Financial Data and Key Metrics Changes - Company reported sales of $13.3 million for Q3 2025, a slight decrease from $13.5 million in Q3 2024 [9] - Gross profit for Q3 2025 was $1.6 million, down from $3.5 million in the same quarter last year [9] - Operating profit for Q3 2025 was $50,000 compared to $1.9 million in Q3 2024 [9] - Net loss for Q3 2025 was $0.2 million, or $0.03 per share, compared to net income of $1.7 million, or $0.25 per share in Q3 2024 [10] - EBITDA for Q3 2025 amounted to $0.6 million, down from $2.3 million in the prior year [10] - Positive cash flow from operating activities was $2 million in Q3 2025, compared to $1.6 million in Q3 2024 [10] Business Line Data and Key Metrics Changes - Demand for products remains strong, particularly in the defense sector, which accounted for 63% of quarterly sales [6] - RigidFlex products represented 66% of quarterly sales and 65% of sales for the first nine months of the year [6] Market Data and Key Metrics Changes - Company is experiencing increased competition from new foreign entrants, particularly in the defense sector [6][23] - Delivery times across the industry remain extended due to strong global demand and constrained manufacturing capacity [6] - In low-volume, high-complexity production, competition remains limited, allowing for greater pricing flexibility [6] Company Strategy and Development Direction - Company is in a transition period, absorbing significant additional capacity and technology upgrades [5] - Production capacity expansion program is progressing well, with the new production hall nearing completion [7] - The RP project is on track to go live in 2026, aiming to integrate all company platforms for improved operational efficiency [8] Management's Comments on Operating Environment and Future Outlook - Management noted that operational instability is primarily due to the ramp-up of new equipment and the integration of new staff [5] - The impact of currency depreciation on operational profit was approximately $800,000 compared to Q3 2024 [4] - Management expects the revised pricing model to positively impact results in the coming quarters [4] Other Important Information - Company is facing pressure from large Israeli customers to extend credit terms, increasing working capital requirements [6] - Recent improvements in regional security have positively affected logistics, allowing for reduced inventory levels [6] Q&A Session Summary Question: What is the status of operational issues? - Management clarified that previous operational issues were related to construction and are now due to engineering and manpower challenges [12] Question: When will the pricing lift due to USD depreciation be realized? - Management indicated it typically takes six to nine months for pricing adjustments to translate into profits [13] Question: When will operational difficulties be resolved? - Management stated it is difficult to predict, as it depends on employee absorption rates and engineering proficiency [14] Question: When can gross margins of 26-27% be expected? - Management expects to stabilize production processes and improve gross margins by mid-2026 with the integration of new equipment [15] Question: What is the impact of new competition? - Management noted that competition is increasing from foreign entrants, particularly in the defense sector, affecting pricing flexibility [23] Question: Will currency and foreign exchange impacts continue? - Management confirmed that as long as the dollar remains weak, financial expenses and operating income will be negatively affected [27]

Core Insights - Scandinavian Tobacco Group reported a 1.3% increase in net sales for Q1 2025, reaching DKK 2.0 billion, but experienced a negative organic net sales growth of 8.8% [1][7] - The company adjusted its full-year 2025 expectations due to increased tariffs and a weaker U.S. dollar, projecting reported net sales between DKK 9.1 billion and DKK 9.5 billion [5][10] Financial Performance - EBITDA before special items decreased by 5.3% to DKK 317 million, with an EBITDA margin of 16.1%, down from 17.2% in the previous year [1][7] - Free cash flow before acquisitions was DKK 156 million, a significant improvement from DKK -126 million in the same quarter last year [7] - Adjusted EPS for Q1 2025 was DKK 1.5, down from DKK 1.8 [7] Market Dynamics - The growth in reported net sales was primarily driven by the acquisition of the Mac Baren business and strong performance in the XQS nicotine pouch brand [2] - Organic net sales decline was attributed to reduced consumption of handmade cigars in the U.S. and the discontinuation of online ZYN distribution [2] - The U.S. market constitutes approximately 45% of the Group's net sales, and the depreciation of the U.S. dollar has negatively impacted reported figures [6] Adjusted Expectations - The full-year EBITDA margin expectation has been revised to a range of 18-22%, down from 20-23% [8][10] - Free cash flow for the full year is now projected at DKK 0.8-1.0 billion, narrowed from DKK 0.8-1.1 billion [9][10] - Adjusted EPS expectations have been revised downward to a range of DKK 10-13 per share [10] Strategic Focus - The company aims to protect market shares and cash flow amidst increased uncertainty in consumer sentiment and retailer inventory decisions [5][11] - Ongoing integration of Mac Baren and development of updated strategies are highlighted as key priorities [11]