Background
Scandinavian Tobacco Group (STG) is the world’s 11th largest publicly traded tobacco company by revenue. STG became a pure-play cigar & pipe tobacco manufacturer, following the acquisition of its cigarette & snus business (“House of Prince”) by BAT in 2008. With operations mainly in Europe & the USA, STG owns well-known brands like Macanudo, La Gloria Cubana, Panter, Signature, La Paz, Café Crème, Cohiba, Partagas and Captain Black. Since 2022, STG is exploring opportunities to enter the Next Generations Products (NGP) category in order to complement its core cigar & pipe tobacco range (portfolio diversification) and to re-ignite revenue growth (“Growth Enablers”).
Q4 2024 & FY24 Results (March 6, 2025)1
“Core challenges persist with a glimmer of hope offered by the XQS growth and Mac Baren synergies. Soft FY25 Guidance”
Commentary: “Challenging year with a volatile business environment. Net sales over kr.9 billion for the first-time. 22.6% EBITDA margin while investing in Growth Enablers. Turnaround ongoing for the core machine-rolled cigar business. Returned kr.1.5 billion to shareholders in 2024. Annual dividend increased +1.2% to kr.8.5, marking the ninth consecutive year of increase”
– Net sales: Up +8% to kr.2.5Bn on reported basis and down -1% on an organic basis (i.e. reported-to-organic: mostly, Mac Baren acquisition) in Q4 2024. Up +5.4% to kr.9.2Bn on reported basis and up +0.4% on an organic basis in FY24.
– Net sales negatively impacted by the discontinued distribution of third-party NGP products (ZYN) in online business and a decrease in handmade cigars in the US, partially offset by the high double-digit (+89%) growth of XQS nicotine pouches and low single-digit (+2%) growth of Machine-Rolled Cigars & Smoking Tobacco (Q4 2024)
– EBITDA margin (before special items): 24.3% (+1.6pp) in Q4 2024 and 22.6% (-1.5pp) in FY24
– EBITDA margin improvement driven by favourable mix, in particular strong performance in smoking tobacco, partially offset by investments in growth enablers & machine-rolled cigars and the discontinued NGP-distribution business (Q4 2024)
– Adjusted EPS: kr.3.8 (+5.6%) in Q4 2024 and kr.13.7 (-4.9%) in FY24
– FCF before acquisitions: kr.604Mn (+33.6%) in Q4 2024 and kr.931Mn (-11.6%) in FY24
– Leverage ratio: 2.6x (vs. 1.9x at the end of 2023 and 2.9x at the end of Q3 2024)
– Handmade cigars: Negatively impacted by the 5% market decline in the US (- see the Retail Stores and International below, as part of Growth Enablers)
– Machine-rolled Cigars and Smoking Tobacco: Net sales of smoking tobacco up +13% in Q4 2024, driven by pipe tobacco and in particular fine-cut tobacco. Total market for MRC in key European markets down -2.8% in Q4 2024 and -3.5% in FY24. Decline alleviated in France, Belgium and the Netherlands, worsened in the UK, Germany, Spain and Italy. STG volume share of 28.1% in Q4 2024 and 27.9% (-1.8pp) in FY24. Increased investments to regain market share. Pricing remains sound in all major markets except France.
– Growth Enablers accounted for 10% of net sales in both Q4 2024 and FY24. NGP accounted for 3.5% in Q4 2024 and 4.5% in FY24 (excluding ZYN distrbution: 3%)
– Retail Stores: 13 “Cigars International” branded retail superstores (+3 in 2024). Jacksonville, Florida and South Fayette, Pennsylvania stores opened in Q4 2024. Net sales +18% in Q4 2024 and +16% in FY23 (with same-store-sales up + 5%). EBITDA margins over 25%
– Handmade cigars – International: net sales +2% in Q4 2024 and +11% in FY23. Achieved 6% volume share ex-North America (third largest company)
– Next Generation Products (NGP): Net sales +134% in Q4 2024, excluding the impact from the discontinued distribution of third-party products, but including the acquired Mac Baren brands. Market share of XQS approached 10% in Sweden. XQS launched in the Denmark in September 2024. Brand portfolio strengthened with the inclusion of Ace and Gritt from Mac Baren. STRÖM nicotine pouches discontinued.
