Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Q2 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 speaker today, Torben Sand, Head of Investor Relations. Please go ahead.

Thank you. Welcome all to Scandinavian Tobacco Group's webcast for the second quarter results 2024. As said, my name is Torben Sand, and I'm heading the Investor Relations and Group Communications. And I am today joined by our CEO, Niels Frederiksen; and our CFO, Marianne Rorslev Bock, as well as our newly appointed Chief Commercial Officer, Regis Broersma. Please turn to slide number three for the agenda for today's call. Today's presentation will cover the following agenda points. Niels will start by giving you an overview of the key highlights of the second quarter, as well as an update on our strategy and other key events, including the acquisition of Mac Baren. Then Regis will take over and give you an update on developments in our core markets, as well as insights to recent trends and developments in our product categories, which are handmade cigars, machine-rolled cigars and smoking tobacco, as well as next-generation products. Marianne will follow with an overview of the financial performance and our three reporting divisions North America Online and Retail; North America Branded and Rest of World and Europe Branded. Thereafter, she will turn the focus to key financial developments for the Group, including an update on cash flow, leverage and capital allocation. Niels will conclude the presentation with an update on outlook and guidance for 2024. After the presentation by management, we will conduct a Q&A session where we will be more than pleased to take any questions you might have. And before we start, I ask that you pay special attention to our disclaimer on forward-looking statements at the end of this slide presentation. So now please turn to slide number five, and I will leave the word to our CEO, Niels Frederiksen.

Thank you, Torben, and welcome, and good morning to everyone on the call. The second quarter delivered solid improvements in the financial performance of Scandinavian Tobacco Group, compared to the weak first quarter of the year, with net sales increasing by more than 6% and EBITDA margin improving, compared with the same quarter in 2023. For the first-half of the year, net sales was positive and the EBITDA margin was lower than last year. The next-generation product category and the handmade cigar category delivered another quarter of net sales growth, and the decline rate in machine-rolled cigars was lower than in the beginning of the year, all contributing to the improved performance. In a moment, I'll give you an update on the good progress we are making with our strategy rolling towards 2025, as well as some details on the Mac Baren acquisition. I'll also provide a little more insight to our growth enablers, which in the second quarter accounted for 12% of group net sales. Before doing so, let me conclude my introduction by giving you a few financial highlights for the second quarter. Reported net sales increased by 6.3% to DKK2.4 billion. Adjusting for acquisitions and exchange rate developments, organic net sales growth was 4.8%. The EBITDA margin increased to 24.5%, compared to 23.1% in the second quarter last year. And free cash flow before acquisitions was DKK177 million, compared with DKK159 million last year. Adjusted EPS came in at DKK4.1 versus DKK3.5. The financial performance year-to-date supports our expectations for the full-year, which implies that net sales will continue to deliver growth in the second-half of the year, while the EBITDA margin is expected to decline, compared with the second-half of 2023, where especially the third quarter 2023 delivered a relatively high margin. Marianne will give you more details on the financial performance later. I'll now turn to an update on our strategy and other key events. So please turn to slide number six. We are now well into the fourth year of our five-year strategy rolling towards 2025. And we continue to make good progress in delivering on this strategy. Let me give more detail to some of the most recent achievements. Firstly, acquisitions have been and remain an important part of our strategy, not only to become a larger and more profitable company, but also to deliver long-term value for our shareholders, including the commitment to our capital allocation policy. We believe the acquisition of Mac Baren does exactly this. And in the next slide, I'll summarize the details we informed the market about in relation to the announcement of the acquisition. Secondly, in March, announced the creation of one commercial organization, with a stronger focus on our core product categories and with the aim of getting closer to our consumers and customers. Throughout the spring and early summer, we have completed the implementation of this new commercial organization, which is headed by Regis Broersma, who has been appointed as Chief Commercial Officer. I think the importance of being close to our customers and consumers cannot be underestimated. And in a moment, Regis will share his thoughts on how to achieve our ambitions with the new structure. In addition to the organizational changes relating to the creation of one commercial organization, we decided to implement additional adjustments to our cost structure across the group to increase cost agility and flexibility and to stay fit for the future even if consumption of key products remain subdued for a longer period of time. Part of our strategy is to invest more in our growth enablers to secure long-term sustainable growth for STG. These investments have started to deliver good results with our next-generation products delivering strong growth in net sales and accounting for an increasing share of group net sales. Our U.S. retail stores delivered double-digit net sales growth, driven by the expansion of new stores and by increasing same-store sales. And finally, we continued to increase the international sales of handmade cigars and combined the growth enablers share. Our group net sales increased to 12% in the second quarter. Now please turn to slide number seven. I'll now give you a little more insight to the acquisition of Mac Baren. The transaction value is DKK535 million, and the company will be included in our financial numbers from the beginning of July this year. Mac Baren is a leading smoking tobacco company and will, on a full-year scale at about 8% to our group net sales. It will also contribute a valuable portfolio of brands within the smoking tobacco category and expand our market positions within both pipe tobacco and fine-cut tobacco, and it will increase our presence in the nicotine pouch market with both brands and production capabilities. The combination with our existing business is expected to deliver meaningful synergies when fully integrated and good value for our shareholders. The integration planning has started and will continue over the coming months and we will communicate more details no later than 12 November 2024 with the release of the third quarter interim report. And with this, I'll now leave the word to Regis. Please turn to slides -- to slide number nine.

