Q2 2026 Scandinavian Tobacco Group AS Earnings Call

August 27, 2026

Operator: Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Q2 Results 2026 Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 and 1 again. Alternatively, you may submit your question via the webcast. 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. Please go ahead.

Speaker #2: Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Q2 2026 results conference call. At this time, all participants are in a listen-only mode.

Speaker #2: After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press *11 on your telephone.

Speaker #2: You will then hear an automated message advising that your hand is raised. To withdraw your question, please press *11 again. Alternatively, you may submit your question via the webcast.

Speaker #2: 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. Please go ahead.

Speaker #3: Thank you. Good morning to everyone on the call, and thank you for joining us today. My name is, as said, Torben Sand, and I am Director of Investor Relations and External Communications, and I am today joined by our CEO, Niels Frederiksen, and our CFO, Marianne Bock.

Torben Sand: Thank you. Good morning to everyone on the call, and thank you for joining us today. My name is, as said, Torben Sand, and I am Director of Investor Relations and External Communications. I am today joined by our CEO, Niels Frederiksen, and our CFO, Marianne Rørslev Bock. Before we start, I ask that you pay special attention to our disclaimer on forward-looking statements, which can be found on the next slide in this deck. Please turn to slide number 3. Let's have a brief look at our agenda. Niels will start with the key developments of the H1, including an update to our strategy, Focus 2030, and Marianne will then take you through the H1 financial results for the group and our three commercial divisions.

Torben Sand: Thank you. Good morning to everyone on the call, and thank you for joining us today. My name is, as said, Torben Sand, and I am Director of Investor Relations and External Communications. I am today joined by our CEO, Niels Frederiksen, and our CFO, Marianne Rørslev Bock. Before we start, I ask that you pay special attention to our disclaimer on forward-looking statements, which can be found on the next slide in this deck. Please turn to slide number three. Let's have a brief look at our agenda. Niels will start with the key developments of the H1, including an update to our strategy, Focus 2030, and Marianne will then take you through the H1 financial results for the group and our three commercial divisions.

Speaker #3: Before we start, I ask that you pay special attention to our disclaimer on forward-looking statements, which can be found on the next slide in this deck.

Speaker #3: Please turn to slide number three. Let's have a brief look at our agenda. Niels will start with the key developments of the first half-year, including an update to our Strategy Focus 2030, and Marianne will then take you through the half-year financial results for the group and our three commercial divisions.

Speaker #3: I will then hand it back to Niels, who will provide some additional insights into our expectations for the full year. Following their presentations, we will host a Q&A session, where we will be pleased to take any questions that you might have.

Torben Sand: I will then hand it back to Niels, who will provide some additional insights to our expectations for the full year. Following the presentations, we will host a Q&A session where we will be pleased to take any questions that you might have. Now, let's begin. Please turn to slide number 5, and I will leave the work to Niels.

Speaker #3: Now, let's begin. Please turn to slide number five, and I will hand over the word to Niels.

Speaker #4: Thank you, Torben, and welcome to the call. Today, we are reporting on the results for the first half of the year, and while we're still in the initial phase of our Focus 2030 strategy, we will talk about the progress made in this area.

Niels Frederiksen: Thank you, Torben, and welcome to the call. Today, we are reporting on the results for the H1, and whilst we're still in the initial phase of our Focus 2030 strategy, we will talk about the progress made in this area. I'll start by spending a moment sharing my reflections on the progress we have made with the strategy, and then Marianne will talk to the financial highlights. Our main priorities embedded in Focus 2030 are unchanged. They are to stabilize earnings in our machine-rolled cigar and smoking tobacco business, to inject new energy and growth into our strong handmade cigar business, and to continue to accelerate our promising nicotine pouch business. The activities that we have activated to support the strategy is progressing well, and we are more or less following the plans we outlined at the Capital Markets Day last November.

Speaker #4: I'll start by spending a moment sharing my reflections on the progress we have made with the strategy, and then Marianne will talk about the financial highlights.

Speaker #4: Our main priorities embedded in Focus 2030 are unchanged. They are to stabilize earnings in our machine-made cigar and smoking tobacco business, to inject new energy and growth into our strong handmade cigar business, and to continue to accelerate our promising nicotine pouch business.

Speaker #4: The activities that we have activated to support the strategy are progressing well, and we are more or less following the plans we outlined at the Capital Markets Day last November.

Speaker #4: We are taking small steps in the right direction, and I'm confident that we are creating the foundation needed to deliver on our long-term ambitions for the Group.

Niels Frederiksen: We are taking small steps in the right direction, and I am confident that we are creating the foundation needed for delivering on our long-term ambitions for the group. Let me give you a few examples. For the first six months of 2026, our combined tobacco categories, handmade cigars, machine-rolled cigars, and smoking tobacco show signs of stabilization. Organic net sales are flat compared with last year, while the gross margin before special items has improved. Stabilizing our machine-rolled cigars and smoking tobacco business is essential to deliver well on the two other priorities, growing our handmade cigars and growing our nicotine pouch business. We are executing our nicotine pouch strategy by expanding our product portfolio into the mint and menthol segment and by expanding to new markets. Our market share in Sweden continues to perform well.

Speaker #4: Let me give you a few examples. For the first six months of 2026, our combined tobacco categories—handmade cigars, machine-made cigars, and smoking tobacco—show signs of stabilization.

Speaker #4: Organic net sales are flat compared with last year, while the gross margin before special items has improved. Stabilizing our machine-rolled cigars and smoking tobacco business is essential to deliver well on the two other priorities: growing our handmade cigars and growing our nicotine pouch business.

Speaker #4: We are executing our nicotine pouch strategy by expanding our product portfolio into the mint and menthol segments and by expanding into new markets. Our market share in Sweden continues to perform well.

Speaker #4: And in July, we agreed to divest two of our fine cut brands, Break and Moro, to Japan Tobacco in a transaction, which at completion will strengthen our strategic and financial flexibility.

Niels Frederiksen: In July, we agreed to divest two of our fine-cut brands, Break and Moro, to Japan Tobacco Inc. in a transaction which, at completion, will strengthen our strategic and financial flexibility. Based on the financial performance in the first six months and the early part of Q3, we remain on track to deliver on our full year 2026 expectations. Please turn to slide number 6, where Marianne will talk about the financial highlights of the quarter.

Speaker #4: Based on the financial performance in the first six months and in the early part of the third quarter, we remain on track to deliver on our full-year 2026 expectations.

Speaker #4: Now, please turn to slide number six, where Marianne will talk about the financial highlights of the quarter.

Speaker #2: Thank you, Niels. The stabilization in net sales, which we saw at the beginning of the year, has continued throughout the second quarter. Organic net sales growth was broadly unchanged for both the first six months and the second quarter.

Marianne Rørslev Bock: Thank you, Niels. The stabilization in net sales, which we saw at the beginning of the year, has continued throughout Q2. Organic net sales growth was broadly unchanged for both H1 and Q2. For the half year, reported net sales were DKK 4.2 billion, 3% lower than the same period last year, with exchange rate impacting net sales negative by the same 3%. For Q2, reported net sales declined by 1%, including a negative impact of 1% from exchange rate development. I will shortly provide more details of the performance of our commercial positions. EBITA before special items increased slightly during H1 compared to the same period last year, with the EBITA margin improving by around 1 percentage point. The improvement was primarily driven by a higher income from duty drawback refunds.

