Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Third Quarter 2024 Results Webcast. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [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, Jess. And welcome to our webcast for the third quarter results 2024. My name is Torben Sand and I'm Director of Investor Relations and Group Communications. And I am today joined by our CEO, Niels Frederiksen; our CFO, Marianne Rorslev Bock; and our Chief Commercial Officer, Regis Broersma. Now please turn to Slide number 3 for the agenda for today's webcast. Niels will start by introducing -- sorry, Niels will introduce by giving an overview of the key highlights of the third quarter as well as an update on our strategy and other key events including the financial impacts from the acquisition of Mac Baren. Regis will follow and give you an update on key developments in our core markets as well as insights to recent trends and developments in our product categories. Marianne takes over with an overview of the financial performance in our three reporting divisions where after she will turn the focus to key financial developments for the group, including an update on cash flow, leverage, and capital allocations. Niels will conclude the presentation with an update on our expectations for 2024. After the presentation by management, we will as usual conduct a Q&A session where we will be pleased to take any questions you might have. And before we start, I ask you as always to pay special attention to our disclaimer on forward-looking statements at the end of this presentation. Please now turn to Slide 5 and I will leave the word to Niels.

Thank you, Torben. And welcome and good morning to everyone on the call. First, let me remind you that the reported results are impacted by the consolidation of Mac Baren, the smoking tobacco company we acquired with effect from 1st of July and we've now updated the financial guidance for the full year to include the impacts from Mac Baren. Reported net sales increased by 7.1% with organic net sales growth being slightly negative at 0.1%. The EBITDA margin decreased as we expected compared with a strong third quarter of last year. The EBITDA margin in the third quarter was 23.4%. For the first nine months of the year, the reported net sales growth was 4.5% and EBITDA margin was 22.0%. Free cash flow before acquisitions was DKK275 million in the third quarter and DKK327 million for the nine month period. In terms of highlights for the quarter, I would like to mention that the performance of Machine-rolled cigars have improved as a result of our investments in retaining market shares. Our nicotine brand XQS continue to grow at high double-digit rates and the distribution of third-party NGP products in the U.S. will be discontinued. Finally, the integration plan of Mac Baren has been completed and we've now communicated the expected financial benefits of the integration. And in September, we issued a new EUR300 million corporate bond. Compared to our original guidance which we repeated in August, the financial performance year to date support these expectations, though we are likely to end in the lower end of the ranges due to the discontinuation of the third-party distribution of nicotine pouches in the U.S. and the difficult market conditions for handmade cigars in the U.S. where we continue to see weak demand. Marianne will give more details on the financial performance in a moment. I will now give you an update on the progress we're making with our strategy. Please turn to Slide number 6. We continue to make good progress with our strategy rolling towards 2025 and let me give you a few highlights on the recent achievements. Acquisitions are an important part of our vision to become a larger and more profitable company and at the same time, keep financial discipline to make sure we can also deliver long-term value for our shareholders. The acquisition of Mac Baren meets all these criteria. It improves our positions within smoking tobacco and nicotine pouches and will, when fully integrated, deliver significant value to our shareholders. I will get back to Mac Baren and the financial implications of the transaction in a moment. In August, we talked about the importance of being ahead of the market dynamics and establishing an agile cost structure. The creation of one commercial organization with a stronger focus on our core product categories and the aim of getting closer to our consumers and customers is one example of this and the action to implement additional adjustments to our cost structure across the group is another. We will maintain this focus going forward, but at the same time, it remains important for us to make the necessary investments to support the long term health of our company. The investments in our growth enablers are examples just as the investments we have made in recovering our market shares in machine-rolled cigars in Europe. It might have an impact on near term profit margins, but we are convinced that these investments will support our vision and financial ambitions over time. Our growth enablers continue to deliver good performance with our next generation products, our U.S. retail stores and our international sales of handmade cigars all delivering solid growth. Regis will talk more about these achievements in a moment. And the growth enablers share of group net sales declined to 9% in the third quarter, which is lower compared with the first half of the year. However, this decline is entirely explained by the discontinuation of distribution of third-party products in the U.S. During the third quarter, we issued a EUR300 million corporate bond securing our long-term financing and Marianne will give you more details about this in a second. Please turn to Slide number 7. I will now turn the focus to the integration of Mac Baren and the expected financial impacts of the acquisition. We have completed the planning on how to integrate Mac Baren into tobacco -- sorry, into Scandinavian Tobacco Group and we now have a better understanding of the benefits the combination will create. The detailed planning process have confirmed that the investment of DKK535 million will create good value for our shareholders and we are convinced that the combination of our businesses will secure a strong and attractive portfolio of brands and products to the benefit of our consumers and customers. When integrated, we expect synergies in the level of DKK150 million with full impact in 2027. The main cost synergies will be within sales and marketing, head office functions, and the combination of our manufacturing footprint. Last week we announced that Mac Baren's production sites in Sutliff, the U.S., and in Svendborg, Denmark will be closed down over the coming years. Special cash costs are expected in the level of DKK150 million, primarily expensed in '25 and '26 and we expect to have capital expenditures at the level of DKK125 million primarily in relation to the transfer of production to our existing sites. For 2024, we expect Mac Baren to add about DKK300 million in net sales with a slightly negative impact to the group financials, whereas both synergies and special costs will be immaterial. With this, I'll now leave the word to Regis. Please turn two slides to Slide number 9.

