Scandinavian Tobacco Group A/S

CSE:STG

Earnings Call Transcript

[Operator]

Good day, and thank you for standing by. Welcome to the Scandinavian Tobacco Group Q1 Results 2022 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Torben Sand, Head of Investor Relations. Please go ahead, sir.

[Torben Sand, executive]

Yes. Thank you. As said, I am Torben Sand, and I'm as usual joined by our CEO, Niels Frederiksen; and CFO, Marianne Rørslev Bock.

The agenda for this webcasted conference call is the highlights for the first quarter of 2022, some details on our revised sustainability, then an overview of the performance in our 3 commercial divisions, followed by key financial developments for the group, including an update on capital allocation. And as always, we will conclude by an update on the guidance for 2022. By the end, we will have a Q&A session. But before we start, I ask you all to pay special attention to our disclaimer on forward-looking statements in the back of this slide presentation.

And with this, now please turn to Slide #3, and I will leave the word to Niels.

[Niels Frederiksen, executive]

Thank you, Torben, and a warm welcome and good morning to everyone on the call. For the first quarter of 2022, Scandinavian Tobacco Group delivered a financial performance in line with the expectations we communicated in March. The expectation was a decrease in organic net sales and organic EBITDA growth in both the first and second quarter of the year with a return to growth in the third and fourth quarters. This expectation for the development throughout the year remains unchanged following the first quarter results.

The key financial highlights for the first quarter of 2022 are: Net sales decreased organically by 1.7% to DKK 1.938 billion. EBITDA before special items was DKK 532 million with a 2.7% negative organic growth rate versus last year. Free cash flow before acquisitions was DKK 129 million versus DKK 89 million last year. And finally, we have also announced that we will increase the share buyback from previously up to DKK 700 million to now up to DKK 1 billion.

On the back of this short overview, I'm now pleased to give you an update on our revised sustainability strategy. The revised sustainability strategy is more ambitious and more comprehensive, and we call it rolling responsibly.

Please turn to Slide #5. We are committed to working today for a better tomorrow. To underpin the importance of our work, we have integrated sustainability into our Rolling Towards 2025 strategy, like you can see on the updated strategy house here. We always intended to integrate the 2, but we wanted to define the sustainability strategy and our goals for the program before doing so. And now is the time for that. So our vision has now been revised to be the undisputed and sustainable global leader in cigars and we've added a 6 must-win battle lead sustainability agenda in cigars.

Please turn to the next slide. With our enhanced sustainability strategy called Rolling Responsibly, we have an aspiration to craft a better tomorrow by elevating our communities and anchoring climate action in our culture. We will further work with 2 strategic pillars: Net Zero along the Journey of the Leaf, which addresses STG's goal of achieving science-based emission targets for our tobacco operations and being carbon net zero by 2050, and sustainable community pioneers, which speaks to STG's plans to drive an enduring impact for its employees and the people in the communities in which STG produces its cigars. Recognizing the complex nature of sustainability, we have further prioritized 10 sustainability initiatives, the first 5 of which will be implemented in Wave 1 of our execution. These are land and water custodians, responsible sourcing and packaging, strong corporate ethics, a truly inclusive employee experience, and anti-child labor.

Please turn to Slide #7. We have created a dedicated sustainability function with direct visibility to our Executive Board. Programming will be executed both on a global and a local level to deliver maximum impact. More concretely on how we anchor the strategy, we placed the Sustainability Center of Excellence under our strategy transformation and our sustainability organization which is headed by one of our Executive Board members, Julia Lucena, and we have appointed a new head of sustainability to run the program.

Under the sustainability organization, we've established 2 delivery teams for each of the 2 strategic pillars, one on net zero and one on community pioneers. Under each strategic pillar, we have 10 prioritized material topics that will steer our work. Five of them, as I mentioned, included in Wave 1 of our implementation plan and the remaining in a second wave. By working with two waves, we can be responsibly aggressive in our sustainability agenda and balance our ambitions with the resources to put behind it.

On this slide, we've highlighted those five material topics we are working on with Wave 1. These are addressing the climate change, water management, community and engagement and impact, anti-child labor, and diversity, equity and inclusion. To give you some specific examples of actions we will take under these 5 priorities, I can share that we have this week applied for SBTi commitment of 1.5 degrees, and that we, in the year 2030, must deliver on these emission targets in Scope 1 and 2. By 2050, we will become net zero in our entire value chain.