Speaker #2: For the half-year, reported net sales were 4.2 billion kroner, 3% lower than the same period last year, with exchange rates impacting net sales negatively by the same 3%.

Speaker #2: For the second quarter, reported net sales declined by 1%, including a negative impact of 1% from exchange rate developments. I will shortly provide more details on the performance of our commercial divisions.

Speaker #2: EBITDA before special items increased slightly during the first half compared to the same period last year, with the EBITDA margin improving by around 1 percentage point.

Speaker #2: The improvement was primarily driven by higher income from duty drawback refunds. Excluding the impact from duty drawbacks, the EBITDA margin before special items declined, reflecting both higher investments related to the execution of the strategy and the fact that the turnaround in our machine-made cigar business will take time.

Marianne Rørslev Bock: Excluding the impact from duty drawbacks, the EBITA margin before special items declined, reflecting both higher investments relating to the execution of the strategy and the fact that the turnaround in our machine-rolled cigar business will take time. The EBIT margin before special items was unchanged compared with last year, both for the half year and for Q2. As previously communicated and as a result of our power brand strategy, we increased the amortization of trademarks from the beginning of this year. For H1 2026, the trademark amortization increased by DKK 38 million compared with last year, corresponding to a 0.9 percentage point impact on EBIT margin. We continue to estimate that the change in trademark amortization will increase amortizations by nearly DKK 75 million for the full year.

Speaker #2: The EBIT margin before special items was unchanged compared with last year, both for the half-year and for the second quarter. As previously communicated, and as a result of our power brand strategy, we increased the amortization of trademarks from the beginning of this year.

Speaker #2: For the first half of 2026, trademark amortization increased by DKK 38 million compared with last year, corresponding to a 0.9 percentage point impact on the EBIT margin.

Speaker #2: We continue to estimate that the change in trademark amortization will increase amortizations by nearly DKK 75 million for the full year. The free cash flow before acquisitions was DKK 422 million, an improvement of nearly DKK 150 million compared with the first half of last year.

Marianne Rørslev Bock: The free cash flow before acquisitions was DKK 422 million, an improvement of nearly DKK 150 million compared with the H1 of last year. For the Q2, the free cash flow was DKK 264 million. The collection of receivables referred to in the full year 2025 report and the Q1 announcement in May has been recovered. The underlying cash flow development continues to support our full year expectation of DKK 950 million to DKK 1.2 billion. Finally, leverage remained unchanged at 3x compared with the end of last year and by the end of March this year. We continue to expect leverage to move towards our target ratio by the end of the year, as cash flow normally is higher in the H2 of the year.

Speaker #2: For the second quarter, the free cash flow was $264 million. The collection of receivables referred to in the full-year 2025 report and the first quarter announcement in May has been recovered.

Speaker #2: The underlying cash flow development continues to support our full-year expectations of DKK 950 million to DKK 1.2 billion. Finally, leverage remained unchanged at 3.0 times compared with the end of last year and by the end of March this year.

Speaker #2: We continue to expect leverage to move towards our target ratio by the end of the year, as cash flow normally is higher in the second half of the year.

Speaker #2: Assuming closing of the divestment of the brands Break and Moro before the year-end, the leverage ratio will decrease to below 2.5 times.

Marianne Rørslev Bock: Assuming closing of the divestment of the brands Break and Moro before the year-end, the leverage ratio will decrease to below 2.5x. Now please turn to slide number 7. On 22 July, we announced the signing of an agreement with Japan Tobacco to divest two brands within our fine-cut tobacco portfolio, Break and Moro. In 2025, our fine-cut tobacco business accounted for approximately 12% of group net sales, with Break and Moro representing slightly less than 4%. This means that we will retain a meaningful and valuable fine-cut business after the divestment. Break and Moro accounted for slightly more than 4% of gross profit and including allocated cost for approximately 6% of EBITDA. The divestment supports our strategic agenda and strengthens our strategic and financial flexibility. The transaction value is €176 million, equals to DKK 1.3 billion.

Speaker #2: Now, please turn to slide number seven. On the 22nd of July, we announced the signing of an agreement with Japan Tobacco to divest two brands within our fine cut tobacco portfolio, Break and Moro.

Speaker #2: In 2025, our fine-cut tobacco business accounted for approximately 12% of group net sales, with Break and Moro representing slightly less than 4%. This means that we will retain a meaningful and valuable fine-cut business after the divestment.

Speaker #2: Break and Moro accounted for slightly more than 4% of gross profit and, including allocated costs, for approximately 6% of EBITDA. The divestment supports our strategic agenda and strengthens our strategic and financial flexibility.

Speaker #2: The transaction value is €176 million, equal to 1.3 billion kroner. With proceeds estimated at about 1 billion kroner after tax, the group's leverage ratio will decrease to below our target ratio of two and a half times, which was one of our key financial priorities.

Marianne Rørslev Bock: With proceeds estimated at about DKK 1 billion after tax, the group's leverage ratio will decrease to below our target ratio of 2.5x, which was one of our key financial priorities. We expect the transaction to close before year-end, subject to certain customary closing conditions such as antitrust approvals. An important element to the agreement is a contract manufacturing agreement with Japan Tobacco for the continued production of Break of up to 3 years, subject to a 6-month termination notice period, which can be exercised from the day of closing. This production agreement gives us valuable time to assess how best to optimize the manufacturing network and our efficiency at our two factories in Holstebro in Denmark for our midterm needs. The transaction is not expected to impact our guidance ranges in 2026 for net sales, EBIT margin, and EPS, earnings per share.

Speaker #2: We expect the transaction to close before year-end, subject to certain customary closing conditions, such as antitrust approvals. An important element to the agreement is the contract manufacturing agreement with Japan Tobacco for the continued production of Break for up to three years, subject to a six-month termination notice period, which can be exercised from the day of closing.

Speaker #2: This production agreement gives us valuable time to assess how best to optimize our manufacturing network and our efficiency at our two factories in Holstebro in Denmark for our midterm needs.

Speaker #2: The transaction is not expected to impact our guidance ranges in 2026 for net sales, EBIT margin, and EPS—earnings per share. Cash flow is expected to be positively impacted by the transfer of inventories to Japan Tobacco at closing.

Marianne Rørslev Bock: Cash flow is expected to be positively impacted by transfer of inventories to Japan Tobacco at closing. Profit margins are lower for contract manufacturing volume. Consequently, both gross profit and EBITDA will be impacted from 2027 onwards due to the divestment. Now please turn two slides to slide number 9, and I will leave the word back to Niels.

Speaker #2: Profit margins are lower for contract manufacturing volume; consequently, both gross profit and EBITDA will be impacted from 2027 onwards due to the divestment. Now, please turn two slides to slide number nine, and I will leave the word back to Niels.

Speaker #1: Thank you, Marianne. And let me start by updating you on the solid progress we're making with Focus 2030. As I said before, the key strategic priorities are to stabilize our machine-rolled cigar and smoking tobacco business, to grow our handmade cigars, and to accelerate nicotine pouches.

Niels Frederiksen: Thank you, Marianne, and let me start by updating you on the solid progress we are making with Focus 2030. As I said before, the key strategic priorities are to stabilize our machine rolled cigar and smoking tobacco business, to grow our handmade cigars, and to accelerate nicotine pouches. Financially, our priority for the near term has been to regain financial flexibility by reducing our leverage. We made good progress with all our priorities less than one year into the execution of the strategy. Firstly, we managed to stabilize profits in the category machine rolled cigars and smoking tobacco, although we did experience an exceptionally rare quality issue with raw tobacco used in our Signature premium little cigar product, which impacted the business primarily in France.