Thank you, Niels. And a very good day to everyone on the call. My name is Regis Broersma, and I'm the Chief Commercial Officer at Scandinavian Tobacco Group. In the previous webcast in August, I explained about the implementation of our new commercial structure and how the new structure is to enhance and strengthen our capabilities to deliver the best brands and the best customer and consumer service going forward. And as an introduction remark, I am pleased with the progress and results we have achieved so far. So let me now spend a moment on updating you on the most recent performance measured by our product categories. The category Handmade Cigars, which includes handmade cigars sold via online platforms, via our retail stores, and via sales of our brands to external retailers and distributors in the U.S. as well as our sales to markets outside of the U.S. This category delivered a reported as well as an organic net sales decline of 1% in the third quarter. Handmade Cigars account for 36% of group net sales. Machine-rolled cigars and smoking tobacco which also includes pipe tobacco and fine-cut. This category continued to improve during the quarter and delivered a 3% organic net sales growth. Reported growth was 15% impacted by the consolidation of Mac Baren into STG. The category contributed 50% of group net sales in the third quarter. Next-generation products delivered 2% organic net sales growth and 72% reported growth. This continuation of the distribution of third-party products in the U.S., which we mentioned at the second quarter reporting had a severe impact on organic growth. The category contributed 4% of group net sales in the third quarter. The group others include sales of accessories, third-party contract manufacturing and bar sales in our retail stores. This group declined 11% organically primarily as a result of lower accessory sales in Australia. Now please turn to Slide number 10 where I will give more details to the category performance. Handmade Cigars. So currently consumption of handmade cigars in the U.S. continues to contract with an estimated mid-single-digit percentage. We remain confident that the decline rate will stabilize at a lower level, but at this point we see no sign of this happening anytime soon. Consumer behavior and consumer spending in America remains an issue of uncertainty and currently, our base case scenario is that we will not experience an improvement in the next quarters ahead of us. Currently, we see more value for money demand in the market and with a higher promotional activity, overall price mix impact in the market remains under pressure. For our handmade cigar category, organic net sales declined by 1% in the third quarter as I just mentioned. The declining total consumption in the important U.S. market mostly impacts our sales to U.S. distributors and retailers which currently experience a high-single digit volume decline rate. However, our strategy to invest in growth opportunities across the category does deliver valuable contributions to the overall performance of the category. International sales of handmade cigars continues to deliver sound growth and our retail cigar stores in the U.S. delivered 14% growth compared with last year. Part of the growth stems from the opening of new stores, but same-store sales also improved strongly by an 11% increase. During the quarter, we opened one new store in Tennessee and two more openings are taking place in the fourth quarter, bringing our total to 12 superstores by the end of 2024. Growth in our online business is driven by an increasing spend per consumer, compensating for the slightly declining active consumer base at file. Please turn one slide to Slide number 11. Machine-rolled cigars and smoking tobacco. So for Machine-rolled cigars, the total market decline improved somewhat during the third quarter. The decline rate is estimated at 1.4% compared with about 5% lower volumes in the beginning of the year. Consequently, acceleration in volume declines in Europe has eased off, although it remains uncertain when this is -- if this is only temporary or sustainable improvement. The coming quarters will provide important data points in this respect. During the third quarter, our machine-rolled cigar business in Europe did improve its performance compared with the development in the first half of the year, partly due to the improvement in total market declines and partly as we have started to recover market shares. The initiatives and investments we have taken and are taking to rebuild our market positions have still not reached full effect, that will take time, but an improvement in our market share index from 27.9% to 28.1% in the past quarter is encouraging as it now is the second quarter in a row we improved our positions. An important reason for the improvement is that our market share in France has increased by almost 2 percentage points since the beginning of the year to almost 48% for the quarter. But let us also not forget about the subcategory smoking tobacco which delivered also growth. For the quarter, the organic growth was 11% driven by the continued growth of the fine-cut and BREAK in Germany. In the coming quarters, focus will be to continue the recovery of market share position and to integrate the Mac Baren business into our portfolio. With this, now turn to the next slide Next generation products. During the third quarter, the category increased net sales by 72% reported compared to the third quarter last year with an organic growth being positive by 2%. Behind these numbers, there are a number of important factors to be aware of. Firstly, our nicotine brand XQS which we acquired last year continues to impress with high organic growth rates. In the third quarter, growth was 72% driven by market share growth in Sweden, we are now close to 8% and the launch of the brand in UK and also in Denmark. Although it's too early to evaluate the success of the launch in Denmark, the XQS brand has gained traction in the UK and has taken market share since the launch more than five months ago. Secondly, the distribution of the third party nicotine product in the U.S. through our online business has been discontinued. We communicated on this back in August and has now become clear the distribution will not be resumed. The absence of sales from these third party products explains the low organic growth rate for the quarter and will also impact growth in the coming quarters. Thirdly, the reported sales growth does include the business from the Mac Baren brands GRITT and ACE. Overall, we are very pleased with our performance of XQS. We are executing according to plan and a key milestone for us in the coming quarters is to integrate the Mac Baren next generation product portfolio into the combined portfolio. With this, I will now leave the word to Marianne for more details on the divisional performance. Please turn two slides to Slide number 14.