Under Sustainable Community Pioneers, we will, over the coming years, execute a broad range of health and well-being, education and women's enablement initiatives aimed at building a brighter future where it is the most needed.

We will now turn to the performance by division, and I'll leave the word to Marianne, please go to Slide #9.

[Marianne Bock, executive]

Thank you, Niels. I will start the overview with Europe Branded. Net sales for the first quarter of 2022 decreased by 5% to DKK 596 million. Organic growth was negative by almost 7%, with the termination of a distribution agreement impacting growth negatively by about 3%. The previously mentioned supply issue continued to impact net sales negatively in the quarter. Overall, the consumer demand for machine-rolled cigars in Europe is back on its pre-COVID trend with a market volume decline of close to 4% in this quarter.

Gross profit before special items decreased by 1%, while the gross margin improved by 1.8 percentage points to 57.8%. EBITDA before special items was DKK 159 million with an EBITDA margin of 26.7% versus 28.5% in the first quarter of 2021. The gross margin improvement was primarily driven by pricing, whereas a normalization of sales and marketing spending and increasing freight and distribution costs impacted the OpEx base negatively compared with last year. For the quarter, the market share index was 31.5% versus 32.9% in the first quarter of last year, and our assessment remains that this is driven by the supply issues that we have experienced since the third quarter of 2021.

Please turn to the next slide. Looking ahead, we are seeing the structural decline rate in machine-rolled cigar volumes at about minus 3% despite the slightly higher decline rate in the first quarter of 2022. Additionally, price increases and simplification initiatives are expected to support long-term margin expansion in the division, although the performance also in the coming quarters will reflect the mentioned decrease in the operating -- increase in the operating expenses. In a 5-year perspective, from 2020 to 2025, Europe Branded is expected to deliver organic net sales growth, though below group average, still slightly positive and a margin expansion above the group average.

With this, now please turn to Slide 11. I will now turn the attention to the performance in our North America Online and Retail division. Net sales for the first quarter increased by 1% to DKK 568 million with negative organic growth of 6%. The stronger U.S. dollar impacted reported net sales positively by almost 7%. The online channel experienced a 12% decline in the active customer base versus the first quarter of 2021, driven by lower traffic across our various e-commerce platforms.

The first quarter of last year constituted the peak of the positive impact from a change in consumer behavior driven by COVID-19. Consequently, the comparison base should be less cumbersome going forward. The retail channel continues to deliver double digit growth in net sales and retail accounts for about 7% of divisional net sales.

Gross profit before special items decreased by 2% with the gross margin decreasing by 1.1 percentage points to 39.9%. EBITDA before special items decreased to DKK 75 million with an EBITDA margin of 13.2% versus 17.5% last year. The development in margins relates to lower net sales and a normalization of promotional spending.

Please turn to the next slide. We believe that the division will continue to benefit from the increase in consumption of handmade cigars that the market in the U.S. has experienced since the outbreak of the COVID-19 pandemic. We believe that a large part of the increase in demand during the previous 2 years is sustainable, though the current inflationary environment makes the trend more uncertain. Further, we believe that the category now is returning to the long-term volume trend at around minus 2%.

Long-term growth in North America Online and Retail will come from investments in consumer insights and the expansion of the brick-and-mortar retail channel. We remain confident that a substantial part of the current active online customers can be retained, and as we will continue to add superstores to our retail network, we believe the division has a strong foundation for future growth.

Following the opening of the new superstore in San Antonio in Texas, we plan to open another 5 to 7 cigar superstores in the U.S. in the coming 2 to 3 years. In a 5-year perspective, 2020 to 2025, North America Online and Retail is expected to deliver organic net sales growth above group average and the margin expansion, which will be positive, though below group average margin expansion.

I'll now turn to the last of our divisions, the North America Branded and Rest of the World division. Please turn to the next slide. In the first quarter of 2022, net sales in North America Branded and Rest of the World increased by 12% to DKK 773 million, and organic growth was positive by almost 7% with exchange rate development, primarily in the U.S. dollar, impacted reported growth positively by 5%. This quarter, organic net sales growth was primarily driven by continued strong performance by handmade cigars in the U.S., both measured by volume and pricing, as well as recovery in global traveling has been beneficial to our global travel retail business.

With markets gradually normalizing after the pandemic, product categories like pipe tobacco have returned to its structural declining volume trends. Gross profit before special items increased by 20% with the gross margin improving by 4.1 percentage points to 57.9%. The improvement in margin is driven by market and product mix as well as price increases. EBITDA before special items was DKK 328 million, with an EBITDA margin of 42.4% versus 39.5% same period last year, driven by the gross margin development. The OpEx ratio increased from 14.3% to 15.5% as promotional activities normalized and the operating cost from the Forged Cigar Company only impacted about half of the first quarter last year.