– Synergies from combination with Mac Baren: kr.150 million per annum by the end of 2026 (one-time special costs: kr.150 million, kr.33 million of which are expensed as of 2024; additional capex: kr.125 million)
– FY24 Shareholder returns (kr.1,496) = Share buybacks (kr.765) + Dividends (kr.731)
FY25 Guidance:
– Reported net sales: kr.9.2-9.7 billion (full year impact from the Mac Baren acquisition, to be partially offset by the discontinued NGP-distribution and the divestment of a smaller lighters business in France)
– EBITDA margin: 20%-23% (Investments in Growth Enablers and machine-rolled cigar business turnaround to be partially compensated by synergies from the Mac Baren integration)
– Free cash flow: kr.0.8-1.1 billion
– Adjusted EPS: kr.11.0-14.0
Q3 2024 Results (November 12, 2024)2
“Core challenges persist with a glimmer of hope offered by the XQS growth and Mac Baren synergies”
Commentary: On track to surpass kr.9 billion in net sales for the first time ever following the acquisition of Mac Baren. Market share in machine-rolled cigars in Europe improved (particularly, in France) in Q3 2024. XQS (nicotine pouch) performs well in launch markets. Set to return ~kr.1.5 billion to shareholders in FY24
– Net sales is up +7.1% to kr.2.43Bn on reported basis and down -0.1% on an organic basis (i.e. reported-to-organic: mostly, Mac Baren acquisition). Organic net sales growth in Machine-Rolled Cigars & Smoking Tobacco and Next Generation Products (nicotine pouches) washed out by the decline in Handmade Cigars and Others (primarily accessories in Australia). Discontinuation of ZYN distribution in the US impacted growth negatively by 1.0%
– EBITDA margin (before special items) at 23.4% (vs. 26.5% in Q2 2023): decline driven by a strong benchmark in Q3 2023, inclusion of Mac Baren (with low profitability), continued investments in NGP category and the absence of the ZYN distribution in the US
– Special items: kr.49 million (ERP implementation program and re-organisation to the commercial organisation)
– Adjusted EPS: kr.4.1 (vs. kr.4.1 in Q3 2023)
– FCF before acquisitions: kr.275Mn (vs. kr. 622Mn in Q3 2023)
– Leverage ratio: 2.9x (vs. 1.9x at the end of 2023 and 2.1x at the end of Q3 2023). Expected to be at about 2.7x at the end of 2024, supported by a strong cash-flow in Q4 2024
– Growth Enablers accounted for 9% of net sales (vs. 12% in Q2 2024, which included ~3% of net sales from ZYN distribution). NGP accounted for ~4% of net sales
– . In Q4 2024, STG expects to deliver slightly lower organic net sales and a similar EBITDA-margin compared Q4 2023
– YTD24 Results: Net sales increased by +4.5% to kr.6.7 billion (organic net sales growth: +0.9%). The EBITDA margin is 22% (24.6%), free cash flow (before acquisitions) is kr.327 million (kr.602 million) and adjusted EPS is kr.9.9 (kr.10.8).
FY24 Guidance: now includes Mac Baren Tobacco
– Net sales: kr. 9.1Bn (increased from kr.8.8-9.1 billion)
– EBITDA margin: 22%-23% (lowered from 22%-24%)
– FCF before acquisitions: kr0.8-0.9Bn (lowered from kr0.8-1.0Bn)
– Adjusted EPS: kr.12.5 (lowered from kr.12.5-14.5, including an estimated impact of kr0.7-0.8 from the share repurchase program)
Excluding Mac Baren, STG is expected to deliver at the lower end of the previously communicated FY24 guidance driven by the market decline in key cigar markets and the absence of ZYN distribution in the US. The largest uncertainties for the guidance are ongoing changes in consumer behaviour, the market share development in machine-rolled cigars in Europe and changes in market / product mix.
Highlights
– Mac Baren acquisition: Transaction valued at kr.535 million to be financed by cash at hand and debt. Integration is expected to deliver annual synergies of kr.150 million. Integration cost of kr.150 million and additional CAPEX of kr.125 million. More information will be communicated in March 2025 at the time of the FY24 results release.