Speaker #1: And financially, our priority for the near term has been to regain financial flexibility by reducing our leverage. We've made good progress with all our priorities, less than one year into the execution of the strategy.

Speaker #1: Firstly, we've managed to stabilize profits in the category Machine-Made Cigars and Smoking Tobacco, although we did experience an exceptionally rare quality issue with raw tobacco used in our Signature Premium Little Cigar product, which impacted the business primarily in France.

Speaker #1: The gross margin for the category has improved by almost one percentage point, and we stabilized our volume market shares in five of seven key European markets.

Niels Frederiksen: The gross margin for the category has improved by almost 1 percentage point, and we stabilized our volume market shares in five of seven key European markets. These are small but important steps for us to deliver on our long-term ambitions for the category. With respect to the quality issue, new tobacco has been secured and production and product availability is expected to normalize during Q3, although our market share performance in primarily France will be impacted in Q3 as well. Having said that, we can see stabilization of market shares in other markets, and they are driven by power brands Signature, La Paz, Mehari's, and Panter.

Speaker #1: These are small but important steps for us to deliver on our long-term ambitions for the category. With respect to the quality issue, new tobacco has been secured, and production and product availability are expected to normalize during the third quarter, although our market share performance, primarily in France, will be impacted in the third quarter as well.

Speaker #1: Having said that, we can see stabilization of market shares in other markets, and they are driven by power brands' signature La Paz, Mehari's, and Panta.

Speaker #1: Now, secondly, our handmade cigars have continued to deliver solid mid-single-digit organic growth throughout the first six months of the year, supported again by our power brand strategy, our retail stores, and improved performance in our online business.

Niels Frederiksen: Secondly, our handmade cigars have continued to deliver solid mid-single digit organic growth throughout the first six months of the year, supported again by our power brand strategy, our retail stores and improved performance in our online business. Based on our power brands, which you may recall being Cohiba, Macanudo, CAO, and Alec Bradley, our target is to increase our market share in the US market. By leveraging our strong online and expanding retail distribution platforms to support the growth of our brands, we aim to grow our power brands faster than the category growth, and we are doing so. The third strategic priority is to build a larger business in the increasingly attractive nicotine pouch category. The category accounts for about 5% of group net sales today, but delivers above average growth.

Speaker #1: Based on our power brands, which you may recall are Cohiba, Macanudo, CAO, and Alec Bradley, our target is to increase our market share in the US market.

Speaker #1: By leveraging our strong online and expanding retail distribution platforms to support the growth of our brands, we aim to grow our power brands faster than the category growth, and we are doing so.

Speaker #1: The third strategic priority is to build a larger business in the increasingly attractive nicotine pouch category. The category accounts for about 5% of group net sales today, but delivers above-average growth.

Speaker #1: We expect our nicotine pouch business to deliver a material contribution to our long-term net sales and profit development. During the first six months, our power brand, XQS, continued to take market share in the important Swedish market.

Niels Frederiksen: We expect our nicotine pouch business to deliver a material contribution to our long-term net sales and profit development. During the first six months, our power brand, XQS, continued to take market share in the important Swedish market. The brand share has grown from less than 11% in the beginning of 2025 to almost 14% in Q2 2026. We have added mint and menthol to our product portfolio in Sweden and the UK, with early indications being positive for the launch. Mint and menthol is the largest segment by far in most of the developed nicotine pouch markets. Finally, the divestment of the fine cut brands Break and Moro will strengthen our strategic and financial flexibility and increase the probability of us executing successfully on the strategy. With this, please turn to the next slide.

Speaker #1: The brand's share has grown from less than 11% at the beginning of 2025 to almost 14% in the second quarter of 2026. We've added mint and menthol to our product portfolio in Sweden and the UK, with early indications being positive for the launch.

Speaker #1: Mint and menthol is the largest segment by far in most of the developed nicotine pouch markets. Finally, the divestment of the fine cut brands Break and Moro will strengthen our strategic and financial flexibility and increase the probability of us executing successfully on the strategy.

Speaker #1: With this, please turn to the next slide. Let me now give you more details about the development of our product categories. During the first half, machine-made cigars and smoking tobacco delivered a 4% negative organic net sales development, with smoking tobacco performing better than machine-made cigars, reflecting the decrease in volume and market share in machine-made cigars.

Niels Frederiksen: Let me now give you more details about the development of our product categories. During the H1, machine-rolled cigars and smoking tobacco delivered a -4% organic net sales development, with smoking tobacco performing better than machine-rolled cigars, reflecting the decrease in volume and market share in machine-rolled cigars. The gross margin was relatively stable, both for the first six months and for the Q2. Handmade cigars continued to deliver solid organic growth driven by our branded business in the US as well as our retail stores. The gross margin before special items is improving, though some of the increase in the Q2 relates to a refund of tariffs. Overall, competition remains intense, but we do see indications that the execution of our strategic agenda is beginning to deliver positive results for both sales and profit margins.

Speaker #1: The gross margin was relatively stable, both for the first six months and for the second quarter. Handmade cigars continue to deliver solid organic growth, driven by our branded business in the US as well as our retail stores.

Speaker #1: The gross margin before special items is improving, though some of the increase in the second quarter relates to a refund of tariffs. Overall, competition remains intense, but we do see indications that the execution of our strategic agenda is beginning to deliver positive results for both sales and profit margins.

Speaker #1: Nicotine pouches reversed the decrease from the first quarter by delivering 8% organic net sales growth in the second quarter. For the first six months, growth—sorry, for the first six months, growth remained negative at minus 5%.

Niels Frederiksen: Nicotine pouches reversed the decrease from the Q1 by delivering 8% organic net sales growth in the Q2. For the first six months, growth remained negative at -5%. However, the development is driven by inventory adjustments by trade partners, as well as the continued streamlining of our own nicotine pouch portfolio. The in-market performance is stronger and is encouraging. With this, I will now leave the word back to Marianne for a review of the financials. Please turn two slides to slide number 12.

Speaker #1: However, the development is driven by inventory adjustments by trade partners, as well as the continued streamlining of our own nicotine pouch portfolio. The in-market performance is stronger and is encouraging.

Speaker #1: With this, I will now hand the word back to Marianne for a review of the financials. So, please turn two slides ahead to slide number 12.

Speaker #2: Thank you, Niels. In my opening remarks, I covered the key developments in net sales, profits, and cash flow. However, I would like to provide a few additional comments on selected financial details and key metrics.

Marianne Rørslev Bock: Thank you, Niels. In my opening remarks, I covered the key developments in net sales, profits, and cash flow. However, I would like to provide a few additional comments on selected financial details and key metrics. The financial statements are impacted by four items, which temporarily impact the data and reduce visibility to the underlying performance of our business. That said, the key message I would like to convey is that the underlying business performance has started to stabilize when these four items are excluded. Firstly, as we communicated in connection with the release of our full year expectations in March, other income will be positively impacted by duty drawback refunds. In the H1 of the year, other income was DKK 79 million compared with DKK 18 million last year. This income impacts EBITDA positively in the division North America Branded and RoW, and for the group.

Speaker #2: The financial statements are impacted by four items, which temporarily affect the data and reduce visibility into the underlying performance of our business. That said, the key message I would like to convey is that the underlying business performance has started to stabilize when these four items are excluded.

