Ladies and gentlemen, thank you for standing by and welcome to the Scandinavian Tobacco Group Full Year Results 2020 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star and one on your telephone. I must advise you that this conference is being recorded today on Wednesday, the 10th of March 2021. I would now like to hand the conference over to your host today, Torben Sand. Please go ahead, sir.
Yes, good morning and welcome all to this conference call. Let's jump directly to page two. As you know, my name is Torben Sand, Head of Investor Relations, and I'm as usually joined by our CEO, Niels Frederiksen, and CFO, Marianne Rørslev Bock. Today, we have a slightly longer agenda than usual as we would like to use a few extra minutes on our updated five-year strategy Rolling Towards 2025. The agenda is as follows: The highlights for the full year and for Q4, including an update on the Agio integration. A look back at our achievements in the past five years. Then more details on our updated strategy Rolling Towards 2025. After this, we'll give some insights to our new CSR report and CSR strategy.
Following this, we will give you the overview of the performance in our three commercial divisions, and the group as a whole, including an update on our group balance sheet and the board proposal for capital allocation. Finally, we will take you through the outlook for 2021 and take your questions at the end. Before we start, I'll ask you to pay attention to our disclaimer on forward-looking statements in the back of this slide presentation. Now please turn to slide number three, and I'll leave the word to our CEO, Niels Frederiksen.
Thank you, Torben, and a very warm welcome and good morning to everyone on the call. Overall, Scandinavian Tobacco Group delivered a strong full year 2020 financial performance with 6.6% organic net sales growth, 14% organic EBITDA growth, and a free cash flow of DKK 1.4 billion. Our best financial performance ever. All three divisions delivered improved results, and the outlook for the coming year remains positive. For the fourth quarter, the performance was, as expected, heavily impacted by phasing between quarters and a difficult comparison to a strong fourth quarter 2019. Net sales grew organically by 4.2% to DKK 1.9 billion. EBITDA before special items was DKK 397 million compared to DKK 430 million last year, displaying a 15% negative organic growth. Free cash flow before acquisitions was DKK 238 million, 35% lower than last year.
The increased demand for our products continued to be driven by changes in consumer behavior following the outbreak of the COVID-19 pandemic, with higher tobacco consumption across many product categories and markets, but also as a result of our efforts in improving the customer service offerings by multiple avenues. Our results are also a function of the intensive work we have delivered in improving our cost efficiency and by a fast and dedicated integration of Agio Cigars. With these results, we are meeting our recent guidance, released 18 December last year on EBITDA growth, and our cash flow was slightly higher than expected as the expected normalization of payables of around DKK 150 million now only is expected to take place in the first quarter of this year. Underlying cash flow was as expected.
At the end of this presentation, we will give more details on our guidance for 2021 with the following headlines: Organic EBITDA growth of more than 7%, free cash flow before acquisitions of more than DKK 1 billion, and adjusted earnings per share growth of more than 10%. Based on this overview, let's turn to the update on the integration of Agio Cigars. The integration of Agio Cigars is progressing as planned, and we're pleased about having acquired this great company, which, when fully integrated in 2022, will add significant value to Scandinavian Tobacco Group. The commercial integration was finalized in the fourth quarter, and it continues to give me comfort that the combined like-for-like market shares remained stable over the year but actually increased slightly by the end of the year.
The expectations to deliver total net synergies of an estimated DKK 225 million by the end of 2022 remain unchanged on the back of cost savings of around DKK 80 million realized in 2020 and another DKK 70 million-DKK 80 million expected to be delivered in 2021. This year, the next and very important steps in the integration plan is the integration of production facilities with the intent to close down three of our factories. These closures are also driving some of the special costs that were already expensed in 2020 and which will also impact the 2021 numbers. Special costs in relation to the integration of Agio Cigars of DKK 176 million have been expensed in the fourth quarter, including a DKK 112 million cost for the changes to our manufacturing footprint.
