Release Date: May 21, 2025
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 1.3% increase in net sales for the first quarter, driven by the acquisition of Mac Baren and strong growth in the nicotine pouch brand XQS.
- The integration of Mac Baren is progressing well, with significant steps taken in the US, including consolidating distribution and streamlining online sales channels.
- The company's retail channel delivered strong double-digit net sales growth, emphasizing the value of investments in this area.
- The free cash flow before acquisitions was significantly stronger than the previous year, driven by changes in working capital.
- The company remains committed to investing in long-term growth opportunities, including strengthening market positions in core categories and expanding nicotine pouch brands into new markets.
Negative Points
- The company adjusted its financial expectations for 2025 due to a weaker US dollar and increased tariffs on imported goods, impacting the handmade cigar business.
- Reported net sales for 2025 are now expected to be lower than previously anticipated, with a revised range of DKK9.1 billion to DKK9.5 billion.
- The EBITDA margin is expected to be negatively impacted by more than 0.5 percentage points due to tariff-related price adjustments.
- Organic growth decreased by almost 9% in the first quarter, with lower sales of handmade cigars and machine-rolled cigars contributing to the decline.
- The company's market share in Europe for machine-rolled cigars has been declining, attributed to both internal challenges and competitive pricing pressures.
Q & A Highlights
Q: Can you clarify the tariff situation for US handmade cigars and the pricing adjustments made in response?
A: Niels Frederiksen, CEO, explained that the tariffs are currently 10% across the Dominican Republic, Honduras, and Nicaragua. Initially, Nicaragua faced an 18% tariff, which was reduced to 10%. The company has implemented an average 5% price increase to offset these tariffs, with variations depending on product pricing. Some smaller competitors have already raised prices, and STG expects others to follow.
Q: How are the new US retail stores performing, and is there any change in strategic direction for the retail business?
A: Niels Frederiksen noted that the three new stores opened in Q4 2024 are performing well, though it's too early to fully assess their performance. Overall, the retail expansion is positive, with stores becoming profitable quickly and enhancing margins. The strategic direction remains unchanged, focusing on optimizing existing stores and selecting new locations carefully.
Q: Is the SAP implementation in Europe complete, and what are the next steps?
A: Marianne Roerslev Bock, CFO, stated that the SAP go-live on February 1 covered production in Belgium and Holland, and sales in Holland and part of Indonesia. While initial shipping issues occurred, normal levels resumed after four to five weeks. Future implementations are planned for Sri Lanka and Indonesia by the end of the year, with Caribbean factories and online business integration in 2026.
Q: What is the base case for US market volumes given the current environment, and has it changed from the original guidance?
A: Niels Frederiksen confirmed that the base scenario now includes a higher decline in US handmade cigar volumes, reflecting consumer sentiment and down trading. The wider EBITDA margin guidance accounts for increased uncertainty and the need for flexibility to defend market shares.
Q: How quickly can STG respond to price changes in the market, and what is the strategy for maintaining market share?
A: Niels Frederiksen explained that STG can react quickly to market changes, particularly in business-to-business pricing. However, introducing new products in value segments takes time. The company is focused on supporting volumes through promotions rather than repositioning brands, and price increases are passed on immediately to B2B customers, with online adjustments varying based on inventory.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