Speaker #2: Firstly, as we communicated in connection with the release of our full-year expectations in March, other income will be positively impacted by duty drawback refunds.

Speaker #2: In the first half of the year, other income was 79 million kroner compared with 18 million kroner last year. This income impacts EBITDA positively in the division: North America Branded, Rest of the World, and for the Group.

Marianne Rørslev Bock: Secondly, as we also communicated in March, we decided to change and increase the amortization of trademark as a result of the new Focus 2030 strategy with stronger focus on our power brands. The increase in amortization has a negative impact on EBIT. The impact was DKK 38 million in the H1 of the year. For the full year, we maintain the expectation that the positive impact from duty drawback will be slightly higher than the negative impact from the change in amortization, which is expected around DKK 75 million for the full year. Third item, we expensed approximately DKK 35 million in the Q2 for the write-down of obsolete products in relation to the quality issue in machine-rolled cigars that we mentioned earlier in the call. The write-down impacts gross profit in Europe Branded and the group. Finally, the fourth item.

Speaker #2: Secondly, as we also communicated in March, we decided to change and increase the amortization of trademark as a result of the new Focus 2030 strategy, with a stronger focus on our power brands.

Speaker #2: The increase in amortization has a negative impact on EBIT. The impact was DKK 38 million in the first half of the year. For the full year, we maintain the expectation that the positive impacts of duty drawback will be slightly higher than the negative impact from the change in amortizations, which is expected to be around DKK 75 million for the full year.

Speaker #2: Third item, we expensed approximately 35 million kroner in the second quarter for the write-down of obsolete products in relation to the quality issue in machine-made cigars, that we mentioned earlier in the call.

Speaker #2: The write-down impacts gross profit in brand, in Eurobranded, and in the group. Finally, the fourth item: the second quarter results were positively impacted by a refund of tariffs in the US, which more or less offset the write-down I just mentioned.

Marianne Rørslev Bock: The Q2 results were positively impacted by a refund of tariffs in US, which more or less offsets the write-down I just mentioned. The refund is primarily included in the gross profit in our North America Online and Retail business. Special items for the H1 amounted to negative DKK 135 million compared with negative DKK 105 million in the same period of last year. These costs primarily relate to the Focus 2030 reorganization and our global SAP implementation, and to a lesser extent, for the Mac Baren integration cost and for our new service delivery organization. We continue to expect the special cost in 2026 will total approximately DKK 275 million. Please turn one slide to slide number 13. Let me now share a few additional remarks about the three reporting divisions.

Speaker #2: The refund is primarily included in the gross profit in our online and retail business. Special items were negative DKK 135 million, compared with negative DKK 105 million in the same period last year.

Speaker #2: These costs primarily relate to the Focus 2030 reorganization and our global SAP implementation, and to a lesser extent, to the McLaren integration costs and our new service delivery organization.

Speaker #2: We continue to expect that special costs in 2026 will total approximately $275 million. Now, please turn one slide forward to slide number 13. Let me now share a few additional remarks about the three reporting divisions.

Speaker #2: For the first six months, reported net sales growth was positive in North America Branded and Rest of the World, and negative in the two other commercial divisions.

Marianne Rørslev Bock: For the first 6 months, reported net sales growth was positive in North America Branded and RoW, and negative in the two other commercial divisions. In the Q2, Europe Branded was the only division to report negative growth. Measured by organic growth, excluding the negative impact from the weaker US dollar, both North America Online and Retail and North America Branded and RoW delivered positive growth in the first 6 months and for the Q2. This reflects the slightly improved market for handmade cigars, as well as market share gains in both the branded business and in the retail distribution channel.

Speaker #2: In the second quarter, Euro Branded was the only division to report negative growth. Measured by organic growth, excluding the negative impact from the weaker US dollar, both North America Online and Retail, and North America Branded Rest of the World, delivered positive growth in the first six months and for the second quarter.

Speaker #2: This reflects the slightly improved market for handmade cigars, as well as market share gains in both the branded business and the retail distribution channel.

Marianne Rørslev Bock: For Europe Branded, organic net sales continued to decline, reflecting a total market decline of about 4% in our key European markets, market share losses as a result of the quality issue impacting our position in France, and the continued streamlining of our nicotine pouch portfolio. Margins in Europe Branded declined in the Q2 compared with last year. Lower production volumes had a negative impact on both the gross profit and the EBITDA, while the write-down of obsolete products impact the margin negatively by about 2.5 percentage points for the H1 and about 4.5 percentage points for the Q2. Excluding the write-down, the gross margin before special items improved in the H1 and was unchanged in the Q2.

Speaker #2: For Euro Branded, organic net sales continued to decline, reflecting a total market decline of about 4% in our key European markets, market share losses as a result of the quality issue impacting our position in France, and the continued streamlining of our nicotine pouch portfolio. Margins in Euro Branded declined in the second quarter compared with last year.

Speaker #2: Lower production volumes had a negative impact on both the gross profit and the EBITDA, while the write-down of obsolete products impacted the margin negatively by about 2.5 percentage points for the half year and about 4.5 percentage points for the second quarter.

Speaker #2: Excluding the write-down, the gross margin before special items improved in the first half-year and was unchanged in the second quarter. Although the second-quarter margin for North America online and retail is positively impacted by the tariff refunds, it is encouraging to see the underlying margin has turned around and is now improving.

Marianne Rørslev Bock: Although the Q2 margin for North America Online and Retail is positively impacted by the tariff refunds, it is encouraging to see the underlying margin has turned around and is now improving. This reflects the initial result of execution of our commercial strategy with stronger focus on our power brands, as well as positive impact of the organic net sales growth. With this, I will now hand the presentation back to Niels. Please turn two slides to slide number 15.

Speaker #2: This reflects the initial results of the execution of our commercial strategy, with a stronger focus on our power brand, as well as the positive impact of the organic net sales growth.

Speaker #2: With this, I'll now hand the presentation back to Niels. Please advance two slides to slide number 15.

Speaker #1: Thank you, Marianne. Overall, our expectations for 2026 remain unchanged compared with the expectations we released in March and confirmed with our first quarter results in May.

Niels Frederiksen: Thank you, Marianne. Overall, our expectations for 2026 remain unchanged compared with the expectations we released in March and confirmed our Q1 results in May. As Marianne just mentioned, we do however expect a positive impact on the free cash flow when the divestment of our fine-cut brands has closed. For the rest of the year, we continue to expect overall consumer and market trends to remain broadly in line with recent years across most of our product categories. Having said that, year-to-date developments including July suggest a slightly improved market for handmade cigars in the US compared to our full year expectation of a total market decline of up to 4%. The market for machine-rolled cigars in Europe is trending a little lower than expected for the full year at a 3% volume decline.

Speaker #1: As Marianne just mentioned, we do, however, expect a positive impact on free cash flow when the divestment of our fine-cut brands has closed.

Speaker #1: For the rest of the year, we continue to expect overall consumer and market trends to remain broadly in line with recent years across sorry, with recent years across most of our product categories.

Speaker #1: Having said that, year-to-date developments, including July, suggest a slightly improved market for handmade cigars in the US compared to our full-year expectation of a total market decline of up to 4%.

Speaker #1: The market for machine-made cigars in Europe is trending a little lower than expected for the full year, at a 3% volume decline. Overall, these represent minor variations which might change during the remaining five months of 2026.