The expectation is that total special costs until the end of 2022 will be at the level of DKK 450 million with cash impact and DKK 105 million in non-cash impairments. Please turn to the next slide. Before I talk into the details of the updated strategy, allow me to use a minute or two on some reflections on the journey Scandinavian Tobacco Group has been on in recent years. During the recent decade, we have rebuilt the company into one of the leading companies in cigars and pipe tobacco. Since the company divested the cigarette business back in 2008, the group net sales has more than tripled from two and a half billion DKK to now DKK 8 billion.
A substantial part of this growth has been achieved through the merger with a carve-out from Swedish Match in 2010 and through a number of important acquisitions like Verellen in 2014, Thompson Cigar in 2018, and Agio Cigars in 2020. Furthermore, we have launched several efficiency programs like Fueling the Growth and transformed the company into a truly global organization. It's from a position of strength that we have launched Rolling Towards 2025, a new strategy, new purpose, and new values, which will guide us in the years to come. Please turn to the next page. The next two slides give you a quick overview of our financial performance since our listing in 2016, which emphasized that the strong growth in net sales has been supported by good progress in all important metrics we evaluate our performance on.
I will not go into detail, only conclude that we've delivered 4.2% average organic EBITDA growth during these five years, compounded average growth of 5.3% in adjusted earnings per share. We've made more than DKK 1 billion on average in free cash flow before acquisitions. Please turn to slide number seven. Furthermore, we have delivered a 5.4% CAGR in ordinary dividends, assuming that the proposed dividend for 2020 is approved by the AGM in April. We have returned a combined DKK 3.4 billion to shareholders, either as dividends or in the form of share buybacks. The return on invested capital have been more or less stable during the period, this is a metric we will talk more about in a moment. We can conclude that all these achievements have resulted in an annual 8.2% total shareholder return as at the end of February 2021.
Now let's turn to the new strategy and slide number eight. At the end of 2018, we launched Fueling the Growth, which has been the start of a significant transformation journey for Scandinavian Tobacco Group. We have changed our organization structure and our operating model, we've gone from a largely decentralized company to operating Scandinavian Tobacco Group with a truly global perspective. In the same period, we've acquired both Thompson Cigar and Agio Cigars, we believe we are today a stronger and more competitive company. With the progress made, time was also right for us to take a more thorough look at our strategy, our purpose, and our values, we've used 2020 to do that, we presented this updated strategy to our organization in late 2020, now to you.
It is an evolution more than a revolution, it clearly cements our focus on winning in cigars globally. It also introduces a new purpose, craft the rituals that make us more. We think this purpose captures exactly what our products are all about. Our passion for the tobacco and the craftsmanship that goes into creating these products, also what they mean for our consumers as part of their rituals. Rituals are something that we all understand, whether the ritual involves our products or not, they provide structure and meaning to people's lives. We are proud about those consumers that consider our products to be part of some of their important rituals. Please turn to slide number nine.
Rolling Towards 2025 cements our focus on cigars and will ultimately enable us to become a larger company, to grow our EBITDA, and create outstanding cash generation for ourselves and for our shareholders. Our updated strategy is based on five must-win battles and four key enablers. We want to grow in handmade cigars. This is our primary investment focus. We will direct our efforts at driving growth across the handmade cigar business, specifically in North America. We want to drive sustainable profit growth in machine-rolled cigars by efficient price management and leveraging market-leading positions across Europe while simplifying our portfolio to drive efficiencies. We continue to pursue opportunities to consolidate our industry with primary focus on cigars. We want to make sure that we continuously build our integration capabilities.