Thank you, Regis. We will now turn the focus to more details to the financial data which we disclosed on the three reporting commercial divisions. I will start with the overview -- I will start the overview with Europe Branded. Reported net sales for the third quarter increased by 19% to DKK850 million with organic net sales increasing by 6%. The acquisition of Mac Baren impacted reported net sales by 12%. The main drivers for the organic growth are increasing net sales of handmade cigars, next generation products, as well as smoking tobacco while at the same time the decline rate in the net sales of machine-rolled cigars improved compared to the decline in the second quarter as Regis just talked to. Next generation products and handmade cigars delivered double digit net sales growth and are part of our growth enablers. Pricing remains a key factor in all core categories and the execution of pricing might be more tactical in certain product categories to protect or improve our market share positions. In Machine-rolled cigars, we are finding a better balance enabling us to improve both volume and value share in the market. EBITDA before special items increased by DKK24 million to DKK200 million, with an EBITDA margin of 23.6% versus 24.6% in the same quarter last year. The margin development was primarily driven by the continued investments in NGP category to support long-term growth as well as the impact of the financial consolidation of Mac Baren. With this, please turn to Slide number 15 where I will speak to North America branded and Rest of the World. In the quarter, reported net sales for the commercial division North America branded and Rest of the World increased by 4% to DKK837 million. Organic net sales were negative by 5%. The main drivers for the organic development were negative volume impact from lower shipments of Machine-rolled cigars to the region Middle East Africa, a continued decline in net sales of handmade cigars to wholesalers as well as lower contract manufacturing sales. EBITDA before special items decreased by DKK24 million to DKK297 million with an EBITDA margin of 35.5% versus 39.7% in the third quarter last year which was an exceptionally strong quarter for the division. The margin was also impacted by lower margins in the Mac Baren business. I'll now turn the attention to the financial performance in our North America online and retail division. Please turn to Slide number 16. Reported net sales for the third quarter decreased marginally by 0.2 percentage point to DKK743 million with negative organic net sales growth at 1%. Mac Baren added 1.5% to the reported net sales. The development in organic net sales is driven by positive contribution from new store openings in the retail business, an 11% increase in the same store sales, as well as low-single-digit growth in our online business, this low is being offset by the discontinuation of third party distribution which both Niels and Regis have mentioned. The distribution was stopped by the end of the second quarter this year which implies growth from the online retail division will continue to be impacted in the next three quarters. EBITDA before special items decreased by DKK26 million to DKK103 million, with the EBITDA margin decreasing to 13.9% from 17.4% in the third quarter last year. The decrease is driven by the net sales impact from the distribution of third-party products, a comparison to a strong quarter last year as well as the inclusion of Mac Baren business. Please turn to Slide number 17. In the previous section, I talked to the financial performance by division but let me add a few comments to selected items in the group results. Reported net sales increased by 7% to DKK2.4 billion. The impact from the acquisition of Mac Baren was also 7% and -- was also 7% and as the impact from exchange rate developments was immaterial in the quarter, the organic net sales growth was almost flat with minus 0.1%. However, if we take a closer look at the underlying organic net sales growth, it was impacted by 1% from the discontinuation of the third-party product distribution and by 0.7% from an organic decline in the Mac Baren business. Excluding these components, the underlying organic growth was positive of 1.6%. This gives you hopefully a better sense of the