Scandinavian Tobacco Group Shows Robust Growth Amid Changes

Strong Financial Performance by Scandinavian Tobacco Group A/S

In an exciting update for investors and stakeholders, Scandinavian Tobacco Group A/S has reported a notable increase in their financial performance for the third quarter of 2024. The company achieved a 7.1% growth in reported net sales, reaching DKK 2.4 billion, compared to DKK 2.3 billion from the previous year. This indicates the company’s resilience and ability to navigate a challenging market.

Understanding the Figures

The EBITDA margin stands at 23.4% in this quarter, reflecting a slight decrease from the 26.5% margin achieved last year. Delving deeper into the numbers, it was noted that organic net sales experienced a 0.1% decline, influenced significantly by the decision to stop distributing third-party nicotine pouches in the US, which adversely affected growth by approximately 1.0%. Despite this, there was a strong performance in Machine-Rolled Cigars, Smoking Tobacco, and Next Generation Products, buoyed particularly by the impressive growth of the XQS brand, which rose by 72%.

Challenges and Adjustments

Despite the overall positive growth, the company faced some challenges. The anticipated dip in the EBITDA margin is attributed to investments made to bolster the growth of the Next Generation Product portfolio, particularly focusing on the XQS brand. Additionally, the integration of Mac Baren, which was consolidated into the group from July 2024, has presented initial profitability challenges. With these adjustments, the Group expects organic net sales growth to slightly decline moving into the fourth quarter of the year, maintaining an EBITDA margin consistent with the previous year.

Mac Baren Integration and Future Outlook

Speaking on the integration of Mac Baren, Scandinavian Tobacco Group anticipates annual synergies amounting to DKK 150 million, achieving full effect by the financial year 2027. However, the company is also preparing for special costs associated with these synergies, estimated to reach DKK 150 million. This strategic move is expected to significantly enhance their market positioning in the coming years.

Financial Insights from Q3 2024

During Q3 2024, several key financial metrics were highlighted:

• Net sales were recorded at DKK 2,431 million, slightly up from DKK 2,269 million, but organic growth remained stagnant.
• EBITDA, before special items, was DKK 568 million, reflecting an EBITDA margin of 23.4%.
• Adjusted Earnings Per Share (EPS) remained steady at DKK 4.1.
• Free cash flow before acquisitions dipped to DKK 275 million from DKK 622 million in the same quarter last year.
• Return on Invested Capital (ROIC) fell to 9.8% from the previous 12.9%.
• Growth Enablers showcased impressive double-digit growth, constituting 9% of the Group's net sales.
• Mac Baren itself generated net sales of DKK 159 million, with an EBITDA before special items amounting to DKK 30 million.

Across the first nine months of 2024, net sales rose by 4.5% to DKK 6.7 billion, indicating organic growth of 0.9% and an EBITDA margin of 22.0%. While free cash flow before acquisitions recorded a drop to DKK 327 million, it still suggests ongoing stability.

CEO Insights and Strategic Direction

CEO Niels Frederiksen expressed optimism about the future, stating that the acquisition of Mac Baren positions them to surpass DKK 9 billion in net sales for the first time. The company expects considerable synergies from the integration plan and noted an improvement in market share within the European machine-rolled cigar sector. Significant progress has been made in strategic markets like France and success was noted with the XQS brand in Sweden, the UK, and Denmark.

Financial Guidance for 2024

In light of recent developments, Scandinavian Tobacco Group has updated its financial guidance for 2024. Key estimates include:

• Projected net sales around DKK 9.1 billion, adjusted from earlier guidance.
• Expected EBITDA margin before special items to remain between 22-23%.
• Free cash flow before acquisitions estimated between DKK 0.8-0.9 billion.
• Adjusted EPS projected to land at DKK 12.5.

This guidance reflects the financial impact of the Mac Baren acquisition and outlines the expected performance despite some market challenges.

Overall Market Conditions

Looking ahead, Scandinavian Tobacco Group anticipates delivering results at the lower end of earlier forecasts, primarily due to market declines in key cigar segments and the discontinued nicotine pouch distribution in the US. However, with the strategic integration of Mac Baren and a focus on enhancing shareholder returns, the company appears poised for continued growth.

Frequently Asked Questions

What are the main highlights of Scandinavian Tobacco Group's Q3 2024 report?

The report highlights a 7.1% increase in net sales, with significant growth in the Next Generation Products segment, despite some challenges with the EBITDA margin.

How has the acquisition of Mac Baren impacted the company's financial performance?

The acquisition is expected to yield annual synergies of DKK 150 million by 2027, though it initially contributed to a dip in profitability.

What is the company's outlook for the remainder of 2024?

The company expects a slight decline in organic sales growth for Q4 2024, while remaining strategic in enhancing profitability.

How is Scandinavian Tobacco Group ensuring shareholder returns?

The company is nearing the completion of a share buyback program, aiming to return approximately DKK 1.5 billion to shareholders in 2024.

What is the expected financial guidance for 2024?

Guidance includes projected net sales of DKK 9.1 billion and an EBITDA margin of 22-23%, alongside adjusted EPS estimates at DKK 12.5.

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