We want to reduce complexity and make it easier to drive the business by simplifying portfolios, operations, and back office. We will modernize our IT infrastructure, increase digitalization across the value chain, continue to streamline the supply chain, also drive efficiency in distribution. We will further strengthen our performance culture and create an environment for learning and development that allows us to improve as a company and as individuals. The updated strategy involves an even sharper allocation of capital and human resources to our core business. We have also started a so-called growth incubator. The growth incubator is not about making large bets on new ventures, but reflects the need to understand the significant changes that are taking place within the tobacco industry, and figure out if new categories are emerging where Scandinavian Tobacco Group has a right to play and to win in selected niche markets.
We have delivered significant growth over the past decade. Our updated strategy is all about making sure that we raise the probability of delivering significant growth also in the next decade. Please turn to page number 10. On the back of launching Rolling Towards 2025, we have also revisited our set of financial ambitions. Firstly, we maintain the ambition of an average organic EBITDA growth of 3%-5%. Secondly, we also maintain the ambition of growing free cash before acquisitions, though emphasizing that fluctuations will occur year-on-year. Finally, we will focus on return on invested capital as an important KPI. We intend to focus more on an efficient use of capital across our company. The ambition is to increase it from the current level.
At this stage, we are not prepared to set targets. Rest assured, we will pay far more focus on improving the return on invested capital going forward. Not the least as value creation in making acquisitions and other investments are highly critical in pursuing our ambition of creating value for our shareholders. With this, I will leave Rolling Towards 2025 and address another very important topic, our CSR efforts. Please turn to the next page. Responsibility has long held a central place in Scandinavian Tobacco Group's values. We decided in 2019 that we wanted to strengthen our corporate social responsibility agenda and give it more visibility and weight. We established a CSR steering committee in late 2019 with senior leaders of the group to build better governance around our CSR work. In June of last year, Scandinavian Tobacco Group launched our very first CSR strategy.
Our CSR strategy is designed to provide clear priorities and to address areas where we want to do more. To that end, the strategy has four focus areas, each with its own defined ambitions, activities, and goals. Those focus areas are: people and communities, which looks at how we engage with our employees and the communities where they work and live; planet, which addresses both environmental and climate concerns; ethics, where we want to promote responsible actions in our business and in our industry; and governance, where we seek to embed strong oversight and transparency in our business. Scandinavian Tobacco Group was already active in many of these areas, but our new strategy provides a strong foundation for us to build on as we seek to focus our CSR efforts and lift our ambition.
One example of that new ambition is our decision that we will this year begin to measure and report our greenhouse gas emissions, something we have never done before. We will do this so that we can ultimately set appropriate reduction targets. We are also listening carefully to our internal and external CSR stakeholders to ensure we are addressing these issues in ways they recognize. That is why this year, also for the first time, we have in our annual CSR report, sought to link our focus areas and activities to the United Nations Sustainable Development Goals. We are lifting our ambitions for CSR, knowing that we still have much work to do. We consider ourselves still in the early stages of our journey. A journey which has the full backing of our executive board and our board of directors.
We are confident that the time we've spent in 2019 and 2020 establishing new governance and laying the groundwork for this journey was well invested. We see 2021 as a key year to begin delivering on our ambitions. I would also encourage you to take a closer look at the CSR Report 2020, which is available on our website. With this, I'll leave the word to Marianne, who will talk to the financial results for 2020. Please turn to slide 12.
Thank you, Niels. As already mentioned, 2020 has been a turbulent and an extraordinary year, not least for our division North America Online and Retail. The division reported net sales of DKK 2.8 billion in 2020, an increase of 16%, composed by a 19% positive organic net sales growth and a negative exchange rate effect of 3%. For the fourth quarter, organic growth in net sales was almost 22%. Since the outbreak of COVID-19, and with the overall increase in demand in handmade cigars and the shift of consumers to online platforms our North American online channel has experienced a solid increase in the number of active customers, an increase in average order size, as well as improved customer retention rates compared to previously.