Thank you, Niels. So my name is Regis Broersma and I have been working for Scandinavian Tobacco Group since 2002 and in multiple positions across the globe. Just before my appointment as Chief Commercial Officer in March this year, I was heading the North American Branded and Rest of the World division, and I joined STG's Executive Board in 2019. As Niels just alluded to, we have done the spring and early summer, implemented a new commercial structure for the group. Allow me to just give a few words and comments about how the new structure will enhance and strengthen our capabilities to deliver the best brands and customer and consumer experience going forward. The new commercial structure is centered around simplicity to stay fit for the future and to become even more consumer and customer focused. The new commercial structure will drive faster decision-making. It drives better prioritization. It allows for better resource allocation to our growth opportunities and to our attention areas. This facilitates a more seamless collaboration and the new structure allows for more opportunities for our people. In the new commercial structure, we set around three categories and four sales clusters. We put accountability closer to the brand owners and closer to the local markets for execution excellence. We drive brand equity and we win at local end market level. Please turn to slide number 10. So let me spend a moment on the most recent performance measured by our product categories. Each of the product categories is unique and can be compared one to one, even though there are similarities between them. By increasing the category focus and be giving you more granularity to each product category, my sincere hope is that the uniqueness and different dynamics become apparent whether it's for handmade cigars, machine-rolled cigars or any of the other product categories in our portfolio. So handmade cigars. This category includes handmade cigars sold via our online platforms by our retail stores by 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 organic net sales growth of 3% and the category contributed 37% of group net sales in the second quarter. Machine-rolled cigars and smoking tobacco. This category improved its performance significantly during the second quarter, compared to a weak first quarter with a decline of 2% in organic net sales, compared with a decline of 12% in the first quarter of the year. The category contributed 46% of Group net sales in the second quarter. Next-generation products more than doubled net sales. This is via a combination of strong growth in the distribution of third-party products in the U.S. and through the rapid growth of XQS, in particular in the Swedish market. The category contributed 6% of Group net sales in the second quarter. The Group other includes sales of accessories, third-party contract manufacturing and bar sales in our retail stores. Now please turn to slide number 11. Core market trends. So cigars remain at the core of our business and is the category where we have a vision to become the undisputed and sustainable global leader. Cigars constitute about three-quarters of the total group net sales. Therefore, I would like to spend a moment describing the current market trends as we see them today. Let me start with handmade cigars. Global consumption of handmade cigars relates mostly to the U.S. market with about 65% to 70% of the total global consumption. We saw an extraordinary growth in consumption during the pandemic. Since the pandemic, the volumes have been declining, yet volumes remain above the pre-pandemic levels. Currently, the market is estimated to contract by a mid-single-digit percentage. Although we remain confident that the decline rate will eventually stabilize at a lower level, this is still not the case, and it remains uncertain when this will happen. Consumer behavior and consumer spending in America remains an issue of uncertainty for many companies, and I wish I could better predict the consumption dynamics in the coming years. But again, so currently, our base case scenario is that we will not experience an improvement in the next quarters ahead of us. For machine-rolled cigars, the total market declined at almost the same rate as in the first quarter with close to 5% lower volumes. Consequently, the year-to-date volume decline in Europe has accelerated, compared to previous years, and it remains uncertain whether that is only temporary or a new level we must adapt to. The coming quarters will provide important data points in this perspective. I will give you more details about market dynamics shortly with specific focus on France. However, the consumer behavior from most tobacco and nicotine products are rapidly changing, including both from machine-rolled cigars. Consumers engaging with machine-rolled cigars have traditionally been cigarette smokers with -- but with the many new alternatives in recent years, whether heat-not-burn, vaping or nicotine pouches, the traditional dynamics are changing, and we must understand this better and adapt accordingly. On top of the consumer dynamics, regulatory changes have always and will continue to have impact on development for each product category. And at STG, we know how to navigate