STBGY (STBGY) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Q2 Results 2026 Conference Call. [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. Please go ahead.

Thank you. Good morning to everyone on the call, and thank you for joining us today. My name is 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 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 #3. 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, Focus2030. And Marianne will then take you through the half year financial results for the group and our 3 commercial divisions. I will then hand it back to Niels, who will provide some additional insights to 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. Now let's begin. Please turn to Slide #5, and I will leave the word to Niels.

Thank you, Torben, and welcome to the call. Today, we are reporting on the results for the first half of the year. And whilst we're still in the initial phase of our Focus2030 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 Focus2030 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. We're taking small steps in the right direction, and I'm 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 6 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 2 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. And in July, we agreed to divest 2 of our fine-cut brands, BREAK and Moro, to Japan Tobacco in a transaction, which, at completion, will strengthen our strategic and financial flexibility. Now, based on the financial performance in the first 6 months and in the early part of the third quarter, we remain on track to deliver on our full year 2026 expectations. Now please turn to Slide #6, where Marianne will talk about the financial highlights of the quarter.

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 6 months and the second quarter. 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 the second quarter, 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 divisions. Dividend 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. The improvement was primarily driven by a higher income from duty drawback refunds. Excluding the impact from duty drawbacks, the EBITDA 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 the second quarter. As previously communicated and as a result of our power brand strategy, we increased the amortization of trademark from the beginning of this year. For the first half of 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 amortization 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. For the second quarter, the free cash flow was DKK 264 million. The collection of receivables referred to in the full year 2025 report and the first quarter announcement in May has been recovered. 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 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 second half of the year. 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 #7. On the 22nd July, we announced the signing of an agreement with Japan Tobacco to divest 2 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 costs for approximately 6% of EBITDA. The divestment supports our strategic agenda and strengthen our strategic and financial flexibility. The transaction value is EUR 176 million, equal to DKK 1.3 billion. 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 anti-trust approvals. An important element to the agreement is the 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 date of closing. This production agreement gives us valuable time to assess how best to optimize the manufacturing network and our efficiency at our 2 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. 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 divestment. Now please turn 2 slides to Slide #9, and I will leave the word back to Niels.

Thank you, Marianne. And let me start by updating you on the solid progress we are making with Focus2030. 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. And 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 1 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 miniature cigar product, which impacted the business primarily in France. The gross margin for the category has improved by almost 1 percentage point, and we stabilized our volume market shares in 5 of 7 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 the third quarter, although our market share performance in primarily France will be impacted in the third quarter 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. Now secondly, our handmade cigars have continued to deliver solid mid-single-digit organic growth throughout the first 6 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 U.S. 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. We expect our nicotine pouch business to deliver a material contribution to our long-term net sales and profit development. During the first 6 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 the second quarter of 2026. We've added Mint and Menthol to our product portfolio in Sweden and the U.K., 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. Let me now give you more details about the development of our product categories. During the first half, machine-rolled cigars and smoking tobacco delivered a 4% negative 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 6 months and for the second quarter. Handmade cigars continued to deliver solid organic growth, driven by our branded business in the U.S. as well as our retail stores. 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. Nicotine pouches reversed the decrease from the first quarter by delivering 8% organic net sales growth in the second quarter. For the first 6 months growth -- sorry, for the first 6 months, growth remained negative at minus 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. So please turn 2 slides to Slide #12.

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 4 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 4 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 first half 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, Rest of World, and for the group. Secondly, as we also communicated in March, we decided to change and increase the amortization of trademark as a result of the new Focus2030 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 first half 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 second quarter 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. The second quarter results were positively impacted by a refund of tariffs in U.S., which more or less offset the write-down I just mentioned. The refund is primarily included in the gross profit in our online and retail business. Special items for the half year 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 Focus2030 reorganization and our global SAP implementation and, to a lesser extent, for the Mac Baren integration costs and for our new service delivery organization. We continue to expect the special costs in 2026 will total approximately DKK 275 million. Now please turn 1 slide to Slide #13. Let me now share a few additional remarks about the 3 reporting divisions. For the first 6 months, reported net sales growth was positive in North America Branded & Rest of World and negative in the 2 other commercial divisions. In the second quarter, Europe Branded was the only division to report negative growth. Measured by organic growth, excluding the negative impact from the weaker U.S. dollar, both North America Online & Retail and North America Branded & Rest of World delivered positive growth in the first 6 months and for the second quarter. 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. 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 second quarter 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 impacted the margin negatively by about 2.5 percentage points for the half year and about 4.5 percentage points for the second quarter. 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 & 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 results 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'll now hand the presentation back to Niels. Please turn 2 slides to Slide #15.

Thank you, Marianne. Overall, our expectations for 2026 remain unchanged compared with the expectations we released in March and confirmed our first quarter 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 -- sorry, 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 U.S. 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. Overall, these represent minor variations, which might change during the remaining 5 months of 2026. 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. For the year, we expect the EBIT margin before special items to be in the range of 13% to 14.5% compared with a 14.9% in 2025. The expectation reflects that we will continue investing in the execution of our Focus2030 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. 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 a 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'll hand the word back to the operator, and we are ready to take any questions that you may have. Thank you for listening.

[Operator Instructions] We will now take our first question from the line of Niklas Ekman from DNB Carnegie.

Yes, a couple of questions from my end. Firstly, if we start with Europe Branded, you've obviously seen a fairly long period of decline in sales and market share decline. 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 done and what you're seeing in terms of underlying performance in terms of migration to lower-priced alternatives, et cetera?