underlying development in the business. Special cost was DKK49 million in the quarter, relating primarily to the implementation of the ERP system and the implementation of the new organizational structure. Net profit for the quarter was DKK297 million compared to DKK351 million in the third quarter last year, with the decline being driven by the lower EBITDA and higher special costs. The adjusted earnings per share were unchanged at DKK4.1. The free cash flow before acquisitions was positive by DKK275 million compared with DKK622 million last year. The development was primarily impacted by the operational performance, a slightly negative impact from changes in working capital this quarter compared with a DKK303 million positive impact in the third quarter last year. We expect the working capital development in the fourth quarter will deliver solid contribution to the free cash flow supporting our guidance of free cash flow before acquisitions of more than DKK800 million for the full year. Please turn to Slide number 18. In this slide, we show the performance by key performance indicators for the Group. We have talked in detail to the organic net sales growth, so I will focus on the margin development. The EBITDA margin decreased from 26.5% in the third quarter of last year to 23.4% in the third quarter of this year. The lower margin is driven by the inclusion of Mac Baren as well as investments in the supporting growth of our NGP brand XQS and to recover market shares in Machine-rolled cigars in Europe. Further, the comparison was up against the strong quarter last year where all three commercial divisions delivered the best margins in the year. These dynamics are partly reflected in the gross margin with decreases by almost 2 percentage points to 46.3% and partly in our OpEx ratio. Now please turn one slide to Slide number 19. I will now turn to an update on our net debt and leverage position, the issuance of a new corporate bond in September, and the status on the current share buyback program which was initiated in November last year. During the third quarter, the net interest bank debt increased by DKK0.5 billion to DKK5.8 billion as a result of cash flow from operations, capital allocations comprising the repurchase of owned shares at a value of DKK217 million as well as the acquisition of Mac Baren at a value of DKK535 million. By the end of last week, the holding of own shares was close to 8% and I do believe that it is likely that we can complete the DKK850 million program within a few weeks from now. The leverage ratios increased to 2.9 times. It was 1.9 times at the end of 2023. However, the leverage is impacted by the acquisition of Mac Baren. By the end of 2024, we expect the leverage ratio to decline to the level of 2.7 times driven by strong cash flow in the fourth quarter. As the calculation of the leverage ratio includes the total transaction value of Mac Baren of DKK535 million, but only financial results for the second half of 2024, the reported leverage ratio for Q3 and by the end of the year will technically be too high. Combined with our structurally strong cash flow generation, I expect the leverage ratio to decline further next year, leaving room for delivering on our capital return policy. Finally, in September we issued a new EUR300 million corporate bond with a coupon interest rate at 4.875% with maturity in September 2029. Simultaneously, we have repurchased almost EUR187 million of the existing EUR300 million bond facility with a coupon of 1.375% issued in September 2020 and which expires next year. Hence, the higher interest rate on part of our funding is to be reflected in future financial costs. Please turn to Slide number 20. Our shareholder return policy is anchored in delivering an annual growth in ordinary dividend per share and to distribute any excess capital. Year to date in 2024, we have now returned more than DKK1.5 billion and at the end of the third quarter we were close to DKK1.4 billion. At the current share price, we have returned close to 19% of STG's current market value. These achievements underlines our commitment to deliver on our shareholder return policy. With this, I will now leave the word back to Niels for an update on our updated guidance for 2024. Please turn two slides to Slide number 22.

