Release Date: November 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Scandinavian Tobacco Group AS (SNDVF, Financial) reported a 7.1% increase in net sales, with the acquisition of Mac Baren contributing positively.
- The integration of Mac Baren is expected to deliver significant synergies, estimated at DKK 150 million by 2027.
- Investments in machine-rolled cigars have led to improved market share, particularly in France.
- The nicotine brand XQS continues to grow at high double-digit rates, expanding market share in Sweden and launching in the UK and Denmark.
- The company issued a new EUR 300 million corporate bond, securing long-term financing.
Negative Points
- The EBITDA margin decreased to 23.4% in Q3, impacted by investments and the inclusion of Mac Baren.
- Organic net sales growth was slightly negative at -0.1%, affected by the discontinuation of third-party nicotine pouch distribution in the US.
- The US market for handmade cigars continues to contract, with no signs of stabilization.
- Free cash flow before acquisitions decreased significantly compared to the previous year, impacted by operational performance and working capital changes.
- The leverage ratio increased to 2.9 times, influenced by the acquisition of Mac Baren and higher interest rates on new corporate bonds.
Q & A Highlights
Q: What are the reasons behind the continued weak trend in US handmade cigars, and how does this compare to pre-COVID levels?
A: Regis Broersma, President and Senior Vice President, explained that different parts of the value chain are performing differently. Retail stores are doing well, with same-store sales up 11%, attributed to the experiential aspect of visiting stores. However, the business-to-business side has seen volume losses. Compared to pre-COVID levels, volumes are slightly below, partly due to a shift towards premiumization over the last five years. There is also a downtrading effect currently. Market share data is limited, but increased promotional spending has slightly improved online market share.
Q: What is the impact of the absence of nicotine pouch distribution in the US on North America online sales, and are there plans to relaunch?
A: Marianne Roerslev Bock, CFO, stated that Philip Morris is not expected to resume online sales of nicotine pouches in the US, affecting all online businesses, not just theirs. The impact on sales is around DKK 130 million this year. There are no current plans to relaunch the distribution.
Q: How are Mac Baren's next-generation products positioned, and do they see growth similar to XQS?
A: Regis Broersma noted that Mac Baren's brands, ACE and GRITT, have strong market shares in regions where STG is not yet present, complementing their portfolio. XQS will be the global drive brand, while ACE and GRITT will be positioned in specific growth markets.
Q: What is the focus of future acquisitions, and how do you prioritize between growth and synergy cases?
A: CEO Niels Frederiksen explained that acquisitions are viewed from two perspectives: those that strengthen brands and deliver significant synergies, like Mac Baren, and strategic acquisitions for portfolio reasons. Synergy-driven acquisitions are easier and less risky, but strategic acquisitions are also important for globalizing their business.
Q: How will the Mac Baren integration affect the company's production capabilities, particularly for next-generation products?
A: Regis Broersma confirmed that they plan to retain Mac Baren's production capabilities, moving nicotine pouch production to existing facilities to expand capacity. This will help retain expertise and expand production capabilities.
Q: What are the expectations for special costs related to the Mac Baren integration and other initiatives in 2025 and 2026?
A: Marianne Roerslev Bock stated that additional costs from the P implementation will continue into 2025, with the majority of Mac Baren-related synergies and special costs realized in 2025 and 2026. Detailed guidance will be provided in future reports.
Q: How confident are you in achieving the free cash flow guidance for the fourth quarter, and what are the key components?
A: Marianne Roerslev Bock expressed confidence in achieving more than DKK 0.5 billion in cash flow for Q4, driven by positive working capital impacts and reduced tax payments compared to last year.
Q: Are there any differences in the product composition between XQS and Mac Baren's ACE and GRITT brands?
A: Regis Broersma explained that ACE is similar to XQS in terms of product and recipe, while GRITT offers a different consumer experience with a salt-based recipe, allowing them to compete effectively in the market.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
