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 2023 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, Head of Investor Relations. Please go ahead.

[Torben Sand, executive]

Thank you. Yes. Welcome to Scandinavian Tobacco Group's webcast for the first quarter results for 2023. My name is, as said, Torben Sand, I'm Head of Investor Relations and Group Communications, and I am as usual, joined by our CEO, Niels Frederiksen; and CFO, Marianne Rørslev Bock.

Please turn to Slide #3 for the agenda for today's webcast. The agenda is as follows: highlights of the first quarter, a business update, we'll focus on our developments that feed into the wider Rolling Towards 2025 strategy, these insights will then be followed by an overview of the performance in our 3 commercial divisions, key financial developments for the group, including an update on net debt and leverage our capital allocation and the outlook for the full year. We will conclude the webcast with a Q&A session, where we will be pleased to take any questions you might have.

Before we get started, I ask you to pay attention to our disclaimer on forward-looking statements at the end of this presentation.

Now please turn to Slide #4, and I will leave the word to Niels.

[Niels Frederiksen, executive]

Thank you, Torben, and welcome, and good morning to everyone on the call. Scandinavian Tobacco Group delivered a steady first quarter financial performance although the results, as expected, were soft compared to the strong first quarter of last year. We have stabilized our production issues, although the performance is still recovering from the impact it has had. In addition, cost inflation as well as changes in product and market mix also affected margins negatively during the quarter compared with last year.

Irrespective, the group remains on track to deliver on the 2023 guidance and we are making good progress on our strategic agenda. Before going into detail on the progress of our strategic agenda, I would like to give you a few key financial highlights from the first quarter results announcement. Net sales increased by 1.3% to DKK 1.9 billion. The EBITDA margin declined to 24.1% versus 27.4% last year.

Free cash flow before acquisitions was negative DKK 170 million versus positive DKK 120 million last year. And adjusted earnings per share came in at DKK 3.2 versus DKK 3.6 last year. In organic terms, net sales declined by 0.8% and EBITDA declined by 12%. Marianne will give you more details on the financial performance in a moment. I'm pleased to add that our proposed 10% increase in the ordinary dividend to DKK 8.25 per share was approved by the shareholders at the Annual General Meeting last month.

So please turn 2 slides to Slide #6, please. Now our ambition to grow the company through a combination of acquisitions, geographic expansion and further experimentation in next-generation products remain on track. We have announced 2 acquisitions this year-to-date, 1 in the U.S. handmade cigar market and 1 in the next-generation product category. The Alec Bradley acquisition, which we already mentioned when we announced the full year results in March is still in its integration planning period and is progressing well.

The second acquisition of the XQS brand is a transaction valued at a maximum of DKK 150 million, assuming all targets are met in a complementary in our agreement. The product portfolio covers both Modern Whites, which is white pouches without tobacco but with nicotine and Modern Actives without tobacco and without nicotine and will further strengthen our position in the product category in Sweden. We expect to close this transaction shortly.

Please turn to Slide #7. The XQS transaction supports our ambition to further experiment in next-generation products where we try to leverage our agility, our consumer insights and our distribution capabilities. We are confident that these categories can complement our core categories and allow us to evolve with the changing demands and trends of our consumers.

In late April, we also announced a new Modern Actives product in the Danish market called !act. The product delivers energy through caffeine and was launched in collaboration with a joint venture partner, called REKOM. We continue to closely monitor these growth opportunities to assess whether the group's presence in the next-generation product categories is viable and profitable in the mid- to long term.

In February, Cigars International opened its 8 retail cigar Superstore in Conroe, Texas, the implementation of the strategy to expand the retail network in the U.S. further continues with additional openings expected during 2023. Each of the 7 cigar superstores opened before the Conroe store are profitable. These stores are expected to deliver valuable contributions to both net sales and profits.

