Good morning, and welcome to Scandinavian Tobacco Group's first quarter 2020 webcast and conference call. My name is Niels Frederiksen, the CEO of the company, and with me today I have, as usual, our CFO, Marianne Rørslev Bock , and our head of investor relations, Torben Sand. Please turn to slide number two. The agenda for this conference call covers the key highlights for the first quarter of the year, an update on key events, including an update on the COVID-19 and the integration of Agio Cigars, we will conclude the call with an updated guidance for 2020 and the usual Q&A session. I'll ask you to have attention to our disclaimer on forward-looking statements. The complete disclaimer can be found in the appendix to this presentation.
Please turn to slide number three. Without any doubt, events during the first four months of the year have been significant and extraordinary. The outbreak of COVID-19, the suspension of our financial guidance for 2020, and the announcement of the integration for the acquisition of Agio Cigars, are each one of them big events. Before moving on to these three topics, let me start by presenting some of the key financial numbers and developments in the first quarter. We delivered a 5% organic net sales growth and organic EBITDA growth of 23.9%, and a free cash flow before acquisitions of DKK 122 million. Although the performance was inflated by facing and hoarding of products, the underlying performance was satisfactory and in line with our original expectations, with organic net sales growth being slightly positive and organic EBITDA growth being mid-single digit without these facing impacts.
In April, net sales has been adversely impacted by these same impacts, just as the impacts from COVID-19 have been more profound. In order to give the market a better insight into the COVID-19 impact on our financial performance, we are also releasing the year-to-date net organic development in net sales to April. For the group, the year-to-date organic growth was 3%, compared with 5% for the first three months. Based on the April numbers and the general increased visibility we have into the second quarter and the remaining part of the year, with countries gradually starting to reopen, we find it appropriate to release an updated guidance for the full year. We'll come back to that in the end of the presentation. We have communicated the financial implications of the integration of Agio Cigars.
We are confident that the acquisition and integration will add significant value to our company and to our shareholders when integration is completed by the end of 2022. Please turn to slide number four. Let me give you a few financial highlights for the first quarter. Organic growth in net sales was positive by 5%, driven by strong growth in region machine-made cigars and region smoking tobacco and accessories, but also positive about lower growth in the two other divisions. However, it is important to emphasize that growth was boosted by facing ahead of excise increases and some hoarding ahead of COVID-19 restrictions, impacts that partly will reverse in the second quarter. Nevertheless, the underlying organic net sales growth is slightly positive for the quarter, which is in line with our original expectations. The facing and hoarding impacts also explain most of the 24% organic EBITDA growth.
Excluding the impacts from facing and hoarding, we estimate that growth would have been mid-single digit, also in line with our original expectations. Finally, the free cash flow before acquisitions was positive by DKK 122 million for the first three months, compared with DKK 72 million in the first three months of last year. The improvement was driven by increased operating performance. In the two charts, you can see that the 12-months rolling organic growth rates have continued to improve, with organic net sales growth almost reaching 0% and organic EBITDA growth reaching almost 10%. However, the outlook for the second quarter of the year indicates that the improved trend will be broken for both metrics when we report on the second quarter in August. Please turn to slide number five.
On March 19, we suspended our guidance due to the lack of visibility to our financial performance for the rest of the year. At that time, restrictions were introduced to consumers and retailers, borders were being closed, and we had limited insight to potential changes in consumer behavior, potential disruptions to our supply chain, and most importantly, for how long these uncertainties will exist. Based on these observations, we believe that it was most prudent to put our financial expectations for 2020 on hold until visibility improved sufficiently, even though our financial performance for the first two months of the year was in line with our expectations.
Week by week, the visibility has improved on the development and the financial implications. We've decided to share with the market the development in net sales, including the month of April, to give you an as up-to-date as possible status on our performance. For the first four months, North America Online & Retail delivered 6% organic net sales growth compared to 0% for the first three months. Hence, April delivered a strong growth in net sales, clearly illustrating the significant change in consumer purchasing, moving from physical trade to online purchasing in the U.S. handmade cigar market. North America Branded delivered -4% for the first four months, compared with +3% for the first quarter.