Thank you, Marianne. I will now give you more details on the full year outlook. The full year 2024 expectations have been updated to include the financial impact from Mac Baren which was consolidated from 1st of July 2024. Excluding Mac Baren, the expectations remain within the original guidance range as communicated in August 2024 though more likely in the lower end of the ranges given the absence of the third-party distribution of nicotine pouches we have mentioned, as well as the continued weaker market for cigars. Currently, the market for handmade cigars in the U.S. is estimated to contract by a mid-single-digit percentage and there are no clear signs of when the decline rate will stabilize at a lower decline rate. U.S. consumer spending remains cautious and we are also seeing down trading. For the online business, we continue to deliver low-single-digit growth whereas both our retail stores and our international markets deliver higher growth and we expect organic net sales of handmade cigars to increase compared to the last year. The total market for Machine-rolled cigars in our key markets in Europe has recently delivered improving volume decline rates compared with the first half of the year and the initiatives to regain market share have also started to have an impact. We expect organic net sales of Machine-rolled cigars to decline compared to last year. We expect net sales from our own next generation product brands to continue with the current momentum and to increase versus last year by more than 50% for the full year driven by market share expansion and rollout to new markets. The nicotine pouches business for Mac Baren will add to the reported growth while the organic growth rate for the product category also in the fourth quarter will be negatively impacted by the discontinuation of the third party distribution of nicotine pouches in the U.S. Based on the expectations for our different product categories, Group reported net sales are expected in the level of DKK9.1 billion. The EBITDA margin before special items is expected in the range of 22% to 23% and compared with last year, the margin is being diluted by increased investments in both nicotine pouches and in Machine-rolled cigars, the expansion of our retail network in the U.S., as well as product and market mix changes including the impact from Mac Baren. These factors are partly being offset by price increases, continued cost optimizations, and the expected refund of certain import tax payments. The largest uncertainties for net sales and the EBITDA margin remain changes in consumer behavior as well as market and product mix. Free cash flow is expected in the range of DKK0.8 billion to DKK0.9 billion and as we have communicated before will be impacted by the special investments of up to DKK300 million. An improvement in the working capital during the fourth quarter is expected to support a strong cash flow towards the end of the year and the expectations of delivering more than DKK800 million for the full year. Looking at adjusted earnings per share, it is expected in the level of DKK12.5, including an estimated impact from the current share repurchase program of DKK0.7 to DKK0.8. Now this concludes our presentation for today's call. I will now hand the word back to the operator and we are ready to take questions. Thank you very much.

