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Edited Transcript of STG.CO earnings conference call or presentation 27-Feb-20 9:00am GMT

Full Year 2019 Scandinavian Tobacco Group A/S Earnings Call

Soborg Mar 12, 2020 (Thomson StreetEvents) -- Edited Transcript of Scandinavian Tobacco Group A/S earnings conference call or presentation Thursday, February 27, 2020 at 9:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Marianne Rørslev Bock

Scandinavian Tobacco Group A/S - Executive VP & CFO

* Niels Frederiksen

Scandinavian Tobacco Group A/S - CEO, President & Member of Executive Board

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Conference Call Participants

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* Mathias Bjerrum Nielsen

Nordea Markets, Research Division - Analyst

* Niklas Ekman

Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the full year results 2019. (Operator Instructions) I must advise that we are recording your conference today, Thursday, the 27th of February 2020.

And I would like to hand the conference over to your speaker today, Niels Frederiksen. Please go ahead, sir.

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Niels Frederiksen, Scandinavian Tobacco Group A/S - CEO, President & Member of Executive Board [2]

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Yes. Thank you, and good morning, and welcome to Scandinavian Tobacco Group's Full Year 2019 Webcast and Conference Call. I am Niels Frederiksen. I'm the CEO of the company. And with me today, I have, as usual, our CFO, Marianne Rørslev Bock; and our Head of Investor Relations, Torben Sand.

So please turn to Page #2. The agenda for this conference call covers: the key highlights for the full year and the quarter; an update on key events, including the acquisition of Royal Agio Cigars, Fuelling the Growth and regulation; an update on the performance in our 4 divisions; key financial developments for the year and the quarter as well as proposals and decisions in regards of our shareholder return policy; an update on CSR, where we have taken steps to further enhance our efforts within this increasingly important area; and before we conclude the call with the guidance 2020 -- we will conclude the call with the guidance for 2020 and the usual Q&A session.

Before I start, I will also ask you to pay attention to our disclaimer on forward-looking statements. The complete disclaimer can be found in the appendix to the presentation.

Please turn to Slide #3. Let me start by presenting some of the key financial numbers and developments in 2019, which was another eventful and transformative year for Scandinavian Tobacco Group. First of all, we are able to present record-high organic EBITDA growth and free cash flow. With a 7.1% increase we delivered on our guidance for organic EBITDA growth before special items and with almost DKK 1.2 billion, we delivered the strongest free cash flow in the history of the company.

Secondly, our continued focus on optimizing our cost structure and improving efficiency across the group continues to pay off. Fuelling the Growth, the transformational program launched in 2018, delivered more than originally anticipated for the year. And combined with the additional cost initiatives, these efforts allowed us to deliver on our profit guidance despite weaker-than-expected development in net sales.

Thirdly, we took an important step in shaping the future of Scandinavian Tobacco Group by announcing the acquisition of Royal Agio Cigars, the biggest acquisition in recent history of the group, and this acquisition was closed on January 2, 2020.

In a moment, I'll provide you with more details on these highlights. But first, I would like to point out that while 2019 provided challenges in several markets, we were able to deliver historical good results and we've got good progress in our group strategy. All in all, we consider 2019 a satisfactory year for 2020. We are committed to delivering further organic EBITDA growth, presenting further progress on our strategic agenda and succeed with the integration of Royal Agio Cigars.

Please turn to Slide #4. Let me give you a few key financial highlights for both the full year and the fourth quarter of 2019. For 2019, organic growth in net sales was negative by 2.6%. As we discussed in relation to the third quarter announcement in November, this is disappointing and below our original expectations for the year. For the fourth quarter, organic growth in net sales was negative by 2.9%, an improvement compared to the weak quarter -- the weak third quarter of 4.5%. We see 2019 as an exemption to the long-term structural trend of the industry and expect to deliver flat to slightly increasing organic net sales over time and, consequently, at a normalization of the top line developing during 2020.