these changes. With this, I will now turn to a brief update of the performance by each product category. Turn to slide number 12, please. During the second quarter, our overall reported net sales increased by 4% for handmade cigars, 3% in organic growth. This despite a decline in total consumption in the important U.S. market. We managed to offset the total market trend by growing our net sales of handmade cigars through both our online and retail business and by increasing our sales to the international markets outside the U.S. The growth in online is driven by an increasing spend per consumer. The growth through our retail network is driven by the expansion of the number of stores, as well as a mid-single-digit increase in the same-store sales. Our sales to U.S. distributors and retailers are under pressure, due to overall consumer demand, inventory adjustments, as well as lower contract manufacturing sales. Based on our own sales, we do see consumer down-trading trends towards either lower-priced brands and/or buying the same brand online at a discount. This dynamic put pressure on our margins. Sales to our international markets outside of the U.S. remained strong with a double-digit growth in the first-half of the year and double-digit growth, which we have experienced for more than five years. This is driven by resilient consumer demand as well as consumers moving from high-priced cigars to our brands. The strength of STG and having presence in the different parts of the value chain puts STG in a strong competitive position to deal with these headwinds. Please turn one slide to slide number 13. Machine-rolled cigars and smoking tobacco. During the second quarter, our machine-rolled cigar business in Europe did improve its performance, compared with the weak development in the first quarter. The decline in total market that I mentioned previously make it important that we adapt our strategies based on an up-to-date assessment of the market trends and our performance versus our key competitors. Meaning that we factor in the current total market decline rates and that we are taking commercial actions to improve our performance to gain back our lost market share. As Niels explained in the previous webcast, we would investigate a current pricing strategy and a debt if needed. We have finalized that body of work and we have initiated actions towards our pricing strategy to find a new balance between volume, market share and profitability. Another example is the rebalancing of priorities between the traditional and the filter and flavor set. The initiatives we have already taken and are taking to rebuild our market positions will take time to have full effect and although we have improved the market share index from 27.6% to 27.9% in the past quarter. It's too early to go the recovery. I will, however, like to take the opportunity to explain more in detail about the market development in France, the largest of all European markets. In France, the total market volumes have declined by an annual average of 5% to 6%, since 2020 and our market share has also declined. Why has this been the case? And how can we turn the needle? Our strategy based on pricing studies has been to elevate the pricing of our portfolio and focus on gross profit increases. Price elasticity results show that the pricing advantage would more than compensate for the volume losses. The underlying base assumption was that competitors would also implement pricing to the same extent or close, especially with the high inflation over the last years and the cost of the Check & Trace implementation. This has not been the case to the extent we anticipated. The actions taken in the last months are that we have repositioned the brand to the value-for-money segment. And on September 1, we will reposition our biggest brand signature back to the mainstream segment. The first results on [Indiscernible] are encouraging. With this, now turn to the next slide, please. Next-generation products. During the second quarter, the category more than doubled its performance, compared to the second quarter last year and now represents 6% of Group net sales. The strong performance ahead of plan is driven by two main drivers. The first is the rapid growth of XQS and secondly, the strong growth in the distribution of third-party products in the U.S. XQS is continuing its strong performance in the Swedish market with month-on-month market share growth. We now roll out to other countries, of which the launch in U.K. is the most notable. We have significantly increased our sales force to drive growth in the independent channel. We're off to a good start and a positive side effect is that our machine-rolled cigar brand Signature is showing a lift in this channel's market share performance. Our next milestone is to bring XQS to the Danish market as of early September. The third-party distribution of Zyn.com has performed well, but in June, the online sales of ZYN have been posed by PMI. We refer to PMI's press release on the matter. So overall, we are very pleased with our performance of XQS, and we're executing according to plan. With this, I will now leave the word to Marianne for more details on the divisional performance. Please turn to slide number 16.