A substantial decline in net sales in April was driven by the closure of specialty cigar stores across the U.S. and a substantial slowdown in Canada, where hoarding had also been meaningful in March. Region Machine-Made Cigars delivered 1% organic net sales growth January to April, versus 5% in the quarter. The first quarter was strong due to phasing and hoarding of products, partly also explaining the lower organic growth in April. Underlying demand for our product has been negative in April, but not materially so. Smoking tobacco and accessories delivered 6% for the four months versus 12% for the quarter. Here, net sales was also partly phased towards the first quarter, where especially Denmark saw a significant loading ahead of a steep excise increase. Overall, the group organic net sales growth January to April was about 3% versus 5% for the first quarter. Please turn to page number six.
We are wiser on the impact that COVID-19 has on our business, but uncertainty remains high, and we do not consider the crisis is over. We monitor the development closely in all relevant markets and across our supply chain and are prepared to take further actions, should developments worsen again. We have assessed the key risks to our business and to our financial performance, as demonstrated in the slide to the left, and with level of impact on the scale from high to low. The biggest risk is disruption in global retail, either in the form of retail closure, which affect all businesses except for Cigars International, or in the form of downtrading or lower consumption. Supply chain disruptions also constitute a high risk with potential inventory shortages across the value chain as a result, and so are factory shutdowns, should they persist over a longer period of time.
In case of temporary production shutdown, the impact is estimated to be limited, but our recent experience also shows that in most cases, it can be difficult to bring productivity and throughput back to normal due to social distancing and hygiene rules. We have seen this play out already in markets like Sri Lanka, Honduras, Dominican Republic, where we've seen full or partial close-downs for some weeks, though they are all up and running again. Restocking on materials from third-party suppliers is also a risk, but so far, we have seen a very limited impact from this. Mitigating actions has already been implemented in the areas where we have been affected, and we are building on these learnings should the situation worsen further.
As general mitigating actions, we are building some reserve inventory where we can, we are closely monitoring debtors, and we are reducing cost and postponing spending and CapEx where it makes sense. Should the situation worsen, we will look to the same sources for further mitigation. We continue to believe that the COVID-19 will not have a long-term material impact to our industry. Please turn to page seven. On April 23, we communicated to the market the financial implications of the acquisition of Agio Cigars. With the combined strengths of Agio and Scandinavian Tobacco Group, we aim to create an even stronger Scandinavian Tobacco Group, one STG. We strive to do so as quickly as possible by making a full integration of Agio Cigars into Scandinavian Tobacco Group.
As part of our ongoing transformation, we decided to use this opportunity to also change the organizational structure from four to three commercial divisions, and we expect to deliver substantial costs, as well as commercial synergies through the Agio transaction. We expect to deliver approximately DKK 225 million in cost synergies by the end of 2022 within sales and marketing, production, and back office functions. Three factories will be closed, Moca in the Dominican Republic, Aartselaar and Duizel in the Netherlands. Two of these three factories are STG factories, and one is an Agio factory. About 800 people will be terminated, explaining the majority of the expected special costs of a total of DKK 450 million. To this amount, we will also take a non-cash impairment charge on the three factories in total of DKK 109 million. The latter amount having already been expensed in the first quarter results.
When full integration has been finalized, we expect to have improved the group EBITDA margin by more than two percentage points compared with the STG group level in 2019. Please move to slide number eight. On this slide, you can see a little more details on the three new divisions. The decision to create three divisions is driven by commercial considerations while also having a clear cost component. Our new operating model is as intended, bringing us closer to consumers and facilitating faster decision-making, hence paving the way for further simplification. We are now creating three effective divisions that can unlock local synergies and have efficient go-to-market strategies while taking out costs by eliminating double functions and closing office space.
The three new divisions are going to be Division Europe Branded, headed by Jurjan Klep, Division North America Branded and Rest of the World, headed by Régis Broersma, and Division North America Online and Retail, headed by Sarah Santos. As it can be seen, we create three almost equal sized divisions measured by net sales, and we will begin to report in line with the new structure by the second quarter of this year. We will deliver historical data to the market a couple of weeks before the Q2 announcement on 28 August. Please move to slide number nine. For the Division North America Online and Retail, the organic growth in net sales was close to zero for the quarter. The beginning of the year saw continued high promotional spend and limited margin enhancement.