Now please turn to Slide #8. Our sustainability agenda, which we call Rolling Responsibly continues to make good progress. New data collection methods and reporting processes will be implemented and our center of excellence continue to assess impactful environmental, social and governance initiatives for the communities in which we operate.

Our center of excellence is developing concrete targets for the science-based target initiative and is creating a baseline and action plan for all carbon emission reductions. We commenced the rollout of our new supplier code of conduct and we continue to update relevant policies for our employees in several languages. We're very proud of the way in which we support local businesses across a number of our operational areas. We strive to encourage and implement the circular economy wherever we can to improve our carbon footprint and our social license to operate.

We will now turn the focus to the performance by division and I'll leave the word to Marianne, so please turn 2 slides to Slide #10.

[Marianne Bock, executive]

Thank you, Niels. I will start the overview with Europe Branded. Net sales for the first quarter increased by almost 8% to DKK 641 million, with organic net sales growth slightly above 8%. This was driven by the categories smoking tobacco and handmade cigars as well as solid pricing in all product categories and pricing remains a key driver.

The growth was, as mentioned, driven by smoking tobacco and handmade cigars, whereas machine-rolled cigars delivered a slightly negative growth, primarily as a result of lower volumes in France, Benelux and the U.K. For all product categories, pricing was solid, with price/mix impact for the largest product category machine-rolled cigars being up by almost 7%.

Consumer demand for machine-rolled cigars in Europe continues to be resilient to the macroeconomic environment with the volume decline rates stabilize at an annual rate of about 2%. EBITDA before special items decreased to DKK 143 million, with an EBITDA margin of 22.3% versus 26.7% in the first quarter of 2022, which was an exceptionally high quarter.

The margin development was driven by changes in market and product mix as well as cost inflation only marginally impacting the first quarter of 2022. The primary drivers behind the mix changes are the decreasing net sales in France, the U.K. and Benelux and higher net sales of smoking tobacco in Germany.

The OpEx ratio was almost unchanged. Our aim is to retain market share over time, driven by our strong brand portfolio as well as price increases remained -- remains a key priority to offset declining volumes and inflationary effects. Additional levers for Europe and to deliver margin improvement is our simplification initiative, reduce the number of SKUs, stock keeping units and brands within the portfolio. This initiative continued during the quarter, and we aim to simplify our portfolio further.

With this, please turn to Slide 11, where I will speak to the North America Branded and Rest of the World division. For the first quarter, net sales in North America Branded and Rest of the World decreased by 7% to DKK 720 million as a result of the quarter being up against an exceptionally strong first quarter of 2022. Pricing in U.S. handmade cigars could not fully offset declining volumes. However, all product categories delivered solid price/mix impact.

EBITDA before special items decreased by DKK 280 million with an EBITDA margin of 38.8% versus 42.4% in the same quarter last year. The decrease in profitability was primarily a result of the gross margin being compared to an exceptionally strong quarter -- first quarter of 2022, where the gross margin was improved by strong net sales in Norway as well as the impact from the implementation of a new distribution model in Australia.

Consumer demand for cigars is still considered resilient although volumes of handmade cigars in the U.S. continued to decline by more than the expected structural decline rate. The Alec Bradley business which was acquired as of 1st March is currently meeting all milestones throughout the integration and planning process.

The nicotine pouch product STRÖM continues to perform well and with the expected takeover of XQS, the group's portfolio within the next-generation product categories will be further strengthened. These products are created and developed out of the growth incubator and are sold via the commercial divisions.

I'll now turn the attention to the performance in the North America Online & Retail division. Please turn to Slide #12. Net sales for the first quarter increased by 6% to DKK 602 million compared to the first quarter of 2022 and the EBITDA margin improved to 13.9%.

Organic net sales increased for the first time in 8 quarters being driven by good performance in the online business and continued growth in the retail business. The performance of division continues to be negatively impacted by the dynamic between retail and online sales channel and sales competition in the online channel.