Thank you, Regis. We'll now turn the focus away from the insights on the different product categories to give you some more details to the financial data we disclosed on the three reporting commercial division, where I will start with the overview with Europe Branded. Reported net sales for the second quarter increased by 9% to DKK775 million, with organic net sales increasing by 6%. Acquisitions impacted reported net sales by 2%. The main drivers behind the organic growth are increasing sales of handmade cigars, next-generation products, as well as smoking tobacco, while the decline in the net sales of machine-rolled cigars improved competitive decline in first quarter. Both next-generation products and handmade cigars delivered double-digit net sales growth. Pricing remained a key factor in all core categories. Although, as Regis just mentioned, the execution of pricing might be more tactical in certain product categories to protect or improve our market share positions. EBITDA before special items increased by DKK29 million to DKK193 million with an EBITDA margin of 24.9% versus 23.1% in the same quarter last year. The margin development was primarily driven by the scale impact of higher net sales, the NGP category continues to have a diluting impact on the divisional margin, due to increased investments in supporting long-term growth of this category. With this, please turn to slide 17, where I will speak to the North America Branded and Rest of the World division. In the quarter, reported net sales for the commercial division North America Branded Rest of the World, decreased by 3% to DKK751 million. Organic net sales were negative by 4%. The main drivers behind the organic development were negative volume impact from lower shipments of machine-rolled cigars to the region, Middle East and Africa, a continued decline in the sales of handmade cigars to external wholesalers and lower contract manufacturing sales. As expected, the volume decline in machine-rolled cigars in Canada was temporary and reversed to growth in the second quarter. EBITDA before special items increased by DKK10 million to DKK275 million with an EBITDA margin of 36.6% versus 34.2% in the second quarter last year. The margin was positively impacted by mix changes like the higher net sales in Canada, but also by an expected refund of certain import tax payments of an expected DKK16 million. Excluding this refund, the EBITDA margin is 34.5%, an improvement versus last year. I'll now turn the attention to the performance in the North American Online and Retail division. Please turn to slide number 18. Reported net sales for the first quarter increased by 14% to DKK840 million with organic net sales growth at 12%. The positive development in the organic net sales is driven by new store openings in the retail business, a 5% increase in the same-store sales, as well as higher net sales from the distribution of third-party next-generation products. Online net sales of handmade cigars were increasing despite a slight reduction in the amount of active customers. The growth was driven by an increasing spend per active customer. EBITDA before special items increased by DKK30 million to DKK152 million with an EBITDA margin increasing to 18.1% from 16.4% in the second quarter last year. The increase is driven by the higher net sales, a higher proportion of third-party distribution of total net sales and general efficiency improvement. As mentioned, the distribution of third-party generation product has been posed by the brand owner, and it is uncertain if and when the distribution will be resumed. The net sales development for the division will consequently be negatively impacted for the second-half of the year. In the second quarter, the distribution of third-party next-generation products accounted for about 3% of Group net sales and 8% to 9% of division net sales. Now please turn to slide number 19. Before moving into the details of the quarter for the Group financials, please let me mention the long-term perspective of our financial performance given the high volatility we can experience from quarter-to-quarter. In this slide, we have outlined the development in the second quarter EBITDA margins over the past seven years since 2018. In the appendix, we have included the full-year trend. These long-term trends give us good insight into the underlying performance, as well as the progress in our strategy and financial ambitions. Overall, the improvement in the EBITDA margin since 2018 has with variations continued in all three commercial divisions, as well as for the Group. With this, I'll now give you more details on the Group financing and please turn to slide number 20. We have already talked