Part of the increased consumption relates, as previously mentioned, to more smoking occasions. We will also emphasize that substantial part of the strong performance in 2020 is the result of our intensified focus on improving customer service. For example, by upgrading our website platforms and continued professionalization of the division. EBITDA before special items increased by 46% to DKK 517 million, with an EBITDA margin before special items of 19.4% compared to 15.4% last year. The margin improvement was driven by an improved gross margin, reflecting lower competitive promotion pressure and scale benefits, but also as continued efficiency improvements lowered the OPEX ratio compared to last year. In the fourth quarter, the EBITDA margin remained at the high level experienced in the second and third quarter. Finally, we successfully finalized the first phase of the U.S. retail expansion under the Cigars International brand during 2020.
In July 2020, we opened the second Texas store in Fort Worth, and in September 2020, our first store in Florida opened in Lutz, Tampa. A second store in Florida was opened in October 2020, which brings the total number of Cigars International operated stores in the U.S. up to seven. With this, please turn to slide 13. Looking into 2021, we expect that high consumption of handmade cigars will continue in the first half of the year. Growth rates will be higher in the first quarter, as consumption only started to accelerate during the second quarter of 2020 and onwards. Although uncertainty into the second half of the year remains high as visibility is low, we have, in our forecast, assumed that a gradual normalization will take place in the second half of the year.
However, we expect our online business will be able to maintain a large part of the new active customers who have either entered the category or engaged with our online platforms. We also expect that our retail network will deliver growth over the year as restrictions are being lifted. Overall, we expect that North America Online and Retail will deliver positive organic growth, not only for the full year, but also in the second half of 2021. In the recent months, the online business has experienced an increase in promotional activities from competitors after unusually low activity throughout most of 2020. Consequently, we do expect that marketing expenses will increase compared to last year, and EBITDA margin is likely to decrease compared to 2020. Please turn to slide 14. For the division North America Branded and Rest of the World, 2020 was probably even more volatile.
The reported growth in net sales was 3.8% to DKK 2,527,000,000, composed of a 0.4% organic net sales growth, a 6.2% positive impact from acquisitions and divestments, and a negative exchange rate effect of 2.8%. In the fourth quarter, organic net sales was negative by 8.5%, primarily due to timing between quarters. For example, as some customers put orders into the third quarter from the fourth quarter. Also we have seen some timing into Q1 2021. For 2020, the development was driven by strong demand in handmade cigars and smoking tobacco, including fine-cut tobacco. The combination of personal consumption being supported by consumers working from home and having more smoking occasions has positively impacted total consumption of several product categories, not only handmade cigars.
North America Branded and Rest of the World also include our global travel retail business, and it goes without saying that this business has had extremely difficult year with travel restrictions and border closures. EBITDA before special items increased by 6% to DKK 813 million, with an EBITDA margin before special items of 32.2% versus 31.4% last year. The margin improvement was realized with an improved gross margin driven by product mix and price increases, and an improved OPEX ratio, which decreased due to lower sales and marketing spend and general efficiency improvements. In the fourth quarter, the EBITDA margin decreased sharply to about 22%. This decline is driven by mix and the timing between quarters, which I just described. Please turn to slide 15. The increased consumption of handmade cigars will obviously also benefit North America Branded as the largest brand owner in the U.S.
The division is expected to deliver positive organic net sales growth with a gradual normalization in the second half of the year as travel and tourism supported our global travel retail business is expected to return to more normal levels. The division has launched a new national distribution network, The Forged Cigar Company, a national cigar distribution network. This implies we will divide the portfolio of industry leading brands between General Cigar Company and the newly formed company. The Forged Cigar Company will serve as a standalone cigar distribution network with its own initial team of 12 dedicated cigar sales professionals, bolstered by independent marketing and customized programming for its brands, and is developed to deepen support for the brick-and-mortar channel. This bring us to the update for the last division, Europe Branded. Please turn to slide 16.