Please turn to the next slide. The consumption of handmade cigars in the U.S. seemed to have reached its peak in the beginning of 2022. Volumes are starting to trend lower, and we expect to see a return to the long-term structural volume decline rate of about 2% going forward. Our strategic initiatives like the launch of the Forged Cigar Company and price increases are expected to support net sales for handmade cigars, although the organic net sales performance will start to reflect the dampening of the overall market development.

We still expect to experience the normalization of other product categories like smoking tobacco during the remainder of 2022, impacting negatively to growth in the coming quarters. In a 5-year perspective from 2020 to 2025, North America Branded and Rest of the World is expected to deliver both organic net sales growth and margin expansion in line with group average.

Now please turn to Slide #16. I will now turn the attention from the divisions to the group's financial performance. In the first quarter of 2022, net sales increased by 3% to DKK 1.9 billion. Gross profit before special items increased by 7%, and EBITDA before special items increased by 1% to DKK 532 million. Organic growth in net sales was negative by 1.7% and organic EBITDA growth was negative by 2.7%. Exchange rate development impacted reported net sales positively by DKK 78 million or approximately 4%, and the impacted reported EBITDA by DKK 19 million, also equal to about 4%.

As I mentioned in the divisional update, North America Branded and Rest of the World delivered positive organic net sales growth, whereas Europe Branded as well as North America Online and Retail delivered negative growth in the first quarter.

For the group, the 7% increase in gross profit was driven by a 1.9 percentage point improvement of the gross margin to 52.6%. The margin improvement was driven by mix and pricing supporting an increasing margin in North America Branded and Rest of the World and in Europe Branded. The OpEx ratio increased from 22.7% in the first quarter of last year to 25.2% in the first quarter of this year, primarily driven by normalization of sales and marketing and travel expenses, and increased cost of freight and distribution and energy.

Special items were negative by DKK 18 million, divided by expenses relating to the production footprint, OneProcess, and the Agio integration. The expectation of total special items for the year of about DKK 200 million remains unchanged. Net profit for the quarter was more or less on par with last year at DKK 328 million, with adjusted earnings per share at DKK 3.6 per share compared with DKK 3.4 per share.

The free cash flow before acquisitions was DKK 129 million versus DKK 89 million in the first quarter of last year. The cash flow development includes a DKK 269 million cash outflow from working capital as a result of both normal seasonality as well as a buildup of higher inventory buffers within nontobacco material and excise tax stamps given the existing uncertainty in parts of the supply chain.

With this, now please turn to Slide #17. I will now briefly talk about our net debt and leverage position. During the first quarter, the net interest-bearing debt increased by DKK 180 million to DKK 3.446 billion with the development being driven by exchange rates, our capital distributions of DKK 133 million, partly being offset by the cash flow from operations. The leverage ratio was unchanged at 1.5x compared to the end of 2021. We consider our financial position as strong and supported by our strong annual cash flow generation. We remain committed to disciplined capital allocation policy.

Please turn to Slide #18. Our shareholder return policy aims at delivering an annual growth in ordinary dividend payments and to pay out any excess capital to shareholders, either in the form of special dividends and/or share buybacks. We have, in the beginning of the second quarter, paid almost DKK 700 million to our shareholders in ordinary dividend and have now, in relation to this interim report, also announced that the share buyback program, which was launched in March, now will be increased from DKK 700 million to DKK 1 billion, almost an increase of 50%.

The increase reflects our strong financial position and we consequently aim to distribute about DKK 1.7 billion to our shareholders in dividends and through the ongoing share buyback program. This corresponds to about 12% of the current market value of the outstanding STG shares. In a separate company announcement, the details of the share buybacks have been communicated. Our long-term legacy shareholders, Christian Augustinus Fabrikker and C.W. Obel have announced they will participate on a pro rata basis in the remaining time period of the program.

Now please turn to the next slide, and I will now leave the word back to Niels for more update on the regulation and more details on our financial guidance for 2022.

[Niels Frederiksen, executive]

Thank you, Marianne. On regulation, there are not many new updates to give you since our last earnings release just 2 months ago. In Europe, the 2 major pieces of legislation related to the Scandinavian Tobacco Group are, as you might recall, the Excise Tax Directive and the Tobacco Products Directive, both remain in process. The Excise Tax Directive relating to potential revisions on the tax differential between the tobacco categories, potential renewed minimum excise duty rates, and taxation of new product categories now seem to be postponed slightly. The release of proposed changes is now expected during the second half of the year, where it was previously expected before the summer holidays.