The fourth quarter was driven by basically flat organic net sales in our 2 North American divisions, a 1.8% negative growth in Region Machine-Made Cigars and a 9.6% negative organic growth in Region Smoking Tobacco & Accessories. In the division North America Branded, we experienced a recovery after a number of weak quarters. In Machine-Made Cigars, France performed very well, but the Netherlands impacted the division's overall performance negatively due to a temporary out-of-stock situation. And for Smoking Tobacco, net sales was negatively impacted by the divestment of sales companies in Slovenia and Croatia with Q4 2018 also providing a difficult comparison base.

Organic growth in EBITDA was positive by 7.1% for the full year and by 10.6% for the fourth quarter. In the fourth quarter, the division Machine-Made Cigars benefited from a onetime structural adjustment related to excise tax by approximately DKK 25 million. Excluding this, the full year organic growth would have been 5.2%, in line with our guidance for the year. The organic growth in EBITDA reflects improved operational performance and a strong progress in Fuelling the Growth.

Overall, we are satisfied to have met our guidance despite the weaker-than-expected development in net sales. From the charts, illustrating the rolling last 12 months' trends in organic growth in both net sales and EBITDA, it is clear how important our intensified focus on our cost structure has been to mitigate the weak net sales development.

Finally, the free cash flow before acquisitions was positive by DKK 1.187 billion for the full year after generating DKK 368 million in the fourth quarter. The cash flow generation in the fourth quarter was driven by the operational performance as well as a positive development in working capital.

Please turn to Slide #5. We will move on to an update on the Royal Agio Cigars acquisition. On January 2, we announced the completion of the acquisition of Royal Agio Cigars as the consultation process with the works councils have been finalized and after having received approvals from the relevant competition authorities. As previously communicated, we have, with local works councils, committed to an integration planning period of at least 3 months from the day of completion. And at this point, I cannot disclose further financial details than what we have already communicated. However, once the integration planning process is finalized, we will provide information on expected synergies and special costs.

But let me give you a few more details on Royal Agio Cigars. Combined, our group net sales will increase to about DKK 8 billion with almost 11,000 employees. Royal Agio is a leading European cigar company with production facilities in the Netherlands, Belgium, Sri Lanka and the Dominican Republic. The product portfolio and geographical presence is a strong supplement to our existing business. The brand portfolio is focused and centers around 2 key machine-made cigar brands called Mehari's and Panter, which account for about 2/3 of Royal Agio's total net sales. A third important brand with more than 5% of net sales is Balmoral, which is both a premium handmade and a premium machine-made cigar brand. The remaining net sales in Royal Agio cigars primarily cover other smaller brands as well as third-party contract manufacturing.

Key markets are France, Netherlands, Germany, Italy and Spain, and these markets account for about 3/4 of total net sales. Combined, our business will become the undisputed market leader in the Netherlands and in France, and our positions will also improve in other markets like Germany, Spain, Italy, Belgium, the U.K. and the U.S.

The transaction value is EUR 210 million. And as a result of the acquisition, our leverage ratio will temporarily increase to 2.3x, which remains below our target leverage ratio of 2.5x. As Royal Agio also generates solid cash flows, we expect to delever fast. Finally, in 2019, Royal Agio experienced a slight increase in net sales to EUR 137 million versus EUR 131 million in 2018.

With that, please turn to Slide #6. We continue to make good progress in our transformational program, Fuelling the Growth. The 5 key initiatives contribute to meeting the targets and goals of the program. As pointed out in relation to the third quarter announcement back in November, we have progressed faster than originally expected and have realized more than 1/3 of total net savings in 2019. The faster progress has been driven by a combination of rapid improvements, for example, in procurement as well as delayed recruitment for positions accounted for. These recruitments are planned to take place during 2020, and some have, in fact, already been made.

The scope of the program remains unchanged, and we still expect to deliver total net savings from the program of about DKK 250 million by the end of 2021. As already mentioned, the importance of establishing a more flexible and efficient cost base has increased with the declining volume trends. And consequently, our focus on costs will remain a key priority for us to protect our group earnings and cash flow in order to meet our financial ambitions.