to the development in net sales and EBITDA margins for the second quarter by division. So let me just add a few comments to some selected items in the Group results. Reported net sales increased by more than 6% to DKK2.4 billion. The effect from exchange rate development, primarily the U.S. dollar was positive by 1% and the impact from the acquisition of XQS was also 1%. Combined, this results in organic net sales growth of close to 5%. Special costs were DKK53 million relating to the ERP implementation on process, the implementation of the new organizational structure as well as transaction costs. Net profit for the quarter was DKK297 million, compared to DKK304 million in the second quarter of last year, with the decline being driven by higher special costs and higher net financial expenses. The adjusted earnings per share was DKK4.1 versus DKK3.5 in the second quarter of 2023. The free cash flow before acquisitions was positive by DKK177 million, compared with DKK159 million last year. The development was impacted by the operational performance, a lower negative impact from changes in working capital being partly offset by higher taxes paid in the quarter. For the first-half year, the free cash flow before acquisition was DKK52 million. However, as the cash flow generation will be significantly higher during the second-half of the year, we confirm that we will deliver free cash flow before acquisitions of more than DKK800 million for the full-year. Please turn to slide number 21. In this slide, we show the performance by key performance indicators for the Group. I mentioned the organic growth improvement already and will focus on the margin development. The EBITDA margin increased from 23.1% in the second quarter of 2023 to 24.5% in the second quarter of this year. The key drivers behind this improvement are improvements in all three commercial divisions, as addressed in my comments to the financial development in each division. The gross margin is unchanged at 46.9% for the Group and with the gross margins being also been relatively stable for each of the divisions. The improvement in EBITDA margin is driven by two factors: The first being scale and cost improvements. The second quarter development in the EBITDA margin is a good example of the importance of scale and continued cost focus in our organization. By delivering on both scale and cost focus in the second quarter, the OpEx ratio improved from 23.8% in the second quarter of 2023 to 23% in the same quarter of this year. Secondly, I will also emphasize that the refund of certain import tax payments in the North America Branded Rest of the World division improved our results by an expected DKK16 million. This refund is classified as other income in the account and consequently also improve the group EBITDA. The refund impacts the EBITDA margin by 0.6% in the call. Now please turn one slide to slide number 22. Before I give the word back to Niels for comments on the outlook and guidance, I'll give you a brief update on our net debt and leverage position and the status on the current share buyback program, which was initiated in November last year. During the second quarter, the net interest-bearing debt increased by DKK0.9 billion to DKK5.4 billion, as a result of capital allocations, which comprised both share buybacks and the payment of ordinary dividends in April. In the quarter, we have repurchased 2.8 million shares at a total value of DKK287 million. By the end of June, our holding of treasury shares was 4.9% of the outstanding share capital. And as by the end of last week, that holding has increased to 6.2%. The leverage ratio increased to 2.6 times. It was 1.9 times at the end of 2023. Including the impact from the acquisition of Mac Baren, we expect leverage ratio to stay above the current level by the end of 2024. As the calculation of the leverage ratio includes the total transaction value of Mac Baren, but only financial results for the second half of 2024 the reported leverage ratio by the end of the year would be technically too high. Combined with our structurally strong cash flow generation, we expect the leverage ratio to decline further next year, leaving ample room for delivering on our capital return policy. Please now turn to slide number 23. And to summarize, I would like to remind everyone that 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 returned more than DKK1.2 billion, which at the current share price equals close to 14% of STG's market value. This underlines our commitment to deliver on our shareholder return policy. With this, I'll now leave the word back to Niels for an update on our outlook and maintained guidance for 2024. Please turn to last slide number 25.