Niels Frederiksen: Overall, these represent minor variations which might change during the remaining five months of 2026. For 2026, we maintain the expectation of group net sales growth at constant currencies to be in the range of -2% to +2%, with increasing market shares for handmade cigars and growth for our nicotine pouch business offsetting a net sales decline in machine-rolled cigars. For the year, we expect the EBIT margin before special items to be in the range of 13% to 14.5%, compared with 14.9% in 2025. The expectation reflects that we will continue investing in the execution of our Focus 2030 strategy, and the EBIT margin is expected to decrease in the H2 of the year compared to the same period of 2025, partly reflecting the continued investments in our business and partly reflecting relatively strong margins in the H2 of 2025.

Speaker #1: For 2026, we maintain the expectation of group net sales growth at constant currencies to be in the range of minus 2% to plus 2%, with increasing market shares for handmade cigars and growth for our nicotine pouch business offsetting a net sales decline in machine-rolled cigars.

Speaker #1: For the year, we expect the EBIT margin before special items to be in the range of 13% to 14.5%, compared with 14.9% in 2025.

Speaker #1: The expectation reflects that we will continue investing in the execution of our Focus 2030 strategy, and the EBIT margin is expected to decrease in the second half of the year compared to the same period of 2025, partly reflecting the continued investments in our business and partly reflecting relatively strong margins in the second half of 2025.

Speaker #1: For 2026, the free cash flow before acquisitions is still expected in the range of 950 million to 1.2 billion, though with the caveat of the potential positive impact from the transfer of inventories with the divestment of Breakthrough Moral Closes.

Niels Frederiksen: For 2026, the free cash flow before acquisitions is still expected in the range of DKK 950 million to DKK 1.2 billion, though with the caveat of the potential positive impact from the transfer of inventories with the divestment of Break and Moro closes. Finally, we maintain our expectation that the leverage ratio will move towards our target ratio of 2.5x by the end of the year. Again, before any effects from the divestment of the fine-cut brands. This concludes our prepared presentation for today's webcast, and I will hand the word back to the operator, and we are ready to take any questions that you may have. Thank you for listening.

Speaker #1: Finally, we maintain our expectation that the leverage ratio will move towards our target ratio of 2.5 times by the end of the year, again before any effects from the divestment of the fine cut brands.

Speaker #1: This concludes our prepared presentation for today's webcast. I'll hand the word back to the operator, and we're ready to take any questions that you may have.

Speaker #1: Thank you for listening.

Speaker #3: Thank you. As a reminder, to ask a question, please press *11 on your telephone and wait for your name to be announced. To queue for your question, please press *1 and 1 again.

Operator: Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. We will now take our first question from the line of Niklas Ekman from DNB Carnegie. Please go ahead.

Speaker #3: We will now take our first question. From the line of Niklas Ekman from DNB Carnegie, please go ahead.

Speaker #4: Thank you. Yes, a couple of questions for Marianne. Firstly, if we start with Europe Branded, you've obviously here seen a fairly long period of decline in sales and market share decline.

Niklas Ekman: Thank you. Yes, a couple of questions from my end. Firstly, if we start with Europe Branded, you have obviously here seen a fairly long period of decline in sales and then market share decline. Of course, here in Q2, there were a couple of specific issues in France. Can you talk a little bit about the underlying trend and what efforts are done and what you are seeing in terms of underlying performance, in terms of migration to lower priced alternatives, et cetera?

Speaker #4: And of course, here in Q2, there were a couple of specific issues in France. But can you talk a little bit about the underlying trend, and what efforts are being made, and what you're seeing in terms of underlying performance—in terms of migration to lower-priced alternatives, et cetera?

Niels Frederiksen: Yes. Thank you, Andreas. It is true that Europe Branded has been challenged, especially on machine rolled cigars for a long period, but it is also the division that carries most of our nicotine pouch business. Again, this is what we have said before, our job now is to stabilize that development, and I think it is fair to say that the exceptionally rare quality issue was a disruption to that work we have been doing, but it is still our clear objective to stabilize that business also in Europe, and then to start to see the benefits of a growing nicotine pouch business. If you think about the, let us call it, the migration issues or the fact that consumers are poly-using many categories, we are not seeing that as a major impact to our machine rolled cigar category.

Speaker #1: Yes, thank you, Andreas. It is true that Eurobranded has been challenged, especially on machine-made cigars, for a long period, but it's also the division that carries most of our nicotine pouch business.

Speaker #1: So again, this is what we've said before. Our job now is to stabilize that development, and I think it's fair to say that the exceptionally rare quality issue was a disruption to the work we've been doing.

Speaker #1: But it is still our clear objective to stabilize that business also in Europe, and then to start to see the benefits of a growing nicotine pouch business.

Speaker #1: If you think about the—let's call it the migration issues, or the fact that consumers are fully using many categories—we are not seeing that as a major impact to our machine-rolled cigar category.

Speaker #1: I think it's fair to say that we do not see a clear correlation between the two, and we still need more data. I can also say that one of the reasons why we decided to divest the two brands, Break and Moral, is that there is more risk in that category when it comes to excise alignment between various tobacco categories.

Niels Frederiksen: I think it is fair to say that we do not see a clear correlation between the two, and we still need more data. I can also say that one of the reasons why we decided to divest the two brands of Break and Moro is that there is more risk on that category when it comes to excise alignment between various tobacco categories. Also, we are more concerned about potential migration to cheaper alternatives such as vape, when you have a product category like that, which is really driven by economy.

Speaker #1: And also, we are more concerned about potential migration to cheaper alternatives, such as vape. When you have a product category like that, which is really driven by economy.

Speaker #4: Excellent. And on that topic, if you look at the last few years, have those two brands—have they been creative, or have they been a burden to your organic sales and earnings development?

Niklas Ekman: Excellent. On that topic, if you look in the last few years, those two brands, have they been accretive or have they been a burden to your organic sales and earnings development?

Marianne Rørslev Bock: They have been accretive. They have been growing. The Moro is a very small brand that we acquired with Mac Baren. In principle, it is Break brand that is the one that has given us with net revenue, and that has been increasing in the past few years.

Speaker #2: There has been a creative; there have been growing. The Break de Moral is a very, very small brand that we acquired with MacLaren. So, in principle, it is Break brand that is the one that has given us net revenue.

Speaker #2: And that has been increasing in the past few years.

Speaker #4: Okay, and continuing on that topic, you're talking about the antitrust approval. Are there any big risks here? I mean, there's always uncertainty, but does Japan Tobacco have a significant overlap here?

Niklas Ekman: Okay, and continuing on that topic, you are talking about the antitrust approval. Are there any big risks here? There is always uncertainty, but does Japan Tobacco have a significant overlap here, suggesting that this might take time or that they might require concessions, or is it a fairly straightforward process?

Speaker #4: Are you suggesting that this might take time, or that it might require concessions? Or is it a fairly straightforward process?

Speaker #2: So, we still expect closing within this calendar year, and we do not estimate that there is significant risk of not getting the antitrust approval.

Marianne Rørslev Bock: We still expect closing within this calendar year, and we do not estimate that there are significant risk of not getting the antitrust approval.

Speaker #4: Okay. Excellent. And can you say anything about use of proceeds here? I assume that this could enable you, once your net debt is back well below 2.5 times, to resume buybacks.

Niklas Ekman: Okay. Excellent. Can you say anything about use of proceeds here? I assume that this could enable you, once your net debt is back well below 2.5x, that could enable resume buybacks. Do you think this could happen already in 2026 or more like in 2027 in that case?

Speaker #4: Do you think this could happen already in '26, or is it more likely in '27 in that case?