– Handmade cigars: Declining by a mid-single digit percentage following the extraordinary 2020-21 growth (in the pandemic period). No signs of stabilisation due to low visibility on US consumer behaviour and spending. Pricing and continued growth in own (online & retail) distribution channels and in international markets are set to more than offset the decrease in the US.
– Machine-rolled cigars: Lower volume decline in key European markets (compared to H1 2024) coupled with slight market share improvements.
– Retail superstores – USA: A total number of 12 superstores across 4 states in the USA. 2 additional openings expected in Q4 2024. Retail stores are accretive to both the EBITDA margin and to ROIC. The same-store sales are up by +11% in Q3 2024.
– Next Generation Products (NGP): Reported net sales increased by a high double-digit percentage, primarily driven by strong performance of the nicotine pouch brand XQS (up +72%). Market share development for XQS remain positive in Sweden. Recent launches in the UK (May 2024) and Denmark (September 2024) are promising. NGP net sales negatively impacted by the absence of the ZYN distribution in the US – which will be discontinued.
– Capital allocation: kr.1,391 million capital distribution to shareholders in the first nine months of 2024 ( kr.660 million in share repurchases and kr. 731 million in dividends)
Q2 2024 Results (August 22, 2024)3
“Strong turnaround in financial delivery: organic net sales growth and material improvement in the EBITDA-margin achieved in Q2 2024 despite the challenging market conditions”
– Net sales is up +6.3% to kr.2.37Bn on reported basis and up +4.8% on an organic basis (i.e. reported-to-organic: positive FX and Alec Bradley & XQS acquisitions). Organic net sales growth in Handmade Cigars and Next Generation Oral coupled with reduced decline rate in machine-rolled cigars & smoking tobacco compared to Q1 2024 (recall: net sales was down -1% on reported basis and down -2% on an organic basis in Q1 2024)
– EBITDA margin (before special items) at 24.5% (vs. 23.1% in Q2 2023): impacted by negative volume development (recall: EBITDA margin was 17.2% in Q1 2024)
– Special items: kr.53 million (ERP implementation program, Re-organisation to the commercial organisation, Integration & transaction costs relating to the Mac Baren acquisition)
– Adjusted EPS: kr.4.1 (vs. kr.3.5 in Q2 2023 and kr.1.8 in Q1 2024)
– FCF before acquisitions: kr.177Mn (vs. kr. 159Mn in Q2 2023)
– Leverage ratio: 2.6x (vs. 1.9x at the end of 2023 and 2.3x at the end of Q2 2023). Expected to be at about the current level at the end of 2024, including the impact from Mac Baren acquisition
– Growth Enablers delivered a high double-digit growth rate and accounted for 12% of net sales (vs. 11% in Q1 2024, 10% in Q4 2023 and 8% FY23). The Next Generation Products portfolio accounted for 6% of net sales
– Expects to deliver organic net sales growth and a continued improvement in the EBITDA-margin in H2 2024
– H1 2024 Results: Net sales increased by +3.0% to kr.4.3 billion (organic net sales growth: +1.5%). The EBITDA margin is 21.2% (23.6%), free cash flow (before acquisitions) is kr.52 million (kr.-20 million) and adjusted EPS is kr.5.8 (kr.6.7).
FY24 Guidance: Re-iterated (exclusive of the impact from the acquisition of Mac Baren
Tobacco)
– Net sales: kr. 8.8-9.1Bn (Growth Enablers to account for at least 10% of sales)
– EBITDA margin: 22%-24%
– FCF before acquisitions: kr0.8-1.0Bn
– Adjusted EPS: kr.12.5-14.5 (current share repurchase program has an estimated impact of kr.0.7-0.8)
– Financial impact of the Mac Baren acquisition to be communicated asap, but no later than at the release of the Q3 2024 results (Nov 12, 2024)
Highlights
– Mac Baren acquisition: Transaction valued at kr.535 million to be financed by cash at hand and debt. Mac Baren’s portfolio includes pipe tobacco, fine-cut tobacco and nicotine pouches. Annual net sales kr.723 million and a reported EBITDA of kr.85 million.