North America online and retail high proportion of online sales compared with retail sales implies the division continued to underperform the general market development as a result of channel mix and loss of market share. Retail accounts for an increasing share of the net sales in the division and develop -- delivered -- sorry, retail accounts for an increasing share of the net sales in the division and delivered double-digit organic net sales growth versus last year, driven by new store openings. This resulted in retail accounting for close to 9% in the quarter.

We continue to expect the balance to reverse in favor of online though it is taking longer than originally anticipated, and the decrease in volumes was partly offset by a strong price/mix impact. The distribution of nicotine pouch product ZYN is developing positively and contributed to the online business.

EBITDA before special items increased to DKK 83 million versus DKK 75 million last year with an EBITDA margin before special items of 13.9% versus 13.2% last year. The margin development is primarily driven by price management and as cost inflation may still come into play in the coming quarters, it remains a key priority to protect margins.

Now please turn 2 slides to Slide #14. Before I turn to the details to the financial performance from a group perspective, I would like to dive into the long-term trends in the EBITDA margins by the group and by division. Each quarter, we deliver many details to the development for the actual quarter by division and to the development compared with the same quarter the previous year.

In the first quarter of 2023, North America Online & Retail was the only division to deliver a small improvement of the margin compared with the first quarter of 2022. The 2 other divisions and the group delivered declining margins as a result of the exceptionally strong performance last year, which I just talked to.

However, in this slide, we have outlined the development in the first quarter EBITDA margins over the past 6 years since 2018. We believe these trends better illustrate the underlying progress in our strategy and financial ambitions and it appears on the long-term trends that '21 and '22 seem to be exceptions to the underlying growth traction, which we have illustrated with the arrows.

Our ambition -- our financial ambition of increasing the EBITDA margin over time subject to changes in business mix as well as acquisitions is anchored in our strategy Rolling Towards 2025, and the ambition is based in the past performance and gives us comfort. We will continue to deliver on the ambition in the years ahead.

With this, please turn to Slide #15. As Niels addressed in his opening remarks, we delivered a steady financial performance during the first quarter of this year, considering the strong results realized in the first quarter of 2022. As you might recall, these results were impacted by continued favorable product and market mix on the back of the pandemic, a onetime positive impact from the change of distribution model in Australia and further, the quarter was only marginally influenced by cost inflation impacting the following quarters.

For this first quarter of 2023, reported net sales increased by 1.3% to almost DKK 2 billion, while organic net sales growth was negative by 0.8%. Acquisitions and exchange rate developments, impacted net sales positively by combined 2%. The decrease in organic net sales of 0.8% was composed by 8% growth in Europe Branded, a 1% growth in North America Online & Retail and a 9% negative growth in North America Branded, Rest of the world.

The U.S. dollar exchange rate development had a positive impact on reported net sales by almost 2%, far less than in previous quarters while the impact from the acquisitions of MOSI in 2022 and Alec Bradley in March this year only had a marginal impact on reported numbers. Alec Bradley will have a larger impact in the coming quarters.

Let me now give you more details on the development of the EBITDA margin compared to last year. The EBITDA margin decreased by 3.3 percentage points to 24.1%, partly impacted by changes in divisional mix as well as changes in product and market mix in the divisions.

The change in the contribution to group net sales by divisions, this impacts the group EBITDA margin negatively by almost 0.6 percentage points with most of the remaining decline relating to changes in the gross margins in Europe Branded and North America Branded, Rest of the World, whereas our online and retail business delivered a slight increase.

In the divisional performance overview, I talk to the drivers behind these developments. The increase in OpEx ratio primarily relates to cost inflation. In summary, although the EBITDA margin of 24.1% is below the exceptional high margins from previous years, the EBITDA margin remains high -- higher than in any first quarters in the previous years before 2021, and we believe we are on track to deliver on our full year expectation of a margin in the range of 24% to 25%.