For the Tobacco Products Directive, there is no new updates. The formal proposal for changes are expected by the end of 2024 or early 2025, but as you might remember from the webcast in March, this time line was also postponed from previously 2023.

In the U.S., the potential ban of characterizing flavors remains in process. In late April, FDA published its long-awaited proposal of a ban on flavorized tobacco products, including cigars. However, and important to Scandinavian Tobacco Group, pipe tobacco is not part of the proposed ban given its limited appeal to young youngsters. The next step in the process is the deadline for comments being in early July. I would like to repeat that our exposure to flavorized tobacco products in the U.S. is limited, and with pipe tobacco not being included, the exposure will be well below the 5% impact we have previously mentioned.

Please go to Slide #20. The financial performance in the first quarter was in line with our previous assessment of the quarter and the outlook for the coming quarters support the expectation for the full year, which we communicated in March. Consequently, we maintain the guidance of an organic growth in EBITDA in the range of 0 to 6%, free cash flow before acquisitions in the range of DKK 1.1 billion to DKK 1.4 billion, and an adjusted EPS increase over 5%. The consumption of handmade cigars in the U.S. is expected to reach its peak, and we now see signs of return to the long-term structural volume decline rate of about minus 2% per year.

Furthermore, consumer behavior across our product categories and markets has started to normalize, which creates some short-term headwinds for product categories like pipe tobacco, amongst other, which gained from the COVID-19 pandemic. The signs of normalization for most product categories have grown stronger during the recent months, and currently, additional price adjustments are expected to compensate for cost inflation. The disruptions in the supply chain remain on track to be markedly improved by the end of the second quarter, though some issues will run into the second half before being fully normalized. However, the geopolitical developments continue to imply a higher risk than normal for supply chain stability.

Now given this outlook, we maintain the expectation of the 0.6% organic EBITDA growth. And based on the projected earnings, we expect to grow free cash flow before acquisitions to be in the range of DKK 1.1 billion to DKK 1.4 billion, and the free cash flow before acquisition is expected to be impacted by investments in the retail expansion in the U.S., the ERP project, which we call OneProcess, a negative impact from working capital of about DKK 200 million, where we previously expected about DKK 100 million. However, we have planned for a higher inventory buildup given the current uncertainties in global supply chains.

Now this concludes our presentation for today. I'll hand the word back to the operator, and we are ready to take questions. Thank you for your attention.

[Operator]

[Operator Instructions] Your first question today comes from the line of Niklas Ekman from Carnegie.

[Niklas Ekman, analyst]

Yes, a couple of questions, if I may. Firstly, when you talk about the slowdown you've seen in U.S. cigars towards the end of Q1, can you elaborate a little bit on how much of this you think is related to the COVID effect saving? And is there any signs of economic slowdown impacting you? And kind of as a follow-up on that, could you elaborate on the cyclicality of your business? I assume it is more cyclical compared to other forms of tobacco consumption, but it would just be interesting if you could elaborate a little bit on the topic?

[Niels Frederiksen, executive]

Yes. Let me say that the slowdown that we are announcing with the Q1 is not a surprise. We have seen COVID-19 normalization in the sense that more people are returning to work, which again translates into fewer smoking occasions. Cost inflation, we're also seeing, is beginning to have an impact. We don't see concrete signs of this, but there's no doubt that when you are in the U.S. and you see certain income groups being particularly hard hit with petrol increases and other cost inflation, we believe that this is a risk for the remainder of the year.

Before I elaborate on the cyclical part, let me also say that I think what is critical is not whether the total market decline comes back to 1%, 2%, or 3% decline, what is critical is that we are not seeing a correction of consumption down towards previous levels. So our hypothesis, let's say, of the market, let's say, flattening and then returning to a normal structural decline rate is what we are seeing in the market currently.

Now when you come to the cyclical part of it, we are not seeing currently any signs of down trading, but we think that to anticipate it is prudent. And our advantage is still that we have a range of products in the U.S. market and also elsewhere that cover almost every price segment. So even with, let's say, down trading, we believe we are well protected from a market position point of view. What we, of course, do not know is whether people will reduce their consumption of certain products because they're spending more on other products. But this is what we are keeping an eye on.