[Operator Instructions] We will now take our first question, please stand by. And the first question comes from the line of Niklas Ekman from Carnegie. Please go ahead. Your line is now open.

Thank you. Just a couple of questions from my end. Firstly, on U.S. handmade cigars. You mentioned here that you expect the trend to continue to be weak for some time. What do you attribute the main reasons for this? Is this mainly due to cyclicality? How is your market share developing? Are you losing market share because you talked about down trading? And also how are your volumes now organically compared to pre-COVID levels or rather look at organic sales, how are your organic sales relative to pre-COVID levels now for U.S. or North American handmade cigars? Thanks.

Yeah. Thank you for the question. So we see different parts of our value chain of course performing differently. We have the retail stores performing very well and are actually in growth and also net sales growth, same stores are plus 11%. And we debated also why that is for example. And we believe that also is very much because going to CI Super-Store is also an experience. And we see with the consumer spending in the U.S. that the consumers at the moment are more into experience spending than its necessarily about buying more products. Also, we see a shift in channel where we also see that the online channel is actually performing and it is really the business-to-business side where we have lost volumes. Then what was more on the question?

2019 levels.

Yeah. So I believe here also when you compare the volumes, we are probably slightly below the levels that we were pre-COVID. This has also been part of that we have pushed over the last five years really the premiumization of the category and of our brand. And now we see a down-trading effect going on. And this is also an area where we have to play stronger and the plans are in the works to actually make that happen. Yeah. And then coming back to the question about market share. Of course, the data is very limited on handmade cigars in the U.S. We have a little bit more data on the online share compared to our online competitors. And there we see that our increased promo spend is working and also our market share is slightly up in the online channel. Business to business, we don't really have market share data in there, but we expect there that we are in line with the market.

Very, very clear. Thank you. Thanks for answering all those questions. And second question here also on the absence of your distribution business here for nicotine pouches in the U.S. I think we're talking about Zyn.com, what exactly was the impact here for North America online? I think you talked about around 1 percentage point for the group. What was the impact on North America online? And you say this will continue for the coming quarters. Are there any plans or possibilities to relaunch Zyn.com or is that a lost business?

Let me take that, Niklas. We do not believe that Philip Morris will resume the sale of ZYN online. And that goes for all online businesses in the U.S. not only our online business. And numbers wise -- we have previously given percentages but numbers-wise it is what we have sold for the -- it's around DKK130 million that we have sold in ZYN this year.

Very good, thanks. And can you tell us also about Mac Baren's next generation products? How are they positioned and are they seeing growth rates anywhere near what you see in XQS at the moment?

Yeah. So part of course the integration is that we combine the portfolios and we do see a future role for the two brands that Mac Baren has, which is ACE and GRITT. And they have quite some strong market shares in markets where we are not really present yet. So it actually complements. And yeah, we do see a future here. XQS will be our global drive brand and then ACE and GRITT will be positioned in certain pockets of growth.

And sorry, which markets are those in particular where they are very strong?

In principle, they were already in Denmark where they had about at least 6% market share. Then in Iceland, in the Baltics, and then some other export markets also.

Very clear. Finally, just some details here. I notice a pretty sharp rise in both depreciation, obviously, interest expenses here due to the new financing and also amortization. They're all up quite a bit sequentially, particularly the first two. Is the Q3 rate here, is that the best estimate for what we should see going forward? I mean the depreciation of close to DKK70 million, amortization of close to DKK50 million, and financial expenses in the range of DKK80 million. Is that what you see going forward or are there exceptionals here in Q3?

So, Niklas, I would say let me come back to you with that question when we look forward on those. I'll reach out directly to you.