We have seen a marked improvement in online demand since mid-March, and this has also eased the pressure on margins. Until COVID-19 closed our retail stores in Pennsylvania and Texas, the retail segment delivered increasing volumes. Gross profit was DKK 188 million versus DKK 182 million last year, with the increase being driven by the exchange rate development. The gross margin was basically unchanged at 36.7%. The EBITDA margin before special items improved by 4.4 percentage points from 10.1%-14.5%. With the gross margin development basically unchanged, flat versus last year, the expansion of the EBITDA margin is fully attributable to an improved OPEX ratio, driven by efficiency improvements and lower salaries following the integration of Thompson Cigar that was completed by the end of 2019. Since the outbreak of COVID-19, and with the physical retail closing down, the online traffic has, as mentioned, increased significantly.
This can best be illustrated by the fact that the division delivered 6% organic growth for the four months, including April, and despite the loss of volumes from our retail stores. The major concern for us during this dramatic change of purchasing behavior has been the risk of disruptions to our processing of orders in our warehouse. However, as we speak, no such disruptions have happened, and we have been able to deliver to our customers with only marginally longer delivery times than usual. Please turn to slide number 10. For the Division North America Branded, the organic growth in net sales was 3% for the quarter. The acquisition of Agio delivered 3% growth to the reported net sales. All the main product categories, handmade cigars, machine-made cigars in Canada, and smoking tobacco, experienced positive organic net sales growth before COVID-19, which changed the developments quite dramatically.
Already during March, the closure of retail stores across the region started to impact volumes negatively, reducing the growth for the quarter. The increase from online distributors, other than our own, have not been able to offset the impact on physical trade. For the period January to April, the organic net sales growth was negative by 4%, compared with the +3% for the first three months. April weighs relatively more as volumes of handmade cigars seasonally is relatively low in the first months of the year, but the impact of COVID-19 has been severe. Machine-made cigars in Canada has experienced substantial drop in volumes since the outbreak due to retail stores being closed. For the first quarter, gross profit increased by 11% to DKK 164 million.
The increase was driven by the increase in net sales and an improvement of the gross margin from 57.4% to 58.6%. The margin improvement was driven by product mix and price increases. The EBITDA margin before special items improved by 3.5 percentage points from 17.7% to 21.2%. 1.2 percentage points of the improvement was driven by the gross margin. The remaining 2.3 percentage points was driven by efficiency improvements following the growth, as well as other cost initiatives following the decline in sales volumes compared to last year. With this, now turn to slide number 11. For region machine-made cigars, the organic growth in net sales was 5.2% for the quarter. The acquisition of Agio delivered 47% growth to the reported net sales, resulting in a 52% increase in total net sales.
The overall market for machine-made cigars declined by an estimated 3.5%, which was somewhat more than in previous quarters. An increase of the excise tax in France from March 1st, and the negative impacts from border closures and restrictions following COVID-19 are the other explanations. We have performed well with France, the U.K., and Spain, delivering positive volume growth and general price and mix improvements in most markets, contributing a 5% organic net sales growth for the quarter. As mentioned earlier, part of this performance is driven by phasing and holding in certain markets. In the appendix, we have as usual included the market share index for our top five European machine-made cigar markets. The acquisition of Agio Cigars has significantly improved our combined position in France, U.K., Spain, Holland, and Belgium from around 31% to now 46.5%.
This is, of course, very important for machine-made cigars long term. For the period January to April, the organic net sales growth turned to 0% compared to the +5% for the first three months. Part of that performance in April is the adverse impact of the phasing impact that I mentioned for the first quarter. Part is the impact from COVID-19. With many restrictions introduced in many countries, consumption of outdoor smoking in relation to social activities have declined, although our sales team prevented from being on the road have expanded telemarketing substantially. We believe with good results. For the first quarter, gross profit increased by 32% to DKK 233 million. The increase was driven by the acquisition of Agio. The gross margin declined from 50.9% to 44.0%. The margin decline was driven by a fair value adjustment of Agio inventories.
Underlying margin, excluding this adjustment, improved to 51.4%. The EBITDA margin before special items declined by five percentage points from 18.3% to 13.3%, this was entirely driven by the fair value adjustment to Agio inventories. With the gross margin declining by 6.9%, the underlying OPEX ratio improved versus last year, the improvement was driven partly by Fuelling the Growth and partly by timing of sales and marketing expenses. Please turn to slide number 12. For the region smoking tobacco and accessories, the organic growth in net sales was 12% for the quarter. Exchange rates had a 1% negative impact, with the acquisition of Agio and the divestment of sales companies in Slovenia and Croatia delivering 18% growth, the total recorded net sales was +29%.