Thank you, Marianne. And before moving to the expectation for the financial year 2024, I would like to give a few insights for the longer-term outlook for Scandinavian Tobacco Group as we see them today. In our base case assumption for the coming years, we expect our core categories to deliver flat to low-single-digit annual net sales growth, while the growth enablers are expected to deliver double-digit annual net sales growth. However, market volatility remains at a historic high level and the market development in our core categories are difficult to predict in the near-term. And we are taking action and will continue to take action should the current volume rate – sorry, should the current volume decline rates continue. Near-term, the financial results and especially the EBITDA margin has been and will be impacted by our increasing investments in growth enablers, but these are important to support our ability to deliver stronger and sustainable financial performance over time. Beyond rolling towards 2025, we expect to continue to deliver annual top line growth led by our investments in the growth enablers and potential acquisitions. We also expect like-for-like margin enhancements, driven by the growth enablers as well as continuous cost efficiencies. The largest uncertainties remain the market volatility driven by major consumer changes to consumer trends and regulation, including the acceleration of volume decline rates in our core categories, as well as the financial performance for our next-generation product portfolio. With this, please turn to slide number 26. I will now give you more details on the full-year outlook, which is unchanged, compared with the outlook we repeated in May. However, I would like to emphasize that the guidance is exclusive of the impact from the Mac Baren transaction. We will include Mac Baren in our expectations, no later than when we release our third quarter results in November. Currently, the market for handmade cigars is estimated to contract by a mid-single-digit percentage, and it remains uncertain when we'll see changes to this. One reason for this uncertainty is the U.S., consumer behavior and spending. And in our current expectations for 2024, we don't include a near-term recovery in the market. However, we expect price increases on our products and continued growth in our online and retail distribution channels, as well as in our international markets to more than offset the decrease in U.S.-based consumption. For 2024, we continue to expect organic net sales of handmade cigars to increase, compared with last year. The total market for machine-rolled cigars in our key markets in Europe declined close to 5% during the first-half of 2024. Consequently, the volume decline in Europe has accelerated, compared to previous years, and it remains uncertain whether this is a temporary or a new level we must adapt to. Consequently, our actions are based on up-to-date assessments of the latest market trends. Net sales from our next-generation product portfolio are expected to increase by more than 50%, driven by market share expansion and rollout new markets. Based on the expectation for our different product categories, Group net sales are expected in the range of DKK8.8 billion to DKK9.1 billion. The EBITDA margin before special items is expected in the range of 22% to 24%. The margin is being impacted by increased investments in our growth enablers, cost inflation and mix changes. These impacts will only be partly offset by price increases and continued cost optimization. The largest uncertainties for net sales and the EBITDA margin remained changes in consumer behavior and in the market and product mix. The free cash flow is expected in the range of DKK0.8 billion to DKK1 billion and will be impacted by the special investments of up to DKK300 million. These special investments include the retail expansion in the U.S., a completed track and trace implementation in the EU and the continued rollout of our ERP solution. Working capital is expected to deliver a negative contribution, primarily related to the expected increase in net sales, higher cost prices and expansion into new product groups. Adjusted earnings per share is expected in the range of DKK12.5 to DKK14.5, including an estimated impact on the current share repurchase program of DKK0.7. As always, the expectations are based on current exchange rates. Now this includes our presentation for today's call I'll now hand the word back to the operator, and we are ready to take questions. Thank you.