Okay. Super. Thank you very much. Those were all my questions.

Thank you. We will now take our next question, please stand by. And the next question comes from the line of Sebastian Grave from Nordea. Please go ahead. Your line is now open.

Hi, guys. Thank you for taking my questions as well here. So first of all, I want to follow up on sort of the M&A acquisition going forward. So again congrats on the Mac Baren acquisition. I mean with DKK150 million in synergies, the deal looks to be a strong value add to the business going forward. Now you have pursued a few different sort of M&A tracks over the past years. You have pursued M&A within next-generation products. You have built handmade cigars portfolio and then you have, I mean acquired stuff like Mac Baren or Agio, which at least on the surface looks like, I mean, more synergy cases compared to the other two. Now what sort of acquisition track are you aiming for going forward? That will be my first question.

Yeah. Thank you, Sebastian. I think that we do think about acquisitions exactly from the two perspectives. There are some types of acquisitions like Mac Baren, but also like Agio, which on the one hand strengthens our brand portfolio, which is important, but also deliver a significant synergy case. And those we would obviously like to do more. And it's really a question about when do potential targets are willing to divest and maybe we of course don't know whether we ever come to that. But that is one path that we continue to follow. Then there are other acquisitions like Alec Bradley, which has a reasonable size and where there are synergies, but it's equally being acquired for portfolio and strategic reasons. And those we also still want to pursue. So there's no change in our ambition on the M&A side. We try to be disciplined, which means -- which I think again, Mac Baren emphasizes that we can be. But we, of course, also have to find the right balance between how many companies we acquire and what we're able to integrate. And every integration is a significant task for the organization.

Yeah. Thank you, Niels. Obviously, I get that. But what are sort of the pecking order here? So what would you prefer? Would you prefer growth or synergy cases or is that -- you're not able to look at it that way or...

I think that the easiest acquisitions for us to make are always the synergy-driven cases. These are typically with less risk and they are also faster to -- let's say, to turn around for value creation. The strategic acquisitions we still believe are important. Coming back to the need to globalize, for example, our handmade cigar business more, and we should be making them, but we are also conscious that they are more difficult to assess, both for ourselves and also for investors.

Okay. No, that makes sense. And then, I mean, in light of the sort of continued volume declines you see, does this in any way sort of change your view on capital allocation? I mean, given that a lot of -- I mean, you're a production company and lot of profitability is based on the fact that you are able to retain some sort of volume. So would you see -- like, are you more tilted towards pursuing M&A, thereby gaining volumes than you were sort of a few years ago now or in light of the current market situation or is that a way to think of it?

I think it is a way to think about it. And there's no doubt that with declining volumes, consolidation becomes even more important, but I also think it's an area where everyone needs to be patient. These acquisitions come up when they come up. And we certainly have a priority to build a factory footprint that is, of course, benefiting from increased volume. But there's also an element of creating a certain scalability because we know that when we don't acquire, volumes will most likely go down and we need to be able to cope with that as well.

And to add here, if market volumes are going down, it is not only impacting STG, but it is also impacting our competitors.

Okay. Thank you for that. Then the Mac Baren integration, here you talk about combining the NGP portfolios. How about sort of utilizing or -- yeah, utilizing the Mac Baren NGP production capabilities? Is that something you look into, sort of gaining your own production footprint within NGP products?

Yeah. So indeed, with the Mac Baren acquisition came the manufacturing facility in Svendborg for Ministry of Snus, also last week we have communicated to the full organization what we're intending to do. So we definitely want to retain those capabilities. We will actually move the nicotine pouch production to the facilities that we have in essence to expand there. Also, we keep it in the region because the capability and the knowledge is there and will also be easy for us to retain the people that have that knowledge. So we also expand in further capacity build. So we'll definitely capitalize on that from the Mac Baren acquisition.

And let me add here, when we talk synergies from Mac Baren in the level of DKK150 million, that is excluding any potential future synergies or in-sourcing our own production to STG simply because we don't have a clear plan yet.