– Handmade cigars – USA: Declining (due to macroeconomic pressures) by a mid-single digit percentage although the volumes remain above the pre-covid levels.
– Retail superstores – USA: A total number of 9 superstores in the USA. 3 additional openings expected in H2 2024. Retail stores are accretive to both the EBITDA margin and to ROIC. Retail delivered double-digit growth with same-store sales up by +5% in Q2 2024.
– Handmade cigars – International markets (outside the US): Delivered double-digit growth in net sales. Further expansion of consumer touch-points in progress.
– Handmade cigars – Consolidated: Pricing, growth in Brand Retail (i.e. online & physical stores owned) and international markets to more than offset the decrease in the US. Expects organic net sales of handmade cigars to grow in FY24
– Machine-rolled cigars – Europe: Total market declined by close to 5% during H1 2024. Accelerated volume decline compared to previous years with an unclear outlook
– Next Generation Products (NGP): Reported net sales more than tripled. Primarily driven by strong performance of XQS nicotine pouches as well as growth in the distribution of ZYN in the US. XQS is launched in the UK market and a roll-out to the additional markets expected in H2 2024 (i.e. starting with Denmark in Q3 2024). The distribution of ZYN in the US is paused by PMI as of late June and it is uncertain if/when the distribution will be resumed. The NGP portfolio accounted for 6% of Group net sales, with about half delivered by the mentioned third-party distribution agreement. STG expects net sales from own NGP brands to increase by more than +50% driven by market share gains and roll-out to new markets.
Q1 2024 Results (May 2, 2024)4
“Weak across the board”
– Net sales is down 1% to kr.1.95Bn on reported basis and down 2% on an organic basis (i.e. reported-to-organic: FX -1%; Alec Bradley and XQS acquisitions +2%). Organic net sales growth in Handmade Cigars and Next Generation Oral was offset by decline in machine-rolled cigars & smoking tobacco
– EBITDA margin (before special items) at 17.2% (vs. 24.1% in Q1 2023): impacted by declining volumes in a seasonally small quarter, mix changes and investments in growth
– Adjusted EPS: kr.1.8 (vs. kr.3.2 in Q1 2023)
– FCF before acquisitions: kr.-126Mn (vs. kr. -179Mn)
– Growth Enablers delivered a high double-digit growth rate and accounted for 11% of net sales (vs. 10% in Q4 2023 and 8% FY23). The Next Generation Oral portfolio accounted for 5% of net sales
– Expects to deliver organic net sales growth and a material improvement in the EBITDA-margin in Q2 2024
FY24 Guidance: Re-iterated
– Net sales: kr. 8.8-9.1Bn (Growth Enablers to account for at least 10% of sales)
– EBITDA margin: 22%-24%
– FCF before acquisitions: kr0.8-1.0Bn
– Adjusted EPS: kr.12.5-14.5
Highlights
– Handmade cigars – US: consumption likely to decline more than the historic structural decline rate (decline amplified by the higher base formed by the exceptional growth during the pandemic and macro-economical pressures)
– Machine-rolled cigars and smoking tobacco – Europe: close to the structural decline rates; STG not able to reverse the market share decline yet
– Next Generation Oral (NGO): net sales more than doubled organically driven by the strong performance of XQS nicotine pouches (market share gain in Sweden) as well as growth in the distribution of third-party products (ZYN) in the US. Roll-out of the XQS brand is expected in multiple markets during 2024. STRÖM and !act delivered positive growth
– Launch of One Commercial Organisation
– Opening of Club Macanudo concept stores in Jakarta, Tapei and Louisianaville
– Annual dividend: kr.8.40 per share (+2% vs. 2023)
– 1Mn treasury shares to be cancelled (number of issued shares: 86Mn after the cancellation)
References:
- https://www.st-group.com/media/fquli3xc/interim-report-q4-2024.pdf ↩︎
- https://www.st-group.com/media/anuhhtm1/interim-report-q3-2024.pdf ↩︎
- https://ml-eu.globenewswire.com/Resource/Download/ce40bdef-e3ae-4f5b-9736-12058b9f3d7e ↩︎
- https://ml-eu.globenewswire.com/Resource/Download/81081a2f-d4cd-42bf-b2a1-80727b63f7be ↩︎