Thank you. [Operator Instructions] We will now take the first question. One moment please. From the line of Niklas Ekman from Carnegie. Please go ahead.

Thank you. Yes, a couple of questions from my end. Firstly, can I ask about your guidance here for H2? Just how confident you are in your ability to drive organic sales growth and a sequentially improving EBITDA margin? I'm asking this on the back of quite a lot of volatility in both growth and margins in the last couple of quarters? So just what have you seen so far in Q3? And how confident are you that this can be -- that this trend can be sustained throughout the quarter? That's my first question.

Niklas, Marianne here. Thanks for the question. So you're absolutely right. We have seen quite some volatility here in ‘24 between the quarters. So when we look into the second-half of 2024, we are confident that we're going to show growth in our top line. And we are also confident that we will improve our EBITDA margin, compared to the first-half of 2024. And it is driven by continued growth in the handmade category from international sales, but also in in U.S. And we are in the second--half of 2024. We are opening three retail stores in the U.S. The uncertainties that I'd like to highlight for the second-half is, of course, what Regis has talked to, the volatility and uncertainty on the decline rate in our main markets, both in machine-rolled cigars and in handmade cigars. But it is also the pause of the online sale of ZYN where we don't know where that will resume within the second-half or not. And we have catered for that also in our guidance. I hope that answers your question.

That's very clear. And just a follow-up. Did I understand correctly that ZYN made up 3% of North America online and retail sales?

Of the group sales?

Of the group sales, yes.

Online and retail is 8% to 9%, yes three of the group sales and 8% to 9% of online sales.

Yes. And that is zero now at so far in Q3.

Yes.

Okay, clear. Second, just to understand the Europe Branded, up 6% and that's despite a 4% decline in machine-rolled cigars. I'm trying to understand it. I thought that Europe Branded was predominantly machine-rolled cigars? Can you talk a little bit about the mix here and how you achieve that strong growth despite weakness in the machine-rolled cigars?

Yes. Maybe I jump in here. So indeed, the majority of the Europe business is machine-rolled cigars, but we've seen strong growth of especially our handmade cigars in Europe and also the continuous expansion of next-generation products, especially in Sweden with our XQS brand. That is actually why the minus 4 with the machine-rolled cigars, this compensates to come actually to a plus 6%. And then, of course, we also had pricing on the way.

And can you provide an approximate mix in Europe Branded? How much of that now is not machine-rolled cigars?

No, I don't think we can give that for now.

I think maybe, Niklas point to remember, this is Niels here is that we actually -- even though we did not write it anywhere, the Q2 net sales was actually the highest ever recorded. And I think the absolute level of sales we do, of course, also help the different divisions. This was driven primarily by Europe Branded and North America online and retail, but that also emphasizes the importance of scale for us.

Okay. Very clear, very clear. And…

Maybe, if I can, Niklas, just in the annual report, you will see that machine-rolled cigars in the division is around three-quarter of the total net sales in the division.

Very good, very good. Thank you. Ad can I also just ask about the rationale for the acquisition of Mac Baren. Because I think in the past, you haven't really talked about fine cut and pipe being core targets for M&A. So I'm trying to understand here, was this -- the main attraction here is that the next-generation products and strengthening that portfolio? Or can you tell us a bit more about the rationale?

Yes. Thank you, Niklas. I think it's a good question and interesting question. And I think that it's important to understand that we are primarily a cigar company, but we also have a very strong pipe tobacco market share globally, and we also have strong positions in fine-cut. And for us, the acquisition of Mac Baren was primarily a question of further cementing these two categories and eventually driving synergies from them. So there's no doubt that Mac Baren is a synergy case. The addition of, I think, two nicotine powder brands and the manufacturing capability has not been the driving force of the Mac Baren transaction, and it is something we are looking at currently as part of the integration plan to see how we can leverage that going forward. The main motivation has been the synergy case related to the smoking tobacco part of that business.

Clear. Thank you. Can I also ask what's happened with regulation in the U.S. market since the FDA deeming regulations were vacated late 2023? What has happened in the market? Are you now allowed to do significant new product launches again? And is that good or bad for you? Does it mean that competition is increasing? Or have you managed to gain on the back of this? Thanks.

Regis, will you run for that?

Yes. So in principle, on the legislation front in the U.S., since that announcement in principle, nothing really has changed significantly. In principle, when it is classified as a premium cigar then in principle, launches can happen again. I believe when it comes to STG and it is a benefit or not a benefit for us. In principal, we were already complying with the regulations before that announcement was made. So for us, actually, it gives us more freedom to launch new products than previous to the announcement.