The organic growth was driven by good growth in fine cut, also by phasing ahead of an excise tax increase in Denmark. By the end of the quarter, the COVID-19 outbreak reduced and even completely stopped certain sales channels like the Danish-German border. For the period January to April, the organic net sales growth was reduced to an increase of 6%, compared with the 12% for the first three months. Part of the performance in April is again explained by the adverse impact of the phasing that I just mentioned for the first quarter and part is the impacts from COVID-19. For the first quarter, gross profit increased by 32% to DKK 234 million. The increase was driven by the acquisition of Agio.
The gross margin increased slightly from 49.1% to 50.0%, the margin increase was driven by product mix, where especially good growth in the high margin category fine cut tobacco contributed positively. The EBITDA margin before special items improved by 3.1 percentage points from 27.9% to 31%, 0.9 percentage points of the improvement was driven by the gross margin, the remaining 2.2 percentage points was driven partly by efficiency improvements following Fuelling the Growth and partly by timing of sales and marketing expenses. With this, please turn to slide number 13, I'll now hand over to Marianne.
Thank you, Niels. For the first quarter of 2020, we delivered a total net sales of DKK 1.8 billion, a gross profit before special items of DKK 819 million, an EBITDA before special items of DKK 326 million, a net profit of DKK 21 million. Our free cash flow before acquisitions was DKK 122 million. All numbers are impacted by Agio Cigars, which was acquired in the beginning of the quarter. Net sales increased by 22% to DKK 1,791,000,000. 16% of the increase was driven by the acquisition of Agio Cigars and the divestment of the sales companies in Slovenia and Croatia. Exchange rate developments delivered another 1%, organic net sales growth the remaining 5%. The organic development was driven by strong growth in region smoking tobacco with 12%, region machine-made cigars with 5%, North America Branded with 3%, finally, North America Online & Retail with a modest 0.2% increase.
However, it is important to emphasize that the phasing of shipments ahead of excise increases, for instance, in Denmark, as well as hoarding of product ahead of the imposed restrictions following COVID-19 significantly contributed to the 5% organic growth. Excluding these impacts, we estimate the underlying organic growth in net sales was slightly positive. Gross profit before special items increased by 20% for the first quarter to DKK 819 million. The gross margin was 45.8%, compared to 46.8% last year. All four divisions delivered an increase in gross profit, with particularly high growth in region machine-made cigars and region smoking tobacco. These two divisions were the most impacted by the acquisition of Agio, whereas North America Branded only was marginally impacted by the acquisition. The gross margin was stable or improving in three of the four divisions.
The exception was region machine-made cigars, where the inclusion of operations from Agio Cigars with the mentioned fair value adjustment of inventories resulted in adverse margin impact. EBITDA before special items increased by 36% to DKK 326 million, driven by the gross profit development, but also by continued strong focus in keeping the OPEX ratio down. The EBITDA margin was 18.2%, compared with 16.3% in the first quarter of last year, and the organic growth in EBITDA was, as mentioned earlier, 23.9%. Excluding the impact of phasing and hoarding, it is our estimate that organic EBITDA growth was mid-single digits. Net profit decreased by DKK 72 million to DKK 22 million. The positive operational performance was more than offset by an increase in special costs to DKK 155 million, compared with DKK 24 million in the first quarter of 2019.
The special costs in this quarter contain a DKK 109 million impairment charge in relation to the closure of factories, as well as a total of DKK 46 million of integration costs in relation to Agio Cigars, costs for the closure of our Tokyo factory announced last September, and Fuelling the Growth. A split between the different sources of special items can be found in the company announcement. Adjusted earnings per share based on the net profit, excluding special costs, increased from DKK 1.1 per share to DKK 1.4 per share. The free cash flow before acquisition was DKK 122 million, versus DKK 72 million in the first quarter of 2019, mainly driven by improved operating performance. Working capital delivered a DKK 18 million negative contribution to the cash flow.
Usually, working capital contributes with cash flow outflows in the beginning of the year, primarily due to season in tobacco deliveries. Now please turn to slide 14. I now give an update on the development in the net interest-bearing debt and the leverage ratio, which naturally have been impacted due to the DKK 1.5 billion investment in Agio Cigars. By the end of the first quarter 2020, the net interest-bearing debt was DKK 4,444 million, an increase of DKK 2,114 million versus the end of 2019. The development is driven by, 1, the payment of DKK 1.5 billion for Agio Cigars. 2, the payout of dividends by the end of March, and thirdly, by the underlying cash flow from operations, which normally is relatively modest in the first quarter of the year.