[Niklas Ekman, analyst]

That's very clear. And can you tell us, in the U.S. market, in particular, how much bigger are your volumes now versus pre-COVID levels?

[Niels Frederiksen, executive]

The honest answer is that I cannot give you an exact number on that. I think that from my recollection, you can say we are still operating our online business more than 10% above the level in 2019. And I would think that we are operating the handmade cigar business even further above the 2019 levels, but I cannot remember the exact numbers.

[Torben Sand, executive]

But at least maybe, Niklas, I can add in that if you look at the volume impacts that we have had in our handmade branded business, we are talking about levels that are maybe 10% higher than it was ahead of the COVID situation.

[Niklas Ekman, analyst]

That's very clear. And on the topic of the raised buyback here, I'm just curious because we're talking about dividends of DKK 700 million, buybacks of DKK 1 billion. So DKK 1.7 billion, which is a lot more than the free cash flow that you're expected to generate during the year. So you're increasing your debt obviously from a low level. But can you tell us a little bit about your thinking here and how that impacts your view on M&A in the short to medium term?

[Marianne Bock, executive]

Yes. Let me do that, Niklas. So you know our capital policy where we have a leverage target of 2.5x. Over the last year, we have been trending with a leverage of 1.5x. So we are well equipped to return more capital to our shareholders and also being well equipped to onboard new acquisitions. With acquisitions, I think it's important to remember that when we bought Agio a couple of years ago for almost DKK 1.5 billion, we returned to the pre-leverage ratio within 1 year. So the strong cash flow also on those acquisitions that we are onboarding will very quickly get us back to a normalized or pre-acquisition leverage. So that's our thinking, keeping our promises in the capital policy. And then, of course, making sure that room for acquisition, which we believe is the case.

[Niklas Ekman, analyst]

That's very helpful. And you talked about the FDA ban on flavored cigars. Can you remind us of your exposure to machine-made cigars in total in the U.S.? How big share of the group is that? And is your flavored exposure, is that similar to the industry of around 50%?

[Torben Sand, executive]

Yes. The exposure for machine-rolled cigars in the U.S., that's very limited. If you take it out of the group context, it would be less than 1 percentage point of the total group net sales.

[Operator]

Your next question comes from the line of Martin Brenoe from Nordea.

[Martin Brenoe, analyst]

I have a few questions as well. So I'll just start with a couple. One of them is that at Q4, 2 months ago, you communicated that you expect that the U.S. handmade cigar volumes to resume to a 1% structural decline level. Now it's 2% decline level. Does this mean that you're seeing an accelerated market contraction compared to earlier? Or what's embedded into this assumption? And also you provide some information about the negative one-off in your Europe Branded from the distribution setup, which was canceled. But you don't give any sort of idea of the onetime impact from the implementation of a new distribution setup in Australia. Would it be possible to also get a little bit more elaboration on that, please?

[Niels Frederiksen, executive]

Let me start with the 1% to 2% question because we have -- if I recall correctly, we have historically said that we saw the decline rate in handmade cigars to be 1% to 2%. And I think that you should not over interpret our decision to go to 2%. I think that we've seen a significant uplift in the consumption of handmade cigars in the U.S. And although we do not see the, let's call it, the onetime correction. As I said, we are being prudent, and I think the 2% instead of 1% to 2% is a reflection of that. We are actually -- we always like a lower decline percent. But whether it's 1%, 2% or 3%, it's not that important to us. What is important is that it does not somehow result in a onetime correction, which is more difficult for us to cope with. So I wouldn't put too much into us going to 2%. It is our best guesstimate at the moment.

[Marianne Bock, executive]

Shall I give a few words on the answer? You're asking about the new distribution setup in Australia, right?

[Martin Brenoe, analyst]

Yes, exactly just what sort of impact it has on the division.

[Marianne Bock, executive]

Yes, let me say a few words before on why we are doing this. So Australia is a very regulated market, and a market where it is difficult also to introduce new products. So for us, it was a natural next step to go to a distributor that is well known in the market instead of having our own sales setup. So for us, this was a prudent next step to simply just follow how the markets develop. So we do not expect that going to a distributor setup will have significant impact on the profitability of that market, also because we are saving costs in our own setup by not having own sales company. And the onetime impact that we are talking about is simply selling the current inventory to the new distributor. And it is a onetime on revenue, but it is not something that is very significant.