Speaker #2: So, with this sale, we are getting back to a more comfortable leverage level where we would like to operate. As we also said in the presentation, we would likely be below the target of 2.5 times.

Marianne Rørslev Bock: So, with this sale, we are getting back to a more comfortable leverage level, where we would like to operate. As we also said in the presentation, we will likely be below the target of 2.5 times. It is too early for us to say anything about capital allocation and resuming share buybacks. We want to close the deal here, and then we will look into our strategic initiatives and what is needed of investments, and of course, also in that discussion, taking into account any capital allocation considerations. But too early to say for now, Niklas.

Speaker #2: It's too early for us to say anything about capital allocation and resuming share buybacks. We want to close the deal here, and then we will look into our strategic initiatives and what is needed in terms of investments.

Speaker #2: And of course, also in that discussion, taking into account any capital allocation considerations. But too early to say for now, Niklas.

Speaker #4: Okay, fair enough. And just a quick addition here—on the streamlining of ACE and GRIT, this started in Q4 of last year, right?

Niklas Ekman: Okay. Fair enough. Just a quick additional here, one on the streamlining here of ACE and GRITT. This started in Q4 of last year, right? So this is something that will continue to hamper sales in Q3 and partly in Q4. Is that correct?

Speaker #4: So, this is something that will continue to hamper sales in Q3 and partly in Q4. Is that correct?

Speaker #1: Yeah, you can see we have already progressed quite far in streamlining the portfolio, and we are balancing—let's say—continuing with ACE and GRIT where it makes sense from a market perspective. But all our efforts, all our focus, go into making XQS our lead brand.

Niels Frederiksen: Yeah, you can see we are already progressed quite far in streamlining the portfolio. We are balancing, let us say, continuing with ACE and GRITT, where it makes sense from a market perspective, but all our efforts, all our focus go into making XQS our lead brand.

Speaker #3: Thank you. We will now take our next question, from the line of Damien Magnella at Deutsche Bank. Please go ahead.

Operator: Thank you. We will now take our next question. From the line of Damien McPhillips from Deutsche Bank. Please go ahead.

Speaker #5: Thank you. Good morning, everybody. A few questions from me, please. Can we just start with the European quality issue? Can you provide a few more specifics about exactly what happened, please?

Damien McPhillips: Thank you. Morning, everybody. A few questions from me, please. Can we just start on the European quality issue? Can you just provide a few more specifics about exactly what happened, please? Then the timing, when it happened in the quarter, and how much of Q3 will be impacted. I am just interested in how Signature's market share was performing before the impact as well. That is a longer first question from me. Thanks.

Damian McNeela: Thank you. Morning, everybody. A few questions from me, please. Can we just start on the European quality issue? Can you just provide a few more specifics about exactly what happened, please? Then the timing, when it happened in the quarter, and how much of Q3 will be impacted. I am just interested in how Signature's market share was performing before the impact as well. That is a longer first question from me. Thanks.

Speaker #5: And then the timing—when did it happen in the quarter, and how much of Q3 will be impacted? I'm also interested in how Signature's market share was performing before the impact as well.

Speaker #5: So, that's a long first question for me. Thanks.

Speaker #1: So, as I mentioned, this is an exceptionally rare quality issue. And I've been in the business for more than 25 years—we've never encountered something similar. The short version of it is that the burning qualities of the tobacco were not good enough.

Niels Frederiksen: As I mentioned, this is an exceptionally rare quality issue. I have been in the business for more than 25 years. We have never encountered something similar. The short version of it is that the burning qualities of the tobacco was not good enough. We only realized that when we started to get consumer complaints in the latter part of April. Immediately as we got those consumer complaints, we dived in to understand the problems and quickly decided to take the product out of the market. Let us say ramp up our supply chain for replacement. If you think about the timing of this, it was taken out of the market in the course of May. In June, we started, let us say, refilling the pipeline, but we cannot refill the pipeline, let us say from one day to the other.

Speaker #1: And we only realized that when we started to get consumer complaints in the later part of April, and immediately, as we got those consumer complaints, we dived in to understand the problems and quickly decided to take the product out of the market and, let's say, ramp up our supply chain for replacement.

Speaker #1: So if you think about the timing of this, it was taken out of the market in the course of May. And we are in June. We started, let's say, refilling the pipeline, but we cannot refill the pipeline, let's say, from one day to the other.

Speaker #1: So it will affect the Q3 market shares, and it is already affecting the Q2 market shares, simply because we don't have the product available in the market and we now have to refill it and open it up again.

Niels Frederiksen: It will affect the Q3 market shares. It is already affecting the Q2 market shares simply because we do not have the product available in the market. We now had to refill it and open it up again. What we see is that in the course of Q3, we will be back to normal inventory levels in the trade. We will also see a negative market share impact in the third quarter, but we believe we have done the right by responding quickly to the consumer incident, bringing the product back and replacing it with good product.

Speaker #1: So what we see is that in the course of Q3, we will be back to normal inventory levels in the trade. And we'll also see a negative market share impact in the third quarter.

Speaker #1: But we believe we've done the right thing by responding quickly to the consumer incident, bringing the product back, and replacing it with good product. What we don't understand today—and which we will know more about when we close the third quarter—is what is the net impact to consumers, in terms of either returning to smoke the brand, which has been a successful brand for us, or will they stay with what they potentially smoked in the in-between.

Niels Frederiksen: What we do not understand today, and which we will know more about when we close the third quarter, is what is the net impact to consumers in terms of are they returning to smoke the brand, which has been a successful brand for us, or will they stay with what they have potentially smoked in the in between?

Speaker #5: Yeah, okay. And just so I understand this: the issue around the burning of the tobacco, is that something inherent to how the leaf grew?

Damien McPhillips: Yeah. Okay. Just so I understand this, the issue around the burning of the tobacco, is that something inherently about how the leaf grew, or is it something to do with the processing?

Damian McNeela: Yeah. Okay. Just so I understand this, the issue around the burning of the tobacco, is that something inherently about how the leaf grew, or is it something to do with the processing?

Speaker #5: Or is it something to do with the processing?

Speaker #1: Oh, it is most likely happening in the process of growing. That's the analysis that we have done and concluded. And even though you can say we have multiple tests along the way of buying tobacco or receiving tobacco and whatever, this is, again, a very rare composition in the tobacco leaf that the tests we have had so far did not uncover.

Niels Frederiksen: It is most likely happened in the process of growing. That is the analysis that we have done and concluded. Even though you can say we have multiple tests along the way of buying tobacco, receiving tobacco, and whatever, this is again, a very rare composition in the tobacco leaf that the test that we have had so far did not uncover. We have now put in new procedures that should avoid a similar issue happening. As I said, this is really a rare problem. Of course, very unfortunate for us for it to happen in a category that is already struggling.

Speaker #1: We have now implemented new procedures that should prevent a similar issue from happening. As I said, this is really a rare problem, and of course, it is very unfortunate for us that it occurred in a category that is already struggling.

Speaker #5: Yeah, no, that's very clear. Thank you, Niels. Second question is on US cigars. We've seen some good organic growth there. I was just wondering to what extent the growth is being driven by improved end market conditions, or whether we are seeing the benefits of an increased focus on key brands within those two business channels.

Damien McPhillips: Yeah. No, that is very clear. Thank you, Niels. Second question is on US cigars. We are seeing some good organic growth there. I was just wondering to what extent the growth is being driven by improved end market conditions or whether we are seeing the benefits of an increased focus on key brands within those two business channels.