Please turn to Slide #7. Before moving on to updates from our 4 commercial divisions, I will touch on 2 recent regulatory developments relating to Scandinavian Tobacco Group. Firstly, in the U.S., the FDA have recently communicated that its main priority for now is to increase regulation on new tobacco products like vaping and heat not burn. While we are not active in these product categories, the FDA also commented that premium cigars currently have the lowest priority and that the likelihood of a flavor ban on cigars in general in the coming period has diminished. Needless to say, these changes in FDA priorities are highly relevant for us and can ease some of the uncertainties surrounding our categories in the U.S. market.

Secondly, the European Tobacco Product Directive is likely up for a review and a potential revision sometime during 2021. The European Commission published an evaluation of the functioning of the existing directive earlier this month, where special notice was given to: continued high smoking prevalence in the EU; price gaps among member states, driving cross-border trading; and the emergence of new products. Potential areas for revisions might be the tax differential between fine-cut and cigarettes, minimum excise due to rates and taxation of new products. The work continues and will, at the earliest, be adopted next year. At this point, we see no material impact for our group by these potential revisions, although individual products and markets most likely will be influenced. Before moving on, let me encourage you to read the annual report, where we discuss regulatory developments and risks in more detail.

Now please turn to Slide #8, where we'll give some more divisional insights. Well, the division North America Online & Retail, the organic growth in net sales was positive by 0.5% for the full year. The trend weakened, though, in the last 2 quarters as a result of slightly declining sales of handmade cigars. In the fourth quarter, the division delivered a negative organic growth by 0.3%.

Key developments in the division for the year were completed integration of Thompson Cigar, which, together with Fuelling the Growth, significantly have improved the EBITDA margin in the division over the past 2 years to a current level of 16%, and secondly, the softness in the net sales of handmade cigars. The integration of Thompson Cigar was finalized by the end of this year and has delivered the expected synergies. This allowed us to lift Thompson Cigar EBITDA margins to the level of Cigars International.

We're very pleased with the acquisition and integration of Thompson Cigar, which has strengthened our platform for future growth in the distribution channel of premium cigars to the U.S. consumer. However, the sales performance of Thompson Cigar has been negatively impacted by the focus on raising EBITDA and is also a reason behind the weaker-than-expected sales performance for the division altogether in 2019. A significant part of the net working capital improvement has been delivered by this division as the combined business can be operated with a lower inventory.

We estimate that the growth in the online channel has stagnated and see the introduction of Internet sales tax as one of the key reasons for this, which has led to a more competitive pressure on prices and promotions. As previously stated, we are continuing our retail expansion in the U.S. and the recently opened Super-Store in The Colony, Texas show good results with high customer activity, and the promising performance supports our ambition of expanding our retail footprint further. The opening of a second store in Texas and the additional 2 stores in Florida are still expected to take place no later than in the third quarter of the year.

The EBITDA margin before special items improved by 130 basis points from 14.7% to 16%, of which 80 basis points relates to accounting changes. An improved OpEx ratio driven by efficiency improvements contributed to the underlying margin expansion throughout the year. And for the fourth quarter, the EBITDA margin improvement accelerated despite a lower gross margin driven by the Thompson integration and Fuelling the Growth.

With this, please turn to Slide #9. The North American Branded division had a difficult year with a negative organic growth in net sales of 6.3%. However, during the fourth quarter, the division delivered an improvement compared with the previous 4 quarters as the organic growth changed slightly positive by 0.3%.

The handmade cigars category, which constitute about 42% of the divisional net sales, had a challenging year. The product category experienced a negative organic growth of 5.6% for 2019 and the total market for handmade cigars has, as mentioned before, throughout 2019, been impacted by issues such as weather conditions, the introduction of Internet sales tax, IT problems with one of our largest customers and a prolonged inventory rebalancing in the online distribution channel. These issues have endured longer than anticipated, although the impact eased somewhat by the end of the year. We still expect the overall handmade category to deliver positive organic value growth over time based on a slightly negative volume impact being more than compensated by price/mix improvements.

The other product categories in the division normalized during the fourth quarter, where pipe and fine-cut continued to follow the long-term trends with steady volume declines only partly compensated by price increases. For machine-made cigars, the negative impact experienced in the third quarter by the introduction of plain packaging in Canada was temporary and our sell-in volume to the trade improved in the fourth quarter.