For the division Europe Branded, the reported net sales increased by 41% to DKK 2.8 billion, composed by a 2.3% organic net sales growth and a 39% positive impact from the acquisition of Agio Cigars. During the end of the year, the overall market for machine-rolled cigars returned to the pre-COVID-19 declining trend, while minor market segments such as border trade and sales in regions with a traditionally strong tourist economy continued to be profoundly negatively impacted by the pandemic. Overall, the market is back to normal trends with average volume declines of 3%-5%. Organic growth in net sales was stable within machine-rolled cigars, with market shares in our most important markets unchanged around 33%. The positive organic growth in the division was secured by the smoking tobacco categories, pipe tobacco and fine-cut tobacco, which experienced solid volume and price developments.
EBITDA before special items increased by 23% to DKK 581 million, with an EBITDA margin before special items of 20.6% versus 23.8% last year. The acquisition of Agio had an impact on the financials for Europe Branded, impacting both reported growth and EBITDA margins. EBITDA before special items is negatively impacted by a fair value adjustment of inventory of DKK 62 million. Excluding this adjustment, which will not impact the results going forward, the EBITDA margin would have been 2.2% higher at 22.8%. Please turn to the next slide. As said, the market for machine-rolled cigars are back at structural volume decline rate at 3%-5%, though there are pockets of growth, especially in the premium lit cigars in certain markets like Italy and the U.K.
Our focus within machine-rolled cigars is to improve our volume market share positions at the same time as optimizing the value share further through effective price management. Overall, the division is expected to realize a slight decrease in organic net sales due to a loss of a low-margin European distribution contract. Furthermore, the next steps of the integration of Agio Cigars remains key priorities, and with another DKK 70 million-DKK 80 million in expected synergies to be realized in 2021, profit margins are expected to improve from the level seen in 2020. With this, please turn to slide 18. For the full year 2020, net sales increased by 19% to DKK 8,006 million. Gross profit before special items increased by 18%, and EBITDA before special items increased by 21% to DKK 1,826 million.
The increase in net sales was composed by a 6.6% organic net sales growth, a 2.1% negative contribution from exchange rate developments, and the remaining almost 15% from acquisitions and divestments. The increase in gross profit was driven by the acquisition of Agio Cigars and the organic growth in net sales. The gross margin was stable at 46.4% versus 46.8% last year, with the division North America Online and Retail delivering increased margins, division North America Branded delivering unchanged gross margin, and division Europe Branded delivering a margin decrease due to the consolidation of Agio Cigars, including fair value adjustment of Agio's inventories of DKK 62 million. For the group, the EBITDA margin before special items was 22.8% in 2020 versus 22.5% in 2019.
The margin expansion was driven by underlying cost efficiencies across our operations, though it was partly offset by the integration of Agio Cigars running at a higher cost level. Special items was negative by DKK 435 million, with DKK 234 million expensed in relation to the integration of Agio Cigars, DKK 141 million expensed in relation to changes to our manufacturing footprint, and DKK 107 million as an impairment of tangible assets. Adjusted earnings per share was DKK 9.8 per share, compared with DKK 8.3 per share, an increase of 18%. The increase was primarily driven by the operational performance and only to a small extent, less than 1%, from the share repurchase we conducted during 2020. Finally, the free cash flow before acquisition increased by DKK 207 million to DKK 1,394 million for the year.
As mentioned, the normalization of payables we previously expected in 2020, and which was included in our guidance of above DKK 1,250 million, did not fully materialize and was postponed into the first quarter of 2021. Please turn to slide 19. During the fourth quarter, the net interest-bearing debt decreased by DKK 126 million to DKK 3,274 million, and since the end of 2019, the interest-bearing debt increased by DKK 944 million as a result of the acquisition of Agio Cigars, an investment of almost DKK 1.6 billion. Underlying free cash flow generation remained strong, leaving the leverage ratio 1.8 times at the end of 2020, despite having distributed almost DKK 800 million to our shareholders during the year. Before going into more detail with the capital allocation, I would like to remind you of the successful refinancing we did in 2020. In September, we refinanced our funding by the issuance of a EUR 300 million unsecured corporate bond.