Thank you, Niklas Ekman. It is true that Europe Branded has been challenged, especially on machine-rolled cigars for a long period, but it's also the division that carries most of our nicotine pouch business. So again, this is what we have 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 that work we've 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'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. I think it's fair to say that we do not see a clear correlation between the 2, and we still need more data. I can also say that one of the reasons why we decided to divest the 2 brands of BREAK and Moro is that there is more risk on that category when it comes to excise alignment between various tobacco categories. 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.

Excellent. And on that topic, if you look in the last few years, has those 2 brands, have they been accretive or have they been a burden to your organic sales and earnings development?

They have been accretive. So they have been growing. The BREAK -- the Moro is a very, very small brand that we acquired with Mac Baren. So in principle, it is a BREAK brand that is the one that has given us with net revenue, and that has been increasing in the past few years.

Okay. And continuing on that topic, you're talking about the anti-trust approval. Are there any big risks here? I mean there's 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?

So it's -- we still expect closing within this calendar year, and we do not estimate that there are significant risks of not getting the anti-trust approval.

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 2.5x, that could enable resumed buybacks. Do you think this could happen already in '26 or more likely in '27 in that case?

So with this sale, we are getting back to a more comfortable leverage level where we would like to operate. So as we also said in the presentation, we will likely be below the target of 2.5x. 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 of investments. And of course, also in that discussion, taking into account any capital allocation considerations. But too early to say for now, Niklas.

Okay. Fair enough. And 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?

Yes. You can see we are already progressed quite far in streamlining the portfolio. And we are balancing, let's 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.

We will now take our next question from the line of Damian McNeela from Deutsche Bank.

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? And then the timing, when it happened in the quarter and how much of Q3 will be impacted? And I was just sort of interested in how Signature's market share was performing before the impact as well. So that's a long first question for me.

So as I mentioned, this is an exceptionally rare quality issue. And I've 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. And we only realized that when we started to get consumer complaints in the latter 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. 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. So it will affect the Q3 market shares, and it is already affecting the Q2 market shares simply because we have -- we don't have the product available in the market, and we now have to refill it and open it up again. 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. But we believe we've done the right 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 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 between.

Yes. Okay. And 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?

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, receiving tobacco and whatever. But this is, again, a very rare composition in the tobacco leaf that the test that we've had so far did not uncover, and we've now put in new procedures that should avoid a similar issue happening. And as I said, this is really a rare problem and of course, very unfortunate for us for it to happen in a category that is already struggling.

Yes. No, that's very clear. And second question is on U.S. cigars. We're seeing some good organic growth there. I was just wondering to what extent the growth is being driven by sort of improved end market conditions or whether we are seeing the benefits of an increased focus on key brands within those 2 business channels?

Yes. I think one of the things we debated last year on the U.S. handmade cigar market was that we saw people responding with down trading because prices were going up because of tariffs and other things. And when we looked at the innovation pipeline that we created in the, let's say, in the second half 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 first half, but this is also what is putting margins a little under pressure. 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.

Yes. Okay. And so 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.

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

Yes. Okay. And 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 sort of people kind of just buying XQS customers buying mint alongside their flavor variants, if you've got that level of insight.

It's still a little early, Damian, but it is exactly the point that we are watching. So as we've talked about it 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, but it's the smaller segment of the market. So our launch into Mint and Menthol has been well accepted by the 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. But 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, but having a good position in Mint and Menthol is also important for long-term success.

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

Yes. Thank you. And we have one, and that's how large an impact have duty refunds had would -- or what would second half EBIT have been without duty refunds? And I assume that is what would first half EBIT have been without duty refunds, Marianne?

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. So 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 2 types of duties. We are -- duty drawback that is a well-known program in the U.S., where if you import certain products to U.S., you pay duties and taxes. But then again, if you export products on the same tax codes, 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. And for the half year, that is DKK 79 million. And for the second quarter, it is around DKK 50 million as an income. Then we have tariff refunds. Most remember that back in February, Supreme Court in U.S. 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 online and retail business of around DKK 30 million to DKK 35 million, so more or less equal to the provision of the quality. So when we talk EBIT, then our duty refunds for the half year impacts around DKK 50 million and our tariff refund impacts around DKK 33 million.

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 Moro, first of all, does the divestment include cigarillos manufactured under the BREAK brand?

And the short answer to that is no. We will continue to sell BREAK cigarillos in Germany.

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 because 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. So this make it seems 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. So maybe first, a question or an answer to that.

So it's 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. So 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 investments in our core business and in our strategy. 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, let's say, 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.

Okay. Thank you, Niels. 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. So cigars appears to benefit from the price gap with cigarettes in a number of markets such as the U.K. Anecdotally, I am seeing more cigarillos being smoked on the street. So how is Scandinavian Tobacco Group positioning itself to benefit from that opportunity?

Yes. So you can say if we take the U.K. as a concrete example, then the situation in the U.K. 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. So that is the main reason why you may see more smokers smoking cigarillos. The traditional market for machine-rolled cigars in the U.K. is declining as we see it in many other places. And of course, affordability is also an issue for that particular category in the U.K.

Okay. Thank you, Niels. And I think we'll take one more, and that's a follow-up on the BREAK and Moro discussion. So it's basically did the Scandinavian Tobacco Group initiate the sale of the 2 brands or was the company approached?

So let me answer that question. So we have ongoing dialogue with various players in the market. So it's difficult to say who is actually initiating. We have these ongoing dialogues. And when having a dialogue with the Japan Tobacco, this came on the radar and was developed into, for us, a very good transaction.

Okay. Thank you, Marianne. And that basically leaves it with questions from the webcast, and I'll turn back to the operator.

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.