The gross margin declined by 0.5 percentage points for the full year driven by the lower volumes, where the EBITDA margin showed strong progress even when excluding the positive impact from IFRS 16 accounting change. For the fourth quarter, the gross margin improved as the decline rate in the volume impact in the handmade cigars leveled off, and the improvement of the EBITDA margin continued as a result of both Fuelling the Growth and accounting changes.

Please turn to Slide #10. The division Region Machine-Made Cigars delivered in 2019 negative organic growth in net sales, but we identified signs of improvement in recent quarters. For the year, overall organic growth was negative by 2% and, for the fourth quarter, by 1.8%. For the product category Machine-Made Cigars, accounting for 79% of divisional net sales, the decline was 2.5% for the full year and 3.4% for the fourth quarter.

The market share index for our top European -- our top 5 European machine-made cigar markets decreased slightly versus the third quarter of 2019. The index is included in the appendix to this presentation. And the decline covers 2 opposite trends: firstly, a continued strong improvement in France, where our market share in the quarter continued to improve and now is above 31%; secondly, and outweighing the underlying positive trend for the category, was a decline in volumes and market share in the Netherlands. The decline was driven by a temporary out-of-stock situation that is being solved as we speak.

The total market decline seems to have stabilized around the level of 3% across our key markets. However, with the turnaround in France progressing as planned and with the Netherlands returning to normal, we see an improved overall performance for the division in 2020.

In the fourth quarter, the gross margin and the EBITDA margin was significantly up versus last year as the division benefited from the mentioned onetime impact related to excise taxes. Underlying, the EBITDA margin continued to benefit from lower operating expenses driven by Fuelling the Growth.

Please turn to Slide #11. For the full year, the division Region Smoking Tobacco & Accessories delivered 4.4% negative organic growth in net sales, and for the fourth quarter of 2019, the negative organic growth was 9.6%. As we have communicated in relation to the third quarter announcement, we divested our sales companies in Slovenia and Croatia during the year, which has impacted organic growth negatively in the quarter. The total annual net sales impact from the disposal of these companies is about DKK 85 million. For 2020, we will adjust for this divestment in calculating the organic growth. Furthermore, a high level of shipments to Russia in the fourth quarter of 2018 did also impact the relative performance in the fourth quarter.

The gross margin increased as previous -- as in previous quarters primarily driven by changes in mix. The EBITDA margin, excluding the impact of changes in accounting principles, was negative despite the implementation of Fuelling the Growth. It continues to improve underlying cost efficiency. The reason for the development in the fourth quarter relates primarily to mix.

And with this, I will leave the word over to Marianne. Please turn to Slide #12.

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Marianne Rørslev Bock, Scandinavian Tobacco Group A/S - Executive VP & CFO [3]

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Thank you, Niels. During the update on the division, the focus was primarily on recent developments and the fourth quarter performance. I will primarily focus on the 3-year performance, though with a few quarterly comment where appropriate.

For 2019, we delivered total net sales of DKK 6.9 billion, a gross profit before special items of DKK 3.3 billion and EBITDA before special items of DKK 1.5 billion and a net profit of DKK 748 million. Our free cash flow before acquisitions was almost DKK 1.2 billion. All items are all-time high for the group. Net sales increased 2% due to an almost 3% favorable impact from exchange rates development. The major currency sensitivity we have in our numbers relates to the U.S. dollar with about 55% of net sales coming from the Americas. Adjusting for the nonorganic impact from the acquisition of Thompson Cigar from the second quarter of 2018, the organic growth in net sales become negative with 2.6%.

The fourth quarter of 2019, we delivered net sales of DKK 1.7 billion with a negative organic growth of 2.9%. Exchange rate development impacted net sales positively by 1.6% in the quarter. The organic development was driven by more or less unchanged contribution from our 2 North American divisions with negative contribution from Machine-Made Cigars by 1.8% and Smoking Tobacco & Accessories by 9.6%.