In relation to the bond issuance, both Scandinavian Tobacco Group and the corporate bonds were assigned an investment-grade rating, Baa3 by Moody's Investors Service, with a stable outlook. We are very pleased of having finalized our funding plan following the acquisition of Agio Cigars earlier in the year, also having secured a long-term and strong funding for the next five years. Please turn to slide 20. As part of our financial policy, we have stated that any excess capital, taking into account potential acquisitions and other liquidity needs, will be returned to shareholders. As part of this commitment, we initiated a share buyback program in August last year with a size of a total value of DKK 300 million. This program has now been finalized. We have purchased about three million shares at an average price of DKK 101.4 per share.
It is the intention to propose a cancellation of shares not required for the long-term incentive program at the upcoming AGM in April. At the AGM, the board of directors will propose a DKK 6.5 ordinary dividend payment per share, an increase of 6.6% versus last year. The increase reflects both our ambition to increase the ordinary dividend annually, also that our underlying cash flow capacity has increased with the acquisition of Agio Cigars. Furthermore, we have also today announced the initiation of a new share buyback program of up to DKK 600 million starting tomorrow. The purpose is to adjust the capital structure. Including share buybacks and dividend payments, we have since the listing in 2016, returned almost DKK 3.4 billion to our shareholders, assuming that the proposal for the AGM in April is approved.
Please turn to slide 21, I will now leave the word back to Niels.
Thank you, Marianne. Let me now turn to the expectations for the coming year and our financial guidance. We expect organic EBITDA growth more than 7%, free cash flow before acquisitions of more than DKK 1 billion, and adjusted EPS more than 10% increase. The COVID-19 pandemic continues to impact business performance in most of our markets and is expected to have implications for consumer behavior and overall tobacco consumption also in 2021. This lowers visibility for market developments. Having said so, we expect to generate organic growth of more than 7% for the full year, and this is based on assumptions of positive organic growth in net sales in 2021, with consumption of handmade cigars in the U.S. expected to remain strong, especially in the first half of the year.
Organic EBITDA growth is also expected to be driven by improved operational cost efficiency and savings, additional synergies from the integration of Agio Cigars of around DKK 70 million-DKK 80 million, and full year effect of Fueling the Growth. For the group, organic EBITDA growth is expected to be strongest in the first and second quarter of the year, while negative in the third quarter based on a very strong third quarter in 2020, and then return to positive growth in the fourth quarter. The free cash flow before acquisitions is expected to be negatively impacted by payables in the level of DKK 150 million, due to timing effects between 2020 and 2021, as well as investments in operational footprint and digitalization. In total, we expect CapEx of about DKK 410 million in 2021.
The adjusted EPS guidance of an increase of more than 10% from a base of DKK 9.78 includes a positive impact from the share repurchases of around DKK 0.4 per share, a negative impact from currency developments. Needless to say, the guidance and assumptions are based on current exchange rates. This concludes our presentation for today's call. I'll hand the word back to the operator, and we are happy to take questions.
Thank you. As a reminder, to ask a question, please press star 1 on your telephone keypad and wait for your name to be announced. If you wish to cancel your request, please press the hash key. Once again, to ask a question, please press star 1 on your telephone keypad. Your first question comes from the line of Niklas Ekman from SEB.
Hello. Magnus from SEB here. I have two questions for you. The first one actually goes to what you just said, and it's about the working capital in relation to the cash flow. You say payables is going to go down to have a negative impact of DKK 150 million. In your report, you actually write that net working capital should be slightly positive for the cash flow. Maybe you could give some comment on that. The second question goes to machine-rolled cigars, where in your new strategy, you aim to maintain your current level of sales. Could you maybe talk about the building blocks behind that? Is that an increasing market share in a declining market? Or how should we think about the building blocks for that target? That's my two questions. Thank you.