The leverage ratio, defined as the net interest-bearing debt over 12 months rolling EBITDA before special items, was 2.8 times at the end of March 2020, compared to our target ratio of 2.5 times. The impact from the acquisition of Royal Agio Cigars, in combination with the timing of the dividend payment, explains this temporary increase in the leverage. We expect to be below 2.5 times target well before the end of the year. On the annual general meeting held March 26th, the shareholders approved the DKK 6.10 ordinary dividend per share. As announced in relation to the full year 2019 release in February, a decision has been taken to initiate a share buyback program in 2020 of up to DKK 300 million. This decision is unchanged. Now please turn to slide number 15.
On March 19th, 2020, we suspended the guidance for the full year due to the low visibility following the outbreak of COVID-19. Today, we have released an updated financial guidance for the year. Based on the financial performance in the first quarter and improved visibility into the second quarter, as the implications of COVID-19 have become more clear, supported by the year-to-date performance we have disclosed to April, and with the integration plan of Agio Cigars having been completed, the conditions for releasing an updated guidance have improved. However, it must be stressed that basic assumptions behind the new guidance remain more uncertain than normal. The financial guidance includes the financial impact from the acquisition of Agio Cigars. This was not the case with the guidance we suspended back in March.
The new guidance is organic EBITDA growth above 2%, free cash flow before acquisitions in the level of DKK 850 million. The guidance is based on assumptions of a moderate decline in organic net sales growth for the full year, with a higher decline in organic net sales growth in the second quarter, and a normalization over the remaining course of the year as markets reopen. We expect no material disruption to our supply chain, and we expect a contribution from cost savings in relation to the integration of Agio Cigars of about DKK 70 million to DKK 80 million in 2020, as well as further benefits from our Fuelling the Growth program. With this, I will leave the word back to the operator, and we are now ready to take any questions you might have.
Yes, ma'am. Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to ask a question, please press star and one on the telephone keypad and wait for your name to be announced. Once again, star and one if you wish to ask a question. We have questions that came through, ma'am. We will now take our first question, and this comes from the line of Niklas Ekman. Your line is now open. Please go ahead and ask your question.
Thank you. Yes, a couple of questions, if I may. Firstly, I am curious about the last thing you said here about the organic sales outlook or assumptions. You had positive organic sales growth both in Q1 and year to date here to April. Why are you assuming that that will decline going forward? What are the main things you are worried about?
I think that the way to think about this, Niklas, is that we have different moving parts, and I myself think about it in really three buckets. We have an online business for handmade cigars in the U.S. that is seeing solid growth, but also growth delivered or supported by retail closures. We have some businesses like the border trade, the global travel, retail duty-free, that has more or less come to a full stop. We have the remaining, let's call it, mass market business, which is negatively affected, but with a lot of uncertainty. When we look at the full year, we think that the impact in the second quarter will be the highest, and it will hit actually all businesses except for the online.
We can see as stores are beginning to open, it's also normalizing, but we continue to believe that there will be uncertainty over the full year, and we think it's prudent to project the net sales impact for the full year to be slightly negative.
I think it's also well to remember that the impact of COVID-19, it didn't really hit us until mid-March and ongoing for the first quarter.
Thanks. That's very clear. In general, what can you say about the impact of COVID-19 on consumption? You've alluded to this a couple of times here on the call, in general, do you have any tangible data indicating how consumption has changed due to COVID-19?
I think that our base hypothesis and what we are putting into the assumption is that consumption has been down over the past couple of months and will probably be down over the coming period as the markets attempt to reopen. We don't think that this is a permanent decline in consumption. We think it is the result of lockdowns and changes to people's everyday life and, let's say, consumption pattern. Could there be some rebalancing of inventory taking place when retailers open up and normalize? Yes, theoretically, but we have no clear evidence of it, and we are not putting it into our assumptions.
Excellent. Thank you. Also a question on buybacks. You reiterated now the ambition to buy back shares about to DKK 300 million. Can you give any indication of when you expect to launch such a buyback program?
What I can say on the share buybacks, when we are launching or coming out with a new guidance here, that is based on a certain set of assumptions. We are also saying that those assumptions are more uncertain than normally, but where we're seeing a most significant impact in the Q2. We have decided that we want to see how Q2 pan out and whether that is really following the assumptions that we have before we start off the share buyback.