Gross profit before special items increased by 2.9% for the full year, but declined 0.6% in organic terms after adjusting for exchange rates and the acquisition of Thompson Cigar. The organic decline was driven by the development in net sales. North America Online and Retail and Machine-Made Cigars contribute positively to the gross profit development, whereas North America Branded and Smoking Tobacco affected negatively. For the group, gross margins before special items increased slightly to 48.2% from 47.9%.

In the fourth quarter, Machine-Made Cigars realized approximately DKK 25 million benefit from a onetime impact from a tax -- a change in tax structure in one market, which was implemented by the end of 2019 but had full effect -- but had effect for the full year. The change is permanent and will be maintained in the years to come.

EBITDA before special items increased by 16% to DKK 1.513 billion driven by the gross profit development, a positive impact from IFRS 16 of DKK 85 million, but more importantly, also from a 6% organic decrease in operating expenses. Organic EBITDA growth for the year was 7.1%. Excluding the onetime tax benefit in organic growth in EBITDA was -- the organic growth in EBITDA was 5.2%.

Net profit increased by DKK 82 million to DKK 748 million driven by the operational performance and lower special costs of DKK 133 million versus DKK 266 million in 2018 but partly offset by higher taxes. Income taxes were DKK 201 million with the effective tax rate of 21.2%, an increase of 14 percentage points from last year's rate due to a normalization of the effective tax rate versus 2018. In 2018, the tax rate reduction in the Netherlands contributed positively. The free cash flow before acquisition was DKK 1.187 billion versus DKK 668 million in 2018. The increase was driven by the operational performance as well as working capital improvement versus last year.

Please turn to Slide #13. I will now give you an update on the development in the net interest-bearing debt, the leverage ratio and proposed capital allocation. By the end of 2019, the net interest-bearing debt was DKK 2.330 billion, a decrease of DKK 255 million versus the end of 2018. The development is driven by a strong cash flow generation during the year and the balance sheet implication of implementing IFRS 16, which implied an off-course adjustment to the net interest-bearing debt of DKK 227 million. IFRS 16 had only an immaterial impact on the leverage ratio.

The leverage ratio, defined as net interest-bearing debt over 12 months rolling EBITDA before special items, was 1.5x at the end of 2019 compared with our target ratio of 2.5x. The impact from the acquisition of Royal Agio Cigar is not included in these numbers as the company was acquired with effect from January 2, 2020. In the left-hand chart, we have, however, also included the impact on net debt and leverage had Royal Agio Cigar been taken over at the end of last year. The net debt would increase to DKK 3.9 billion, and the leverage ratio would increase to 2.3x, still below our target ratio of 2.5x.

The Board of Directors propose to the Annual General Meeting on March 26 to approve a DKK 6.10 ordinary dividend per share, implying a 1.7% increase as well as the ordinary dividend for 2018. The ambition remains to deliver an annual increase in ordinary dividend payments. And with the proposed dividend for 2019, the compounded annual growth rate will be 5.1% for the past 4 years. Furthermore, as part of the group's shareholder return policy and based on the projected leverage ratio against the target ratio after including Royal Agio, a decision has been taken to initiate a share buyback program in 2020 of up to DKK 300 million. The specific date and further details will be communicated once decided.

Now please turn to Slide #14. Scandinavian Tobacco Group has started a journey to engage more meaningfully with CSR and our ESG-minded stakeholders. Responsibility has long been a core value in our company, and we have for many years engaged in CSR activities in many of the places where we produce and sell our products. We have adopted a new governance approach anchored from the Board of Directors to a CSR steering committee, and we are currently developing a focused CSR strategy to guide our efforts.

As I noted, we consider this a journey, and we are still early in our efforts. Then we look forward to sharing our work and results with you as we move forward, and we, of course, welcome your feedback. On this slide, you can see a few selected achievements we have made in the area in 2019. But I will encourage you to read out CSR report for 2019, where you can find more information. The CSR report can be found on our website.

Please turn to Slide #15. The guidance for 2020 we have disclosed today excludes any financial impact from the acquisition of Royal Agio Cigar. We expect to deliver at least 3% organic EBITDA growth driven by a modest increase in organic net sales and continued net savings from our various cost initiatives.