Damian McNeela: Yeah. No, that is very clear. Thank you, Niels. Second question is on US cigars. We are seeing some good organic growth there. I was just wondering to what extent the growth is being driven by improved end market conditions or whether we are seeing the benefits of an increased focus on key brands within those two business channels.

Speaker #1: Yeah. I think one of the things we debated last year on the U.S. handmade cigar market was that we saw people responding with downtrading because prices were going up due to tariffs and other factors.

Niels Frederiksen: Yeah. I think one of the things we debated last year on the US handmade cigar market was that we saw people responding with downtrading because prices were going up because of tariffs and other things. When we looked at the innovation pipeline that we created in the, let us say in the H2 of last year for launch this year, we have been more occupied with bringing more value-oriented offers to consumers, and that has been quite successful for us. That has driven quite a bit of the growth in the H1, but this is also what is putting margins a little under pressure. We still think that it is right to, let us say, be where the consumer is and then subsequently work with price increases to get the price of these products back up when we see market improvement.

Speaker #1: And when we looked at the innovation pipeline that we created in, let's say, the second half of last year for launch this year, we have been more occupied with bringing more value-oriented offers to consumers.

Speaker #1: And that has been quite successful for us. That has driven quite a bit of the growth in the first half, but this is also what is putting margins a little under pressure.

Speaker #1: But we still think that it's right to, let's say, be where the consumer is, and then subsequently work with price increases to get the price of these products back up when we see market improvement.

Speaker #5: Yeah, okay. And so, you haven't seen an improvement in the end market, it's just that you've got a better, more attractive offer to the consumers.

Damien McPhillips: Yeah. Okay. You haven't seen an improvement in the end market, it's just that you've just got a better, more attractive offer to the consumers?

Damian McNeela: Yeah. Okay. You haven't seen an improvement in the end market, it's just that you've just got a better, more attractive offer to the consumers?

Speaker #1: We've seen an improvement in the sense that the total market decline is less than what we anticipated, and that is, of course, also helping.

Niels Frederiksen: We've seen an improvement in the sense that we see the total market decline being less than what we anticipated. That is, of course, also helping. When you look at the growth, it is driven by a combination of us having a stronger market, a stronger portfolio, and we also estimate that we've gained market share in the first 6 months of the year. Then of course, also helped by the pricing.

Speaker #1: But when you look at the growth, it is driven by a combination of us having a stronger market, a stronger portfolio, and we also estimate that we've gained market share in the first six months of the year.

Speaker #1: And then, of course, also helped by the pricing.

Speaker #5: Yeah, okay. Thank you. And then perhaps just one last one on XQS—can you give a little bit more insight into how successful the launch of Mint has been in Sweden?

Damien McPhillips: Yeah. Okay. Thank you. Then perhaps just one last one on XQS. Can you just give a little bit more insight into how successful the launch of Mint has been in Sweden and whether you're attracting new customers in, or is it people just buying XQS customers buying Mint alongside their flavor variants, if you've got that level of insight?

Damian McNeela: Yeah. Okay. Thank you. Then perhaps just one last one on XQS. Can you just give a little bit more insight into how successful the launch of Mint has been in Sweden and whether you're attracting new customers in, or is it people just buying XQS customers buying Mint alongside their flavor variants, if you've got that level of insight?

Speaker #5: And whether you're attracting new customers in, or is it sort of people—kind of just existing XQS customers—buying Mint alongside their flavor variants?

Speaker #5: If you've got that level of insight.

Niels Frederiksen: It's still a little early, Damien, but it is exactly the point that we are watching. As we talked about it before, execution Sweden has been very much, let's say, built around a strong flavored portfolio, and in the flavored portfolio, we are actually the leader, but it's the smaller segment of the market. Our launch into mint and menthol has been well accepted by this trade, both the regular trade and the online trade. It is an extremely tough battle because we are up against, especially Velo, who has a very strong hold in the menthol, but we are seeing small encouraging signs. Again, this is not something that is fixed in 3 or 6 months. It is a long haul, and there is strategic importance in this because being strong in flavored is good, and we are very happy about it.

Speaker #1: It's still a little early, Damian, but it is exactly the point that we are watching. As we talked about before, XQS in Sweden has been very much, let's say, built around a strong flavored portfolio, and in the flavored portfolio, we are actually the leader.

Speaker #1: But it's the smaller segment of the market, so our launch into Mint and Mint has been well accepted by the trade—both the regular trade and the online trade.

Speaker #1: It is an extremely tough battle, because we are up against especially Velo, who has a very strong hold in the mint. But we are seeing small, encouraging signs.

Speaker #1: But again, this is not something that is fixed in three or six months. It is a long haul. And there is strategic importance in this, because being strong in flavor is good.

Speaker #1: And we are very happy about it. But having a good position in Mint—and Mint is also important for long-term success.

Niels Frederiksen: Having a good position in mint and menthol is also important for long-term success.

Speaker #5: Yeah, okay. Thanks. I'll leave it there and let somebody else have a go.

Damien McPhillips: Yeah. Okay. Thanks. I will leave it there. Let somebody else have a go.

Damian McNeela: Yeah. Okay. Thanks. I will leave it there. Let somebody else have a go.

Speaker #1: Thank you, Damian.

Niels Frederiksen: Thank you, Damien.

Speaker #2: Thank you. There are no further questions on the phone. I would like to hand back over to Torben Sand for webcast questions.

Operator: Thank you. There are no further questions on the phone. I would like to hand back over to Torben Sand for webcast questions.

Speaker #3: Yes, thank you. We have one, and that's: How large an impact have duty refunds had? What would second-half EBIT have been without duty refunds?

Torben Sand: Yes, thank you. We have one, and that's how large an impact have duty refunds had? Or what would H2 EBIT have been without duty refunds? I assume that is what would H1 EBIT have been without duty refunds? Marianne?

Speaker #3: And I assume that is what first half EBIT would have been without duty refunds? Marianne?

Speaker #4: Yes. So, even though I already, in the prepared speaking notes, talked to the various items that give lower visibility to the P&L, let me just repeat that.

Marianne Rørslev Bock: Yes. Even though I already in the prepared speaking notes talked to the various items that give lower visibility to the P&L, let me just repeat that. In Europe Branded, we have a provision for our bad quality of cigars of DKK 35 million that impacts gross profit, EBIT, and EBITDA, both in Europe Branded and Group. Then we have two types of duties. Duty drawback, that is a well-known program in the US, where if you import certain products to US, you pay duties and taxes. But then again, if you export products on the same tax code, you can have a refund of those duties and taxes paid. That is what we call duty drawback refunds. Those you can always see in other income.

Speaker #4: So in your Branded segment, we have a provision for our bad quality cigars of DKK 35 million that impacts gross profit, EBIT, and EBITDA in both your Branded segment and at the Group level.

Speaker #4: Then we have two types of duties. We have duty drawback, which is a well-known program in the US where, if you import certain products into the US, you pay duties and taxes.

Speaker #4: But then again, if you export products under the same tax codes, you can receive a refund of those duties and taxes paid. That is what we call duty drawback refunds.

Speaker #4: Those can always be seen in other income. For the half year, that is 79 million, and for the second quarter, it is around 50 million.