Okay. Excellent. That's very clear. Thanks. I might come back with more questions later. Thanks.
Sure.
Okay. Your next question comes from the line of Magnus Jensen. Your line is now open. Please go ahead.
Hello. Thank you for taking my questions. First, Nils, it sounds like you just said that you already had seen some improvement from April into May. Can you confirm that?
I think that what we are following, Magnus, is on a weekly basis what's happening in the countries that are beginning to reopen. Yes, we can see some normalization, I think, again, it's too early. I think that the level of certainty has gone up, it's certainly not transparent yet. We do not consider the crisis over, and we continue to monitor these developments very closely on a weekly basis. I think the best way of expressing is there are small signs of improvement, but not yet a high level of certainty.
Okay. Very clear. Thank you. A question to Agio. I guess you're now some five months into the integration of Agio. Is there anything that has surprised you positively or negatively about the acquisition now, if you've had it under your hands for quite some time?
I think the Agio business is and was a business very similar to ours, just of a smaller size. As such, we have not run into any surprises, and the transaction was also done in a way that there were no real motivation for the sellers to load the markets and stuff like that. The Agio business is, how can you say, in the same shape that we anticipated. I think that when it comes to integration, and this is not really for Agio alone, but when you go from announcing to implementing, there is a period of uncertainty, and we are in that right now where we negotiate with work councils on the exact execution. I think that's normal, and it's not a surprise to us, but this is what we are working on right now.
When we get to the second quarter, we'll be even wiser on that as well.
Okay. Thank you.
To make maybe a comment from my side on the soft side, I think what we have seen and what actually surprised me is that we have announced the integration end of April and having lots of conversation with people virtually. We started off an integration, huge integration, virtually, simply to give more clarity to people, and that has gone really well compared to the situation.
Good to hear. Thank you. Just one more question from my side. In terms of the market share of on machine-made cigars in Europe, it's clear that, of course, it's increased a lot since you bought Agio. Can you say how it has developed if you exclude Agio from the calculations? Have you been taking or losing market share? That was my last question. Thank you.
Yeah. Thank you. I think that as I recall the data now, it's either stable or slightly down, but we also came off a very strong Q4. That's as I recall it.
Thanks.
Thank you. We'll now take our next question, and this comes from the line of Matthias Nielsen. Your line is now open. Please go ahead.
Thank you very much. Just a few questions from my side as well. The first one is on COVID-19. You mentioned a lot of risks, and I wanted to hear if you see something on the opportunity side, also on the structural side, if you can elaborate a bit on that.
Well, I think that the biggest upside we've seen on COVID-19 is our online business. I think that we already have a high penetration when it comes to consumers buying handmade cigars online in the U.S. for all sorts of good reasons, and we've seen that accelerate. That's the positive one. I think it's good that it coincides with all the work we are doing to further professionalize our online business, which was a project we started in 2019 and launched in the beginning of 2020. I also think that it's too early to conclude what would be the permanent impact on online. We actually believe that this will accelerate some movement of consumers to online even on a permanent basis. Other opportunities, I don't know. I'm looking to Marianne now if she can think of something.
No, I think like any other company, we're of course, looking at how this crisis has been developing and the impact on our business. Here, learnings, at least for now, is travel, like many other companies. We have been driving a global company virtually over the last two months, and we certainly need to take some learnings from that. We have also been driving sales from our sales forces. You can put it this way, so did our competitors. We have been equal, but we certainly also need to look into learnings from smaller initiatives like that.
Thank you very much. On the online business, maybe do you have any numbers on what is the amount of people going back to physical retail once they have been online? Do you have any statistics on that? I guess in other industries, it's like once you have been online, that's a recurring client all the time. How is that on your part of the business? Is that similar, or is it that many people switch back and forth?
I think it's important to remember that the starting point was a very high penetration of online usage already. We have 60%-65% of all purchases taking place online already, we've seen an increase that was kind of slowly starting up by mid-April and then mid-March, accelerating into April, as more and more physical retail stores closed. Now we are in a period where retailers are reopening, and we are watching carefully what will happen in the coming months. This is one of the, let's say, the difficult situations to read from a longer-term perspective. I'll give you one example of what is valuable is that we get in this period a significant improvement in new customers, and these new customers are then active in our customer files and can subsequently be interacted with to stimulate the development of that business.