Hi. It's Marianne. Let me start with the working capital. For the full year 2021, we do expect a slight positive impact from working capital. However, included in that number is a negative impact from the payables. As you might remember, in Q4, we expected that our payables would go down, but that has been pushed into the first quarter of 2021. It is correct, a slight positive impact from working capital in 2020, but hidden in that number is a negative impact from payables.
Yes.
The positive, sorry, is that from inventories that you expect a positive impact?
Yes. That's from inventories primarily, but also from some debtors.
On the second question, Magnus, I would say that these are some of the, let's say, well-known mechanisms that will come into play. It is about protecting or enhancing market share. It is about being disciplined with price increases. It's also about finding those pockets of growth that exist in every market. Again, I think over the past couple of years, we've seen increased stability in the Europe Branded division and in the machine-rolled cigar segment. This is the good work we need to continue also on the back of a strengthened portfolio with Agio.
Thank you very much.
Another reminder to ask a question, please press star 1 on your telephone. Your next question comes from the line of Gaurav Jain from Barclays.
Hi, good morning. It's Mandeep Singh from Barclays on behalf of Gaurav Jain. I have a few questions, if possible. My first one sort of relates to your growth path to 2025. You're guiding to organic EBITDA growth of 7% this year, which you could say 3%-4% is coming from Agio integration synergies as well as Fueling the Growth benefits. To meet your 2025 roadmap of EBITDA growth of 3%-5%, are we expecting this to be primarily driven by cost-saving opportunities, or should we sort of see it from an M&A opportunity that should be driving this EBITDA growth? If I could start with that question and have a couple of follow-on questions, if possible.
Yes. Well, again, I think that we have the clear ambition to grow our top line also organically. Again, the equation is driven by maintaining stable net sales for our Europe Branded business, and most of the growth will come out of North America Online and Retail and the North America Branded and Rest of the World. This is the equation, but of course, we are not going to deliver significant organic growth in the tobacco category.
Secondly, you can say we may conclude the Fueling the Growth program one year ahead of time, but we continue to work on various efficiency initiatives. We have talked previously about the work we have initiated around portfolio simplification, but also included in the investments for 2021 is the building of a joint or shared warehouse for our combined U.S. business in Bethlehem, Pennsylvania, which also includes investments into a so-called AutoStore, which is a fully automated pick-and-pack solution for the online business. It will be a combination of both.
Thank you very much. That's really helpful. Just on your ERP program, obviously guidance is coming towards a cost of sort of DKK 280 million to DKK 340 million over the next four years. Could you help us better understand the phasing of the costs? I know you mentioned that it would be weighted towards 2022 and 2023, but is there any more detail you could share on that? Is my understanding correct that these costs will be allocated as OPEX costs as opposed to CapEx costs?
Let me answer that. We expect a small investment this year, but the main part will come in 2022 and in 2023, around DKK 100 million in both those two years. That is being said, while we're still doing the detailed planning, there could be slight differences there, but around DKK 100 million over the next two years. That amount will be recorded as CapEx and depreciated over the time that we decide on.
Okay. No, thank you very much. My last question actually is more of a bigger picture question. It's great that you're starting to disclose more around your CSR objectives and aims. When we talk to other investors, particularly around the larger cap tobacco stocks, the greatest conversation we have around CSR and ESG is obviously around next generation products and how the industry is moving towards modern or heated tobacco and obviously vaping. That doesn't yet seem to be the plan for Scandinavian Tobacco Group. How do you guys look at that conversation when you speak to investors?
Well, I think historically we've been very clear in saying that our job is not to go out and compete head on with the cigarette companies. Of course, we need to understand the quite significant changes that is taking place within the tobacco industry, and this is the reason why we have created the growth incubator. Whether the growth incubator will lead to, let's call it, test launches or within reduced harm or within other categories, I think it's too early to say. Of course, we are mindful of this discussion about reduced harm products, and it's certainly on our agenda, but I think it's too early to say what we will do. We need to build more insights, and then we will hopefully show it by putting some products in the market that will be reflecting either or.