The free cash flow before acquisitions was DKK 308 million lower than last year, with a minus DKK 179 million for the quarter. The change is driven by the operational performance with a lower reported EBITDA, higher financial costs and taxes paid as well as an increase in working capital. The change in working capital was primarily driven by increased inventories due to higher safety stock preparations for Track & Trace and OneProcess and tax stamps ahead of excise increases in the U.K.

The first quarter of the year is normally the weaker quarter from a cash flow perspective and we remain confident to deliver a cash flow before acquisitions for the full year as previously expected.

With this, please turn to the next slide, #16. I will now briefly talk about our net debt and leverage position. Since year-end 2022, the net interest-bearing debt has increased by DKK 787 million to DKK 4.4 billion by the end of the first quarter 2023. The increase is driven by the negative contribution from cash flow from operations, purchase of treasury shares and the purchase price of Alec Bradley at DKK 514 million.

During the first quarter, the company bought back 0.81 million shares at a market value of DKK 96 million under the program that was initiated in 2022 and closed at the end of February 2023. The leverage ratio increased to 2x versus 1.6x by the end of 2022. We are pleased, shareholders approved the proposed 10% increase in ordinary dividend to DKK 8.25 per share at the Annual General Meeting in April.

The payment of dividends of close to DKK 700 million as well as the investment in XQS, will -- which is expected to close shortly, are expected to result in a further increase in the leverage during the second quarter of the year before decreasing again in the second half of the year. Our target leverage remains unchanged at 2.5x.

With this, please turn to the next slide for a discussion on our expectations for 2023. Overall, the consumption of products in our categories is perceived as resilient. The consumption of handmade cigars in the U.S. is currently declining at a faster pace than its structural decline rate of about 2% on the back of an exceptional growth delivered in 2020 and 2021. The consumption of a machine-rolled cigars in our key European markets continued to develop close to a structural decline rate of about 2% to 3%.

For the remaining year, the volume development for both Cigars categories is expected to be close to their structural decline rates. Price increases are expected to more than offset the volume decline and a small contribution to net sales growth is expected from the growth enablers, including retail expansion in the U.S. and next-generation products.

The EBITDA margin is assumed to be impacted positively by price increases -- by price increases and improved productivity in our factories compared with last year, and the EBITDA margin is assumed to be impacted negatively by cost inflation, mix changes, investments in next-generation product category, store openings in the U.S. retail market and the rollout of our sustainability strategy Rolling Responsibly.

The largest uncertainties for net sales and the EBITDA margin are changes in consumer behavior, including the development in our U.S. online business, changes in the market and product mix as well as unexpected cost inflation.

Given these considerations, the guidance for 2023 is maintained, reported net sales in the range of DKK 9 billion to DKK 9.3 billion. EBITDA margin before special items in the range of 24% to 25%. Free cash flow before acquisitions in the range of DKK 1.2 billion to DKK 1.4 billion, adjusted EPS in the range of DKK 14.5 to DKK 16.5. The guidance is based on current exchange rates.

This concludes our presentation for today's call. I will now hand the word back to the operator, and we'll take your questions. Thank you.

[Operator]

[Operator Instructions] We will now take the first question. It's from the line of Niklas Ekman from Carnegie.

[Niklas Ekman, analyst]

Just a couple of questions from my end. Firstly, on the top line target here of growing sales to DKK 9 billion to DKK 9.3 billion, if I'm not mistaken, this would require an organic growth in the range of 3% to 6%. And these are growth rates that you only ever achieved really during COVID. And you started now with minus 1% in Q1. So that sets the bar even higher for the coming quarters. Can you elaborate a little bit on why you expect sales growth to accelerate strongly here in the coming quarters? Or if you see a risk that you will come in at least near the lower end of the guidance given the weaker start here to '23?

[Marianne Bock, executive]

Thank you, Niklas. Yes, we maintain our top line guidance of the DKK 9 billion to DKK 9.3 million (sic) [ billion ]. And you are correct, that will imply that we will have organic growth for the remaining year. The organic growth is coming from various prices across the divisions and the handmade cigar market will drive part of this growth.