That's a positive.
Very much. On the NAB, do you have any numbers for the split between online and physical retail customers on the business-to-business side in the NAB?
I don't think we disclosed the split between our sales channels. I think that the way we normally talk about the North America Branded business when we talk about handmade, it is really 3 types of channels. There's an online channel, then there's a group of specialist retailers, brick-and-mortar stores that specialize in cigars. Then there is the, let's call it, the wider distribution of products into liquor stores and other smaller retailers that also sell handmades. It is the latter two that are affected, whereas there is also, from the branded side, a positive impact from online customers other than us growing.
We can say that within Branded, increased online sales cannot offset what we lost on the other channels.
Is it equally one-third in each segment, or how should we think about it? Or is online only a marginal part of it?
We're not disclosing the details of it, Matthias. That is what it is.
My last question on regulation, it seems like the focus has moved away to tobacco in general, and especially cigars. Is that also what you have seen during the past quarter since we had an update last time?
In the U.S., you can say that most of the attention continues to go into the vape area. We believe that the secondary focus is going to be flavors. What the FDA did do is they postponed the deadline for submitting substantial equivalence applications from May to September. This was really reflecting the impact of the COVID-19 crisis and everyone requesting a delay in the deadline.
Sure. Thanks a lot.
Thank you.
Thank you. Yes, thank you. We have a follow-up question. This comes from the line of Niklas Ekman. Your line is now open. Please go ahead.
Thank you. Yes, a couple of follow-ups. Firstly, if I'm understanding correctly, the earnings contribution from Agio in Q1. In the report you mentioned, I think it was DKK 58 million in Q1 2019, rising to DKK 97 million in Q1 of 2020. Have I understood that correctly, that that was the contribution to adjusted EBITDA?
Can I get back with the precise number, Niklas?
Okay. Yeah, sure. That's fine. Secondly, if there's any reason to believe, because Agio saw a strong earnings improvement in 2019, do you have any reason to believe that those DKK 203 million in EBITDA generated last year would be materially higher or lower in 2020?
I-
Excluding synergies.
Yeah, I can say that in 2019, Agio was impacted positively by a compensation from some contract delivering cuts. That is approximately a little less than DKK 20 million. You would not see that in 2020, and you did not see it in 2018.
Okay. Thanks for clarifying that. Also on Fuelling the Growth, how much of a savings would you say remains left on the table at the moment?
What we said, coming out of 2019, was that we delivered in 2019 a little more than one-third of the savings. You should think of Fuelling the Growth as the remaining savings as it's split over the coming two years. It's drizzling in, you can say, as we go, more or less equally split on the full year.
Okay. Thanks for clarifying that. A detail as well. You mentioned in the results your guidance for the full year, you talk about financial expenses of DKK 90 million. Is that your guidance for net financials or just for financial expenses? Is there any particular reasons why financial expenses were so high in Q1? Were there any FX related impact or anything else?
Yeah. There are several reasons for financial costs to be high in Q1. One thing is, as you say, exchange losses, where in Q1 2019 we had only exchange gain. Also we refinance all our funding. Upfront fees that we normally capitalize and depreciate over the time of the maturity of the loan, we have expensed those in Q1 as we refinance. There's also been a valuation of some euro swaps that we had on the equities that we have now put into the P&L. The main part are exchange losses and the upfront fees being expensed.
Okay. DKK 90 million, that is the guidance for the net financials. Both net financial income and financial expenses. Excellent.
Yes.
Thank you very much.
I actually do have some numbers for you for Agio in 2019. Was it 2019 numbers you were looking for?
I was wondering because when I look at your EBITDA table, this is on page 12 in the results statement, you talk about DKK 58 million from acquisitions in 2019, then DKK 39 million in 2020. I assume that DKK 58 million refers to what Agio made in 2019 Q1, DKK 39 million is the earnings improvement in 2020. I'm not sure if I understood that correctly.
The DKK 39 million is the fair value adjustments on the inventory side in Agio.
Okay.
It's not earnings related as such.
Okay. Then the DKK 58 million is basically what Agio made in Q1 of last year, or what it made in Q1 of this year?
Last year.
Excellent. Thanks for clarifying.
Thank you. No further questions that came through. Please continue.
Okay. Well, if there's no further questions, I think we'll thank you for participating and wish you all a good day.