[Martin Brenoe, analyst]

If I could just ask 2 more questions, then I'll jump back in the queue. One is, do we see the full effect of the recent price hikes yet in the P&L? And the second question is the supply chain issues, which seems to be something that's coming back again and again. I understood the Capital Markets Day from the presentation there that these issues had been fixed and you didn't have any supply chain issues anymore. And now they seem to have come back. Can you maybe help me understand what's going on?

[Niels Frederiksen, executive]

Yes, Marianne, maybe you would take the price hike first, and I'll answer the supply chain?

[Marianne Bock, executive]

Yes. Then just let me be sure that I understood your question. Are you talking about whether we have seen the full impact of our price increases in the P&L?

[Martin Brenoe, analyst]

Exactly.

[Marianne Bock, executive]

Okay. So the way that we work with price increases is an ongoing target, you can say. So when we are following, first of all, the inflation in our cost, that will ongoing have an impact on our price increases too. So I cannot tell you that we have seen the full impact of price increases because price increases is coming through the year and it's different in different markets when we introduce them. It's also different whether we can introduce 1 or 2 price increases during the year.

[Niels Frederiksen, executive]

On the supply issues, let me just take you a little back because it's correct that we have been postponing the time line for when we would be in control of these supply issues. And I think that what we are learning constantly is that every month and every quarter brings, let's call it, new insights. So if you look at the beginning of the year, we were, like many other companies, impacted by the, let's call it, the surge of COVID that sent home many people from factories and also from the office with COVID. So we had a bad start to the year. But since week 6, basically, we have been improving our supply situation, and we have a stable supply situation for the bulk of our assortment.

The areas where we are struggling is the production lines where we have, let's say, lower capacity, and we have a high level of our complex portfolio being produced. So this is improving. It will be markedly better by the end of Q2, but some of these smaller items will run into the second half. And what we've also been saying is that we are prioritizing the high earnings markets and the high earnings brands, which means that the areas that get affected are some of the export markets that will have to wait in line for a little longer. So we are making progress, but it also remains a very high priority for us, because we understand that in the long term we need to service customers and consumers better than we've been doing for the past 6 to 9 months.

[Operator]

[Operator Instructions] Your next question comes from the line of Gaurav Jain from Barclays.

[Unknown Analyst]

This is in [indiscernible] from Barclays. I'm speaking on behalf of Gaurav. Actually, I have one question to ask in regards of the European markets. So I think you mentioned that you are suffering from some market share loss in Q1 because of the supply chain issue in the market platform, France and the U.K. So my question is like when do you expect this supply issue can be resolved? And after you resolve this problem, do you have any plan to get some share recovery? For example, do you have any promotion or other plans in place to get back the market share maybe in Q2 or later in the year?

[Niels Frederiksen, executive]

Again, yes, we are losing market share as a result of the supply situation. And yes, we are planning carefully, market by market, how we will, let's say, regain distribution, promote products to regain market shares as the situation normalizes. Again, this is a little different market by market depending on what brands we have. But we will, of course, make a serious effort to recover what we've lost of market shares.

[Unknown Analyst]

Okay. That's very helpful. And another question from me is, so I think you previously talked about why the synergies from the Agio deal will be running out after this year. And actually, after the synergies run out, you might probably going to have a very little EBITDA growth thereafter. So do you have any other potential M&A that you are considering? Or do you have anything maybe in the future plan to think about how you can boost your long-term organic EBITDA growth?

[Niels Frederiksen, executive]

Yes. Again, I would say that we continuously look at acquisitions, and we believe that our obligation or responsibility is to consolidate the industry. So we continuously evaluate the various M&A candidates now. If you ask about a situation where we do not make M&As, or even if we make M&A, how do we grow our EBITDA, I would refer to the quite significant amount of transformation programs we have underway. So for example, in the U.S., we are consolidating all of our U.S. distribution in one national distribution center, which will go live. It's gone partly live already, but will go fully live over the course of the coming months.

We've also been investing significantly, as you know, in a new global ERP platform to support our business. We have added more initiatives that will drive growth. And one small example of that we have discussed in the past is the [indiscernible] product in the U.S. In the first quarter, we've actually initiated a second small project coming out of the growth incubator, where we have entered into a partnership with Swedish Match to run the [ sin.com ] e-commerce platform. So we are beginning to do small experimentation into new areas that can create growth as well. So M&As is what we would like to do, but there are plenty of other opportunities emerging as well.

[Operator]

There are currently no further questions. I will hand the call back to you.

[Niels Frederiksen, executive]

Yes. Well, then thank you from our side, and I wish everyone a good day. Thank you.

[Operator]

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