Very clear. And just two quick nitty-gritty ones. Net financials, do you have a good guidance here for H2? Should we expect similar as in Q1, Q2, but then a slight increase of maybe DKK10 million to reflect the acquisition?

So for the second-half, I would go with slightly increasing net financials.

Fair. Thank you. And also on one-off costs, they've been rather high in the last few quarters. Can you provide guidance on what to expect for the coming quarters? Have you taken most of the cost for Mac Baren already now in Q2?

Yes. So we have taken -- for Mac Baren, we have taken what we call acquisition costs, but we haven't taken any integration costs. So when we announced in November our third quarter result, we also here expect to give you more insights into the synergies that we believe we can extract and also the cost of doing that. On special costs, we don't expect any more from the reorganization, but we do still expect to have more cost on the ERP implementation and that will primarily be from the second-half and also into next year that we will have those costs.

Very clear, thank you. I've taken up a lot of time here. Thanks for answering all my questions.

Thank you. [Operator Instructions]

And maybe I can jump in and take a question from the chat?

Sure. There are no more questions from the telephone at this time.

Yes. The first one is probably for you, Marianne. In Europe, is it possible to quantify the EBITDA drag from the next-generation products business? And should we expect this drag to remain over the medium term?

Yes. So I think what we've said before around the European next-generation products category is that it will be a net investment of around DKK20 million to DKK25 million for this year. And when I say net investment, it is the net EBITDA bottom line with the sales and also the investments that we are doing to this category. And that is, of course, the reason for it is diluting our EBITDA margin. On the expectation over the medium term, we are in this category to become profitable. And we will become profitable market-by-market. So it does take time to enter market and cement our position in those markets and then become profitable. So as we move on implementing over the various markets, we will continue to invest. But the first markets, for example, in the Swedish markets, we have to see profitability within. And I think also, last time we said within the next 18 to 24 months.

And then a follow-up on the next-gen products it's to you, Regis. It's about basically what's driving the growth of XQS in Sweden? Is it because it's priced at a discount. And a follow-up is for the U.K. launch, what is basically the price position in the U.K. markets. If you can put a little color on that.

Yes. So thank you for the question. So first of all, for Sweden, when we did the acquisition about a year ago, the position of XQS was mainly on the online channel, the strength, so we could actually build on that strength. And with the acquisition, we actually put our sales force to the brand and basically the expansion of distribution points in the retail stores and in the key accounts. And that is very much driving the growth there. And on top, of course, we are investing in the brand in activation and also when it comes to product innovation, our innovation is very much linked to the attributes that consumers want in a nicotine pouch. So that's driving the Swedish performance. And then the second question was about the pricing index in the U.S. And there, we are actually at an index just below the market leaders in that market.

Okay. Thank you, Regis. Maybe another question for you is with regard to the new commercial structure of our organization, can you indicate what metrics the sales team are being incentivized on? And whether it has basically been a change compared to previously? Hello? Are you still connected, Regis?

Yes. Sorry, I'm mute. So with the reorganization, of course, we put accountability closer to the categories, but also to the end markets. So of course, our sales forces were already running on KPIs, and we are making that even more data driven, and we have adjusted in each of the markets. We did the full analytics and we also adjusted the route-to-market when it comes to visit frequency, the categorization. So yes, we have made the changes, and that has been implemented as we speak.

Thank you, Regis. And then we have one for Marianne. That is the business has made good progress in reducing its OpEx. Is the business working to target OpEx to sales ratio? And should we expect further savings ahead?

Yes. So let me -- thanks for the question. Let me say that efficiencies and optimizing our cost base is the DNA of how we work. It is part of how we do business. We ongoingly are looking for simplifying. And I think the ERP implementation on process is a good example. It's a huge investment, but it will also simplify bring efficiency gains to our business. So we're ongoingly identify initiatives to optimize our cost base. We are not ready currently to give a clear target on the OpEx.

Thank you, Marianne. And there's no further questions on the web livestream. So I don't know if there's any more from the call.

No further questions on the telephones.

Okay. Then I would like to say thank you all for participating in our second quarter webcasted presentation, and I wish you a continued good day. Thank you.

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