The free cash flow before acquisitions is expected to be higher than DKK 850 million without any material contributions from working capital and with capital expenditures of approximately DKK 275 million. The relatively high CapEx level covers the U.S. retail expansion with opening of 3 stores in Texas and Florida, CapEx related to closure of our facility in Tucker, Georgia, CapEx related to Fuelling the Growth initiatives and normal maintenance CapEx.

The main uncertainties to our 2020 guidance relates to the top line development and, specifically, to the total market development in key machine-made markets as well as the total premium cigar markets in the U.S. We believe we are well on track with our efficiency improvement to deliver further net savings for the year.

As we communicated in relation to the completion of the acquisition of Royal Agio Cigars on January 2, we have with local works councils committed to conduct an integration planning period of at least 3 months from the day of completion. As a consequence, at this point, we cannot disclose further financial details than we have already communicated. When the integration planning has been concluded, we will provide further financial details on the impact of the transaction, and we will issue an updated guidance, including the impact from Royal Agio.

With this, I will leave the word back to the operator, and we're now ready to take any questions you might have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Niklas Ekman from Carnegie.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [2]

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First question is on the organic sales. How confident are you in the ability to deliver flat to positive? I mean you mentioned here at the end of the call that, that was the main uncertainty, and obviously, this has been quite volatile and mostly negative over the past couple of years. So what would be the key drivers to reversing this to organic sales growth?

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Niels Frederiksen, Scandinavian Tobacco Group A/S - CEO, President & Member of Executive Board [3]

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Yes. Thank you, Niklas. Again, I think that we saw what we believe is a particular weak handmade cigar market in the U.S. in 2019, and we are following this, of course, closely as we move into 2020. And I think it's fair to say that this is the area around which the most uncertainty relate. I also think that when we report, the Q1 results will be the first time we can say something meaningful about it in a more substantive way because the first quarter is still a relatively small quarter. But as we move into the second quarter, we will have stronger comparisons and also more insights. So we feel confident around the -- let's call it, the mass market categories. We have the biggest uncertainty simply around the U.S. handmade market.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [4]

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Okay. And I guess a second question here. The target of growing at least 3% organically EBITDA, is that possible? Do you think if, say, you fail to meet your ambition to grow organic sales -- if organic sales were to decline by a similar level as in 2019, could you still deliver on this EBITDA target?

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Niels Frederiksen, Scandinavian Tobacco Group A/S - CEO, President & Member of Executive Board [5]

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Well, I think that the 2019 numbers is a testament to the attention we are having on balancing our cost versus the top line development. And I think that's the best evidence we can provide, that we are -- we have been working to put ourselves in a better position to deal with these situations. And we believe we can do so more effectively today than we could a couple of years back.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [6]

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Okay. Excellent. And I was curious about the buyback program as well, the DKK 300 million. Is that an ambition to do buybacks of that magnitude? Or is this a mandate that will last for -- that is aimed to last for several years? Or how should we see this? Are you planning to distribute up to DKK 300 million in the form of buybacks in 2020?

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Marianne Rørslev Bock, Scandinavian Tobacco Group A/S - Executive VP & CFO [7]

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So thank you, Niklas, for that question. So our shareholder return policy says we will return any excess cash to shareholders. What we have decided this year is to grow the ordinary dividend as we promised and then return the remainder excess cash as the share buyback. We have communicated a 1-year program. But of course, looking forward and also looking into our possible investments, we will continue to distribute excess cash back to shareholders. And it is certainly also in our minds to continue share buybacks. But then we will communicate more on after this year when we see the development.

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [8]

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Okay. But you can't provide any kind of guidance if you're expecting it to be around DKK 300 million or if that's a very wide framework and you're expecting buybacks to be a lot lower than that.

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Marianne Rørslev Bock, Scandinavian Tobacco Group A/S - Executive VP & CFO [9]

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Well, maybe I can answer in another way. We have, in 2019 or beginning of 2020, acquired Royal Agio with purchase price of more than DKK 1.5 billion. If we did not do that -- had not done that acquisition, the excess cash would have been significant, and thereby, share buyback program would have been higher than the DKK 300 million. So it goes very much hand-in-hand with our ability also to execute on our M&A strategy. Does that make sense?

