Scandinavian Tobacco Group A/S reported a 7.23% rise in its share price to $75.60 on Thursday after its H1 2026 earnings call highlighted a 35% year-over-year increase in free cash flow before acquisitions to DKK 422 million.
Net sales declined 3% to DKK 4.2 billion, entirely due to adverse foreign exchange effects, while organic net sales remained flat at 0% for both H1 and Q2. The company’s leverage ratio held steady at 3.0 times, though management expects it to fall below 2.5 times following the anticipated year-end closure of the Break and Moro divestment to Japan Tobacco.
Free cash flow before acquisitions totaled DKK 422 million in H1, up from DKK 272 million in the prior-year period, with Q2 contributing DKK 264 million. The group’s free cash flow yield stood at 10%. Special items widened to a DKK 135 million loss from DKK 105 million a year earlier, while duty drawback refunds and tariff refunds contributed DKK 79 million and DKK 33 million, respectively, in H1.
A rare quality issue in the Signature premium little cigar line led to a DKK 35 million write-down in Q2, with availability expected to normalize by Q3. Trademark amortization expenses rose by DKK 38 million in H1, reducing the EBIT margin by 0.9 percentage points and are projected to increase by nearly DKK 75 million for the full year.
The Break and Moro divestment, announced on July 22, 2026, is valued at EUR 176 million (approximately DKK 1.3 billion), with after-tax proceeds estimated at DKK 1 billion. The transaction includes a three-year manufacturing agreement with Japan Tobacco, subject to a six-month termination notice. The divested brands accounted for less than 4% of group net sales in 2025 but represented roughly 6% of EBITDA, including allocated costs.
Full-year 2026 guidance remains unchanged, with constant-currency net sales growth projected between minus 2% and plus 2%, an EBIT margin before special items of 13% to 14.5%, and free cash flow before acquisitions targeted at DKK 950 million to DKK 1.2 billion. Management reiterated its leverage target of below 2.5 times by year-end.
Handmade cigars continued to expand at a mid-single-digit organic pace, driven by power brands such as Cohiba, Macanudo, CAO, and Alec Bradley, while nicotine pouches delivered 8% organic growth in Q2—reversing Q1’s decline—though H1 growth remained at minus 5% due to trade inventory adjustments. Machine-rolled cigars and smoking tobacco saw a 4% organic sales decline in H1, though volume market shares stabilized in five of seven key European markets.