[Niklas Ekman, analyst]

Okay, okay. Fair enough. And if we look at European brand, that business saw the strongest sales growth it's been in many quarters. You talk about price hikes, but at the same time, report a minor loss of market share in that division. Have you raised prices more than peers? And is this something you expect will correct in the coming quarters? So can you elaborate a little bit on your relative position in Europe?

[Niels Frederiksen, executive]

Yes. So Niklas, I think that the key drivers for the first quarter growth in Europe Branded is handmade cigars for one. And secondly, our German fine cut business. And if you look at the handmade cigars outside of the U.S., we have seen, which we debated before and increased opportunities for us to push harder to replace the vacuum created by supply situation and increased pricing by the Cubans. So we're seeing good impact on that. And just as we in 2022, saw good growth, we also expect 2023 to deliver good growth.

In Germany, we have our fine cut brand called Break, which is continuing to perform well. It's a brand that has evolved slowly over the years because in Germany, you are competing in some very strong key accounts, and you almost have to build your credibility outside of those before you secure listings. But we are on a good trajectory there. Having -- and we're also on price increases, we've done well, but we have not taken necessarily more than competition net-net, but it has been a healthy price increase.

So I don't think you should necessarily think about the division delivering similar growth rates for every quarter of the year, but it is a division that is recovering. And just to make sure that we are aligned, that the market share did actually recover marginally from Q4 2022. And we are still in the early phase let's say, of having no supply issues and seeing how the market is responding. So I would be disappointed if we do not see continued market share improvement in the course of 2023.

[Niklas Ekman, analyst]

That's very clear. Third question is on cost inflation. Can you, first of all, just tell us what are the main issues here? And -- we've seen many costs now reversing if you look at input costs, et cetera, in recent months. This is an issue that you expect will ease in the coming quarters.

[Marianne Bock, executive]

So the way that we're looking at cost inflation, currently, we are not seeing cost inflation, which was not part of our expectations. And we are also -- as you said, we are also seeing part of our costs reversing to previous level, for example, energy is in some -- in many of our plants back to the level in Q1 in 2022. We are still cautious when we go into the second quarter and the remaining year, we are cautious of the development in the U.S. where we're still seeing large inflation impacts. But as I said, until now, nothing that is not within our expectations.

[Niklas Ekman, analyst]

That's very clear. Can you tell us a little bit more about your future rollout and in superstores. You talked about you have 8 stores now. You talk about 2 more stores this year. Can you elaborate any more on your plans here for the coming years? You talk about Rolling Towards 2025. How many stores will you have by them, do you think?

[Niels Frederiksen, executive]

Yes. I think that's no secret if I reveal today that we will open the second store this year on the 3rd of June in Katy, Texas as well. This is part of our pre-marketing going on. So that will open early June, and we expect 1 more store to open this year. We are still thinking 2 to 4 stores a year for a period is the suitable frequency for now.

As we reported previously, every store is doing well and is profitable. But we also really want to make sure that the next level of stores are performing according to plan. And there is, I think, again, the U.S. is a good example where we see cost of construction going off. We see labor inflation, and we are really watching consumer behavior, both in retail and online very closely.

[Niklas Ekman, analyst]

Great. Great. And also, can you tell us a little bit about your new growth initiatives? And I'm thinking organically but including the recent acquisitions here, but not including future acquisitions, when do you think that these growth initiatives will be big enough to actually have an impact on group sales. And yes, just interesting to hear your thoughts there.

[Niels Frederiksen, executive]

Yes. And it's a good question, and 1 we debate internally as well. I think that what we have accomplished with the latest acquisition is we've now and the latest launch in Denmark of this Modern Actives caffeine-based product is that we've got ourselves a, let's call it, a nice little portfolio consisting of XQS, consisting of STRÖM, now consisting of !act. And this is a good starting point for us to see what can we add value to these brands in combination, and we will be looking, of course, as to Sweden as the main market for the Modern Whites products and the nicotine pouches, and we're also looking to expand geographically.

