that some of the waste has not been done under the supervision of authorities, which must happen.

For us, it's extremely important to say that none of these products have ended up in the market without us paying excise, [ has been going to disruption ] as waste. So currently, we are in dialogue with the authorities. It takes time with such a dialogue but we do expect to be wiser when we come into Q4.

Very clear. And just to be clear, no provisions have been made for the EUR 7 million to EUR 9 million?

That's correct. No provision has been made.

[Operator Instructions] And now we're going to take our next question, and it comes from the line of Sebastian Grave from Nordea.

For start, I would like to offer my congratulations to you, Niels. I noted that your team qualified for the UEFA Champions League group stages last night. So hopefully, you had the opportunity to be there yourself.

Now I want to zoom in on the U.S. market here and dynamics around the U.S. consumers. It looks like you're able or at least you're willing to pass on price increases in the wholesale division here for [ start ], whereas, as you say, that you remain more tactical in the Retail segment. I guess in my understanding, this means that you're currently absorbing some of these costs yourself from extra costs.

So what are your expectations around the terms of consumer price elasticity once you start passing on price increases here in H2 and going forward? Any sort of comments around the U.S. segment and trading that would be very helpful.

Yes. Thank you, Sebastian. Important to acknowledge the good results of SDK, so thank you very much.

On the U.S. area, I can say that we are seeing the industry being quite disciplined with passing price increases on -- to consumers in the form of new price lists. And the tactical aspect of Online is almost a practical thing in the sense that the online channel tend to wait with bringing prices up until they depleted inventory of goods they procured at old prices.

And hence, you get this situation where the relative price advantage of trading in the online channel is higher relative for a period. And currently, we expect those prices to begin to normalize in Q4. So you can think about it more as a delayed price increase than an actual price increase.

We are following consumer reactions to this quite closely. And we do actually see some signs that consumers are shifting to the online channel because of the slower price increases. But we are also occupied with trying to meet the U.S. consumer because you can say that now the situation around tariffs is calming down, and we are hoping and monitoring whether consumers actually kind of accept the new normal and -- which also means that some categories will have gone up in price.

So I think when we come to the reporting of the third quarter, we will have a better view of exactly how consumers have responded, have they normalized? Have they shifted between the channels? Because that is, of course, quite important for us when we look ahead and plan for this category.

Sure, sure. And I guess the big question is, I mean, if they cannot shift to a cheaper online channel, whether they are going to leave the category entirely here due to tariffs. I guess, time will tell.

Maybe a second question on Handmade Cigars here. Could you expand a bit more on the international operations? And you also alluded to in the presentation that especially the Asian volumes have been lagging here for the last few quarters. Now my impression was that you are sitting on a fairly good opportunity in the international markets to expand on your position there. So what's not working for you guys at the moment?

Yes. So the international markets does represent a nice opportunity for us, and they also have been growing double digit for quite a number of years. And I don't think we should put too much emphasis on the declines that we've had for the first and the second quarter. Some of it is phasing of inventory. Some of it is also inventory availability from our side.

And you must remember that we are servicing quite a wide number of markets with low volumes. So it's complicated. And even though we love to sell more internationally, it's actually more important that we service the U.S. market well.

So we still want to grow in international, we still expect to grow in international, but we've had some phasing and shipment issues into the area in the first half of the year.

Dear speakers, there are no further audio questions at this moment, and now we will proceed with any written questions. Torben, over to you.

Yes. Thank you. And the first question comes from Daniel, and I'm just talking it out here. Just two quick questions from my side. Regarding the North America Branded & Rest of the World division, can we expect pricing to continue to offset the volume declines in both Handmade Cigars and Machine-Rolled Cigars for the remainder of the year? You can take that as the first one.

Yes. It's a good and relevant question. And you can say we always aim to take price increases that can offset volume declines, but the price dynamics in the Handmade and Machine-Rolled Cigar markets are quite different in the past years compared to what we've seen historically. So yes, we are taking price increases, but we are also seeing a need to be more promotional to protect market shares.

So if there is a difference between net pricing and actual pricing, and this is, of course, a main focus of ours, is to make sure we don't promote more than what we need to but then also promote exactly what is needed to protect market shares. And that's also one of the reasons why we're keeping the wider EBITDA margin simply to give ourselves flexibility to do that.

And the second part is for Online & Retail. When we now no longer are to include the impact of ZYN, should we be expecting flat to slightly positive organic sales for the remaining quarters in 2025?

And the answer here is yes. As I mentioned before, with retail stores opening and also ZYN not being part of the equation, we will expect to see a slight positive growth in the second half.

And then we jump to a question from Gus and basically asking regarding nicotine pouches. Is there any chance that the ZYN distribution will be coming back in the U.S. or is this completely finished?

Yes. So our understanding is that Philip Morris have made a decision not to sell ZYN online in the U.S. And therefore, we do not consider it an option for ZYN to come back in distribution, unless Philip Morris changes their decision. And even if they change that decision, there's no guarantee that they'll come back to us to look for a partnership. So we essentially consider the business as gone and we focus on developing our existing business.

And then turning to also nicotine pouches but our XQS brands. Is there an update on progress regarding the launch in additional markets, particularly in the U.S., which is now by far the biggest market for these products? And were there one industry player or [ were there ] one industry player has just announced a pending product launch without a required FDA approval? So that's also maybe a question for you, Niels.

Yes. So I think maybe it's important to clarify that we own the XQS brands globally but not in the U.S. So we have no plans regarding launching of the XQS brand in the U.S. We are concentrating on Europe, where we see strong success in Sweden and we are trying to roll it out to more European markets. That's our main focus.

Thank you, and that basically covers the questions from the web.

Torben, there are no further audio questions.

Okay. Thank you. Then I think we will conclude. And thank you all for listening in to our webcast, and we look forward to present for the third quarter in November. Thank you, and goodbye.

This concludes today's conference call. Thank you for participating. You may now all disconnect. Have a nice day.