Great. Thank you very much.
Once again, that's star and one, if you wish to ask a question. We have another question from the line of Niklas Ekman from SEB.
Hi, Magnus here again. Yeah, just two more questions from my side. The first one actually goes to the one that was just asked, so just to clarify, do your EBITDA growth target of 3%-5% include M&A? I don't think you answered that specifically. The second question is, what's your assumption for marketing in 2021 compared to 2020, given that you didn't use too much on that compared to what you probably initially expected?
Yeah. On the 3%-5% organic growth, you're right, it's not including acquisitions. Secondly, on the marketing, our expectations is that, and this is particularly the online and retail business, I think Marianne mentioned that we do expect to spend more in 2021, but a lot of it will depend on what competition does, and what we see happening when the market normalizes. On the 3%-5% organic EBITDA growth, I also want to mention what is sometimes overlooked, and that is that some of the efficiency programs that we execute gets lumped into the acquisitions as well. Whenever we make an acquisition, it is always a point of reflection on what other efficiency measures can we include. There is of course, a thin borderline between what we allocate to pure organic without acquisitions and what acquisitions result in.
Fundamentally, the 3%-5% is not including acquisitions.
Thank you.
That's star and one, if you wish to ask a question. Your next question comes from the line of Mathias Nielsen.
Thank you very much. Just maybe a technical question, but on taxes, it seems like the tax rate is jumping in 2020. Is that also the rate that we should expect for the coming year, or how is that? Because that must all else equal, boost the earnings per share quite a lot if that normalizes.
Yeah. Let me answer that, Mathias and Hi. The two main reasons for the tax rate increasing in 2020. First of all, Holland has reversed a tax reduction they did last year in order to finance the COVID-19 bills. That has an impact. Then we, every year, as any other company, we look at our uncertain tax positions, where do we believe that we do have risk, which you always have when you do a global during the year. There are two main reasons for that. That being said, we expect then that the tax percentage will come down again next year.
In 2021, that is more like around 20%-22% around the percentage. Is that how I should understand what you're saying?
Yeah.
Yeah. I think we say 21%-22%-
Exactly
for the year.
Exactly.
Perfect. That was the first question. As usual, just to make sure that we get the update on the legals. Is there anything particularly happening on the political front that you're seeing right now that is important? If you've seen anything or heard anything, and the same for the U.S. with the new presidency?
On the European side, you can say we have two upcoming initiatives. One is the excise directive and one is the product directive. The excise directive is coming along. We expect to know something within the next, I think, three months in terms of the direction it's taking. We have no signals to indicate anything particular. The tobacco product directive is due later in the year, but we feel that the tobacco directive may be delayed in the sense that the EU, as everyone can imagine, is extremely busy with COVID-19 and vaccines. There's no news. This is what we know. In the U.S., again, no real changes. There's a change in administration, but for now, no signals of any significance on the table.
Great. Thanks a lot.
We have another question from the line, London desk , Gaurav Jain from Barclays.
You mentioned that your U.S. superstore count is up to seven now. What are the plans for FY 2021? Do you plan to open any further stores or increase your sort of rollout of stores across the U.S.?
Yeah, with the three stores we opened in 2020, we have completed what we called our number of test stores. The focus for us is still to deliver proof of concept. The CapEx budget does include one additional store late in the year in 2021, and this is really from the reflection that we are adequately encouraged that we don't want to miss momentum in the expansion of stores. The focus right now is to make sure that we deliver proof of concept for the four running stores.
Okay. That's great. Thank you very much.
We have no further questions at this time.
Excellent. Well, thank you very much to everyone participating, and have a good day.