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [10]

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Yes. Yes. And finally, also, can you just clarify this? If I understood correctly, the organic earnings growth in Q4, it was positively impacted by a tax benefit of DKK 25 million. If you exclude that, the organic EBITDA growth in Q4 would have been around half the level of what you -- what we saw in this quarter. Is that correctly?

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Marianne Rørslev Bock, Scandinavian Tobacco Group A/S - Executive VP & CFO [11]

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Yes. It -- I also had some in -- I can't remember the exact number that we -- I think it's 2.9%. It will be negative.

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Niels Frederiksen, Scandinavian Tobacco Group A/S - CEO, President & Member of Executive Board [12]

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But if -- you're talking about the EBITDA growth, right?

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Niklas Ekman, Carnegie Investment Bank AB, Research Division - Head of Consumer Discretionary & Staples and Financial Analyst [13]

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Yes. Exactly. You -- 10.6% in Q4, and you said 5.2% excluding this. Was that for Q4?

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Niels Frederiksen, Scandinavian Tobacco Group A/S - CEO, President & Member of Executive Board [14]

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No. That is for the full year. So excluding this, we would have reached 5.24% for the full year versus the 7.1% we delivered.

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Operator [15]

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(Operator Instructions) Your next question comes the line of Mathias Nielsen from Nordea.

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Mathias Bjerrum Nielsen, Nordea Markets, Research Division - Analyst [16]

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So the first question is on the IT issue, so on a client in NAB. Is that soft now? And how is your expectations in terms of inventory restocking at that client? Is that something you have in your expectations for 2020? How should we see that?

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Niels Frederiksen, Scandinavian Tobacco Group A/S - CEO, President & Member of Executive Board [17]

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Yes. I think that what we see with the customer that is having IT problems is clear improvements. So they're not necessarily out of all of their IT issues, but we are seeing improvement in our own experience in this area, also testament to the fact that this is often -- seldom just an IT issue but also associated issues, such as call center capacity and other things. But they're moving in the right direction, and we are also seeing an improvement in our own performance with this customer.

I don't think one should think about the improvement as something that would necessarily lead to inventory restocking. But I think that if we continue to do -- let's say, to normalize our relationship with this customer, it should mean that the overall sales will be positively impacted.

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Mathias Bjerrum Nielsen, Nordea Markets, Research Division - Analyst [18]

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Sure. And then the second question on working capital. I remember, in connection to the Q3 report, you mentioned that working capital, that you would need to hold more in inventories due to the closure of the Tucker facility. And now you say in the guidance in 2020 that you don't expect material changes to the working capital. So is that meaning that you have to essentially brought down the working capital to the level you can do in 2020 despite the closure of the Tucker facility? Or should we expect that we can do more on that part as well?

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Marianne Rørslev Bock, Scandinavian Tobacco Group A/S - Executive VP & CFO [19]

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The main impact that we had in 2019 was due to the combination of Thompson and our online business. For 2020, we have, as you say, put in an assumption in our cash flow guidance that working capital would be at the same level. That includes both -- you also mentioned an increase for closing down the facility in Georgia. But we do see that we also have opportunities to improve on the working capital, especially as we mature our integrated planning processes. And that, we will do during 2020.

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Mathias Bjerrum Nielsen, Nordea Markets, Research Division - Analyst [20]

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And then the last question, like just to clarify on the organic growth impact from the divestment of the sales companies in Slovenia and Croatia. Had that been adjusted in the organic growth for Q4? Or was it only for 2020 that you expected to adjust for that?

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Marianne Rørslev Bock, Scandinavian Tobacco Group A/S - Executive VP & CFO [21]

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That's a good question. No, we did not adjust it for Q4, but we will adjust it in 2020.

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Operator [22]

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(Operator Instructions) Thank you. There appear to be no further question at this time.

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Niels Frederiksen, Scandinavian Tobacco Group A/S - CEO, President & Member of Executive Board [23]

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Very good. Then thank you very much for everyone's participation, and have a continued good day.

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Operator [24]

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Thank you. That does conclude our conference for today. Thank you for participating. You may now all disconnect.