Okay. Thank you. Thank you for that color. And then just last question on the special item line. So clearly boosted by ERP new commercial structure and then also now the Mac Baren integration. Could you just remind us what should we think of sort of this line in '25, '26? Can you add some color to this?

Yeah. So we will still in '25 see some additional costs from our ERP implementation which we believe that we have finished globally in the first half year of '26. And then, of course, as you also mentioned the Mac Baren, we will, when we come with our guidance for ’24 or '25, we will put more timing on the various synergies and costs. But we can say that on the synergy side, the majority part of those will be realized in '25 and '26, and the majority of the special cost will come in '25. We do not have significant other special items lined out for now.

Okay. Got it. Thank you for taking my questions.

Thank you. We will now go to our next question, please stand by. And the next question comes from the line of Damian McNeela from Deutsche Numis. Please go ahead. Your line is now open.

Good morning, everybody. Thanks for the questions. First question is about U.S. handmade cigars and I sort of hear what you're saying about the sort of expectations for Q4. But I was just wondering what plans or how you were thinking about the potential impact on tariffs and in particular whether that's likely to accelerate down trading in the category in the U.S., would be my first question. And second question would be on free cash flow. It looks like you've got to deliver about DKK0.5 billion in the fourth quarter. Can you just give us a bit more comfort around the moving parts around that to give us confidence in you hitting the guidance? And then just finally on the next generation products, are you able to sort of quantify how much you're spending on marketing of those products? And then whether there are any sort of differences in terms of moisture content between XQS and the sort of ACE and GRITT brands that you acquired with Mac Baren, please?

Let me start out and then Regis can supplement. On tariff, it's a damn good question. I think it is too early for us. We are looking into it but it is too early for us to say something -- educate about it. We are looking at production in our Central America, well, that would impact and other imports into U.S. We do not have any more production in U.S. where we have closed down the plant of Mac Baren in Sutliff. So good question. We have to come back when we have made more analysis around it and hopefully also know more about what the new President in U.S. is thinking. On the cash flow for the fourth quarter, you're absolutely right. We have to deliver more than DKK0.5 billion in cash flow for the fourth quarter. Fourth quarter is normally also a strong cash flow generating quarter for us. We were just slightly below DKK0.5 billion last year. And the main component here are, a positive impact from working capital, but then we are also seeing less tax payments than we saw last year. So we are confident that we can deliver the DKK0.5 billion in cash flow. On the NGP, I guess, Regis will supplement in a moment. But what we have said on the NGP and investment, we are not splitting it out in numbers on sales and marketing, but the net investment that we are seeing for '24 is about DKK25 million. So that is, if you isolate the European NTP business, then the bottom line is around minus 25%. And then maybe Regis can put some color on what we're seeing in differences in Mac Baren and how we look at sales and marketing.

Yeah. So I think also with the question about the product of ACE and GRITT from Mac Baren, ACE is actually product and recipe-wise quite similar to XQS. The great thing from the Ministry of Snus portfolio is that GRITT actually has a totally different consumer experience and also a soul-based recipe. So it actually fits very well into our portfolio so that we can also win in the market with two different recipes and also compete with our competitors there.

Okay. That's great. That's very helpful. Can I also just ask to be added to the email that you're going to send to Niklas on depreciation, amortization, and interest costs, please?

Absolutely.

Thank you.

Thank you. As there are no further questions on the phone lines, I would now like to hand back to the room for any questions on the webcast.

Yes. Thank you. And actually, there is one question. I think we have asked -- or answered it already. But let me just read it out anyways. If we expect any effect from increased tariffs in the U.S. and do we have own production in the US? I think Marianne already talked to this in the previous question. Aside from that, we don't have any further questions in the webinar.

As there are no further questions, I would like to hand back to Torben Sand for any closing remarks.

Okay. Thank you all for listening in. And we will be back with our full year report in March. So have a great day. Thank you.

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