So we are mindful of the fact that sooner or later, we need to start telling you what is the net sales performance of these items. And I think that we now hopefully would close the ex-U.S. transaction, get it under control. And then I think we will be discussing when is the right time to start giving you more concrete information about this. It's still what we consider an experimentation.

[Niklas Ekman, analyst]

Okay. Fair enough. Look forward to more details. And I know I've taken up a lot of time here. But just 1 final question from my end. It's really on the buybacks. You post the buybacks, which I believe is because you're open for M&A. And you did 2 acquisitions now in Q1 and then in April, but these are still relatively minor and probably not enough to justify posting buybacks. So the fact that you haven't suggested with ZYN buyback, is that because you are looking at additional M&A? Or do you expect to resume buybacks later this year?

[Marianne Bock, executive]

So Niklas, you're all right that we post the buyback, and we have not resumed this time, I cannot, as you also know, comment on any potential M&A activities. But we look at everything together. We look at our own development, market development, other initiatives that we have internally. And here, we came to the conclusion that it was not time to resume the share buyback.

[Niklas Ekman, analyst]

But is it safe to assume that if you don't do additional M&A, you will have potential to resume buybacks before the end of the year.

[Marianne Bock, executive]

So if you look at the end of the year, and I also talked to the leverage target that we expect into the year will go down with the current initiatives then we will always be committed to our capital return policy, and we will review how we comply with it.

[Operator]

[Operator Instructions] And our next question comes from the line of Sebastian Bray from Nordea.

[Sebastian Bray, analyst]

Yes. Can you hear me? Is my line open?

[Torben Sand, executive]

Yes, we can hear you.

[Sebastian Bray, analyst]

Okay. Perfect. So first is the usual 1 around the U.S. market for handmade cigars. So easy presentation that you see decline rates of the structural trend. And I mean, to me, the wording is this time slightly more cautious compared to the Q4 presentation in March. So maybe if you could clarify a bit here. What are the trends that you're currently seeing in the U.S. tobacco market both for -- in terms of volumes and trading patterns? Any signs of cyclicality or other things to highlight here? And does this in any way differ from what you saw back in Q4? That would be my first question.

[Niels Frederiksen, executive]

Yes. First of all, I think it's important to remember that the handmade cigar market in the U.S. is somewhat seasonal. So we see the smallest quarter in Q1. We had 2 relatively high quarters, Q2 and 3 and then also an in-between in Q4. And -- what makes the U.S. handmade market so difficult at the moment is that we have so many moving parts.

And 1 element is clearly post COVID normalization. What exactly is this doing to consumer behavior around handmade cigars you know that more people still spend more time working from home, but we also know that people have returned to the office. So what is the net impact of this on the consumption pattern.

Then to have the, let's call it, the disruption of the historic purchase pattern between online and physical retail where we see physical retail has been stronger for a while, and we are beginning to see maybe small signs of consumers returning to online, but it's growing, as we also mentioned in the documents slower than anticipated.

And then the final 1 is really, let's call it, the economic climate, COVID recession, call it slowdown. We are concerned and continue to be concerned about what does this do to what we consider to be discretionary spending. So it can come in 2 forms. It can come in the form of not buying as much as we normally do, but it can also come in the form of down trading.

And so I think when you -- to answer your question of whether we are more cautious now, I think we are -- we were cautious when we reported the full year, we're still cautious. And I think the second quarter is going to be a really important quarter for us to watch. So I'm afraid that we all have to be a little patient here when it comes to the U.S. handmade cigar market, still reminding everyone that it is operating at a level well above pre-COVID.

