Scandinavian Tobacco Group: Boxed

“2025 became a challenging year for Scandinavian Tobacco Group with a combination of external disruptions and internal operational issues.” - Niels Frederiksen, CEO, STG, Q4’25 Remarks

Where are we in the arc?

Let’s revisit the titles of recent STG-related notes in reverse sequential order.

• A Tale of Two (Dec ‘25)

• Washed (Nov ‘25)

• Racked (Aug ‘25)

• Stretched (Jun ‘25)

• Wider (Mar ‘25)

• Elusive (Nov ‘24)

Words have meaning, and the ones above tell a story of progressive struggle. But the tipping point was only just before, following Q2’24, when Scandinavian Tobacco’s aggressive posture became too evident to ignore. Caution has grown as estimates (my own included), and results (both reported and adjusted) keep moving in the other direction. Now, the company has been boxed. Again, words have meaning, so choose the meaning that suits best: the company has been punching above its weight, taking on too much, too fast; it sits in the penalty box, imprisoned for moving targets and metrics after missing its priors; the aggression previously shown has forced the company into a corner, or perhaps a box which has been painted black. Take your pick, or all of the above.

Le Carceri d’Invenzione (Imagined Prisons) - Second Edition, Giovanni Battista Piranesi, 1761

Q4’25 was anticipated with a degree of optimism in the reporting as far as cleanliness goes, having already lapped the acquisition of Mac Baren and the loss of ZYN-related distribution in the United States. Unfortunately, there was still a good deal of grime. Competitive pressures in the U.S. handmade cigar market persist following changes to tariffs. Australia’s lack of tact in excise policy has ballooned illicit markets, tainting legal volumes of all products, including MRC. Attempts to stabilize MRC in Europe have been shaky, at best, with the group’s ERP rollout causing supply issues beginning in Q3, and Q4 showing a stark mismatch in FCF due to an associated failure to collect receivables in a timely manner.

Since becoming public, a central part of the STG thesis has been hinged on the rate at which capital has been returned to shareholders. Between dividends and share repurchases, the pace was rapid at times. Repurchases have already been shelved, with resources instead being spat across the countless projects the group is tangled in. It is no surprise that many headlines tout the reduction in dividend as a crushing development. The reduced dividend was included in the headline of the company’s own release. So it is also not surprising that it has been pointed to as the reason for the colossal drop in share price following the report’s publication. However, for those following along, this is a wholly unsatisfactory explanation, as it is no explanation at all, with the change in dividend policy well telegraphed during the group’s Capital Markets Day event last November. The move to a more flexible payout resulted in my prior illustration showing a forward dividend of DKK 4.75, just above the 4.5 that the board ultimately approved.

So what is the real source of commotion? There are many.