Marianne Rørslev Bock: For the half year, that is DKK 79 million, and for the Q2, it is around DKK 50 million as an income. Then we have tariff refunds. Must remember that back in February, U.S. Supreme Court in US abolished the tariff regime that the administration had implemented, and companies could reclaim those tariffs. We have reclaimed, and we have taken an income that primarily impacts our North America Online and Retail business of around 30 to 35 million, so more or less equal to the provision of the quality. When we talk EBIT, then our duty refunds for the half year impacts around DKK 50 million and our tariff refunds impacts around DKK 33 million.

Speaker #4: As an income. Then we have tariff refunds. Most remember that back in February, the Supreme Court in the US abolished the tariff regime that the administration had implemented, and companies could reclaim those tariffs.

Speaker #4: We have reclaimed, and we have taken an income that primarily impacts our online retail business of around $30 to $35 million—so, more or less, equal to the provision of the quality.

Speaker #4: So when we talk EBIT, then our duty refunds for the half year impact around $50 million, and our tariff refund impacts around $33 million.

Speaker #3: Okay, thank you, Marianne. And then we have another one, and that's a longer question. I'll break it up. And for Niels, regarding the divestment of Break and Break & Borrow, first of all, does the divestment include cigarillos manufactured under the Break brand?

Torben Sand: Okay. Thank you, Marianne. Then we have another one, and that's a longer question. I'll break it up. For Niels, regarding the divestment of Break and Moro. First of all, does the divestment include cigarillos manufactured under the Break brand?

Speaker #1: And the short answer to that is no. We will continue to sell Break cigarillos in Germany.

Niels Frederiksen: The short answer to that is no. We will continue to sell Break cigarillos in Germany.

Speaker #3: And then, second, the one asking here is having some trouble wrapping his head around the justification given for the divestment as being in line with the strategy.

Torben Sand: Second, the one asking here is having some trouble wrapping his head around the justification given for the divestment as being in line with the strategy. Just a few years ago, our company acquired small pipe tobacco and rolling tobacco brands with Mac Baren, and now 3 years later, we have decided to divest the brands in the similar categories. This makes it seem a lot like an opportunistic divestment driven by the need to delever the balance sheet and not necessarily something that would have been done under different circumstances. Maybe first a question or an answer to that.

Speaker #3: Because just a few years ago, our company acquired small pipe tobacco and rolling tobacco brands with McLaren. And now, three years later, we have decided to divest the brands in similar categories.

Speaker #3: So, this makes it seem a lot like an opportunistic divestment driven by the need to deleverage the balance sheet, and not necessarily something that would have been done under different circumstances.

Speaker #3: So maybe first, a question or an answer to that.

Speaker #1: That's a good question. I think, as we already explained during our Capital Markets Day in November, we will, going forward, be looking at potentially divesting less core businesses.

Niels Frederiksen: It is a good question, and I think already when we had our Capital Markets Day in November, we explained that we would, going forward, be looking at potentially divesting less core businesses so that we could take the proceeds from that and invest into our core business of cigars and nicotine pouches. During that process, you can say that the potential divestment of Break and Moro became an option. It has also become an option that we could see that there were buyers in the market willing to pay a very high price, and therefore this has been a good transaction for us in order to free money up that we can subsequently use to invest in our core business and in our strategy.

Speaker #1: So that we could take the proceeds from that and invest into our core business of cigars and nicotine pouches. So during that process, you could say that the potential divestment of Break and Borrow became an option.

Speaker #1: It has also become an option, and we could see that there were buyers in the market willing to pay a very high price. Therefore, this has been a good transaction for us in order to free up money that we can subsequently use for investments in our core business and in our strategy.

Speaker #1: That does not mean that we are not very pleased with the pipe tobacco business we retain already, and also with the fine card business.

Niels Frederiksen: It does not mean that we are not very pleased with the pipe tobacco business we retain already and also with the fine cut business. These are important and profitable business for us, but this is not where we see the growth, and this is not where we will see the investments going forward. Mac Baren in itself was an important transaction because it was at an affordable price with good synergies, and we could consolidate especially our pipe tobacco footprint to being by far the largest pipe tobacco company in the world.

Speaker #1: These are important and, let's say, profitable businesses for us. But this is not where we see the growth, and this is not where we will see the investments going forward.

Speaker #1: McLaren in itself was an important transaction because it was at an affordable price with good synergies, and we could consolidate, especially our pipe tobacco footprint, to being by far the largest pipe tobacco company in the world.

Speaker #3: Okay, thank you, Nils. And then we have a question on machine-rolled cigars in Europe. Clearly, affordability is a major issue for tobacco consumers in many highly regulated markets in Western Europe.

Torben Sand: Okay. Thank you, Niels. We have a question on machine-rolled cigars in Europe. Clearly, affordability is a major issue for tobacco consumers in many highly regulated markets in Western Europe. Cigars appear to benefit from the price gap with cigarettes in a number of markets, such as the UK. Anecdotally, I am seeing more cigarillos being smoked on the street. How is Scandinavian Tobacco Group positioning itself to benefit from that opportunity?

Speaker #3: So, cigars appear to benefit from the price gap with cigarettes in a number of markets, such as the UK. Anecdotally, I am seeing more cigarillos being smoked on the street.

Speaker #3: So, how is Scandinavian Tobacco Group positioning itself to benefit from that opportunity?

Speaker #1: Yes. So you could say, if we take the UK as a concrete example, then the situation in the UK, where you see more cigarillos being smoked, is also driven by the fact that there has emerged a segment of menthol-flavored small cigars after menthol cigarettes were banned.

Niels Frederiksen: Yeah. You can say if we take the UK as a concrete example, the situation in the UK where you see more cigarillos being smoked is also driven by the fact that there has emerged a segment of menthol flavored small cigars after the cigarettes with menthol was banned. That is the main reason why you may see more smokers smoking cigarillos. The traditional market for machine-rolled cigars in the UK is declining, as we see it in many other places. Of course, affordability is also an issue for that particular category in the UK.

Speaker #1: So, that is the main reason why you may see more smokers choosing cigarillos. The traditional market for machine-rolled cigars in the UK is declining, as we are seeing in many other places.

Speaker #1: And, of course, affordability is also an issue for that particular category in the UK.

Torben Sand: Okay. Thank you, Niels. I think we will take one more, and that's a follow-up on the Break and Moro discussion. It's basically did Scandinavian Tobacco Group initiate the sale of the two brands or was the company approached?

Speaker #3: Okay. Thank you, Niels. And I think we'll take one more message, a follow-up on the break and borrow discussion. So, basically, did Scandinavian Tobacco Group initiate the sale of the two brands, or was the company approached?

Speaker #4: Let me answer that question. We have ongoing dialogue with various players in the market, so it's difficult to say who was actually initiating.

Marianne Rørslev Bock: Let me answer that question. We have ongoing dialogue with various players in the market. It's difficult to say who was actually initiating. We have these ongoing dialogues, and when having a dialogue with Japan Tobacco, this came on the radar and was developed into, for us, a very good transaction.

Speaker #4: We have these ongoing dialogues. And when having a dialogue with Japan Tobacco, this came on the radar and was developed into, for us, a very good transaction.

Speaker #3: Okay, thank you, Marianne. And that basically leaves us with questions from the webcast. I'll send it back to the operator.

Torben Sand: Okay. Thank you, Marianne. That basically leaves it with questions from the webcast. I will turn back to the operator.

Speaker #5: Thank you. There are no further questions on the telephone at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Thank you. There are no further questions from the telephone at this time. This concludes today's conference call. Thank you for participating. You may now disconnect.