[Sebastian Bray, analyst]

Okay. It was very clear. So you alluded a little bit to the skew towards retail versus online. I was just wondering what makes you so confident that the balance will reverse in favor of online? And I mean from a profitability perspective, are you even interested in customers migrating towards the low margin online retail division instead of staying in high-margin [indiscernible]

[Niels Frederiksen, executive]

Yes. You can say part of our retail expansion strategy rationale is that we seem to be able to realize even higher margins in a retail environment, at least for the size of stores that we are operating. So you can say that, that is, of course, something that is interesting for us because we have and believe we can create also in that segment a reasonable market share. But it's also clear that the more volume that goes through online altogether is not so optimal for our own branded business.

So it is a mixed emotion but net-net, we think that they will come back to online because there are good rational reasons for the consumer to be there in terms of ease of shopping, assortment with -- there's even some products not available in regular retail. And then you can say that it's cheaper. So it is a balance. What we are seeing is that people are still very keen on going out. And -- but we are, as I said, also seeing more signs that online is regaining some popularity.

[Marianne Bock, executive]

And maybe I can add here is, we're interested in finding the right balance between retail and online. I think it's also important to remember that consumers that are being introduced to the category are being introduced through the retail. And they normally -- that's what all our consumer surveys showed they would normally shop in retail stores for the first 5 years being in this category before they move into online. So retail is an important channels for the handmade cigar, but we do believe that online is equally important.

[Sebastian Bray, analyst]

Okay. Very clear. And just a last couple of questions on pricing and the pricing environment. So looking to Europe Branded, it seems like you've been able to pass on substantial price increases. Is there any timing effects to be aware of here? So you had a 7% price mix impact in Q1. Is that the sort of the full year impact that we should expect in this division?

[Marianne Bock, executive]

So -- of course, we have windows where we do our price increases across the year, but we try to make it even across the year. So there will be a good starting point. However, and I think we also talked about that last year, steady or solid stable supply from our end is important to be able to take the necessary price increases. We have seen -- we are seeing stability in our production environment. I think Niels also talked to that. We still need to have a few more quarters under our belt to make sure that we are fully stable, but that is an absolute prerequisite for being able to take the necessary price increases in the market.

[Sebastian Bray, analyst]

So we could expect some additional price/mix effects throughout the year?

[Marianne Bock, executive]

So if you look at the 7% in the first quarter, we expect that we will have both an effect from price increases being taken in 2022 at the end of the year that will impact the full year in 2023. And of course, the price increases that we have already taken will also -- that we took in January will also have affected the remaining year.

[Sebastian Bray, analyst]

Okay. Marianne, very clear. My last question, price in the U.S. in particular in the online division where you've been losing market shares. So what is your strategy here on pricing? I mean, is it even feasible for you to try to push prices when some of your competitors clearly are more aggressive. So what are your thoughts here on the balance between sort of volumes and value, so to say?

[Niels Frederiksen, executive]

No. I think that the best way to describe this is that we are constantly searching for the right balance between volume, pricing and sustainability over time. So you can say on the back of COVID, we have made an extraordinary effort to protect margins and not move aggressively into discounting as some of our competitors have done and then we monitored the situation carefully.

We constantly debate whether we can push harder and we can do that. And it is 1 of the things we are looking at, at the moment, should we be more aggressive on promotions because we think that maybe we need to protect market share for a period more than we protect the margins.

And remember, this is not -- it's not like huge margin shifts. But still in this business, a 0.5 percentage point or 1 percentage what means something. But we need to find that right balance, and we keep searching for it. So the answer is we do what we think is right at any given time in the marketplace, and we are actually considering to be more aggressive on pricing.

[Sebastian Bray, analyst]

Okay. Very, very clear.

[Operator]

There are no further questions on the telephone at this time. I would like to hand back for any webcast questions.

[Torben Sand, executive]

There are no questions on the webcast. So I think we are good for that.

[Operator]

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

[Torben Sand, executive]

Okay. Thank you very much all of you, and have a good day.