Hello, welcome back to ABG Sundal Collier's Investor Days. My name is Benjamin Wahlstedt. I am an Equity Research Analyst covering the consumer sector here in Stockholm. With me on stage today, I have Haypp Group and CEO, Gavin O'Dowd. Please go ahead.
Thank you very much. Thank you all for the time to speak to you all today. When we talk about Haypp Group here in Sweden, you guys may know us by some of our other stores. We run Snusbolaget, we also run Nettotobak, and of course, we run Haypp here in Sweden also. Maybe just a quick summary of what we look like at a glance here. We are an e-commerce platform whereby we buy, we do not own any nicotine pouch products or any brands. We buy the products directly from the manufacturers, and we operate as an online retailer of those products to the consumers. For all intents and purposes, we are like an Amazon, but for nicotine pouches. Amazon and similar companies will not operate within nicotine. We operate in 16 stores across seven countries.
Those seven countries are the U.S., Sweden, Norway, the U.K., and Germany, Austria, and Switzerland. 90% of our revenue roughly comes from the sales of products directly to the consumer. 10% of our revenue comes from the sales of services back to the suppliers in the form of media to help them create awareness and trial for the new products they're bringing to market, and in terms of data and insights, in order for them to understand how the segment is consuming and how their products are developing within it. This category carries a significant amount of regulatory and jurisdictional complexity. On the back of this complexity, people often stand back and think this is a difficult space to operate within.
We actually view regulation and ever-increasing regulation as a positive dynamic, and it creates a very robust moat around our business, and is part of the reason why we have such a large share of the online market in every market that we operate within. Our targets, we did a Capital Market s Day stay in the beginning of April 2025, and at that stage, we laid out that from 2024-2028, we roughly expected to double our revenue and roughly quadruple our profit, and we will touch on that in a bit more detail as it goes through. Here on the right, you can see the operating model of where that I described earlier. Let me start off, first of all, with the products we operate within. The vast majority of our sales, about 70%, is nicotine pouches across the group, which is at the extreme right here.
This here is what's referred to by many of the health experts as the tobacco and nicotine risk continuum, as regards to how harmful is one nicotine product versus another. With 100% being the threshold, where cigarettes and cut tobacco, rolling tobacco are coming in around there. I think everybody recognizes, as you move across the spectrum, that snus and nicotine pouches are significantly less harmful. What's often misunderstood is exactly how significantly less harmful they are. It is generally perceived that nicotine pouches are coming in sub 1% the harm of a cigarette. This is becoming well-recognized by consumers, which is the main driving force why consumers are switching away from cigarettes to this category at such rapid pace. When it comes to the basis of our success, we generally define our success under four key pillars.
We often use the acronym of SPAC for it, of search, price, assortment, and convenience. I'm going to go through each of these four pillars in a moment. When it comes to search. Because we operate in the nicotine space, it is very difficult to do any advertising for this space. It is hard to do Google Ads. You certainly cannot do Facebook, Instagram, et cetera. You're greatly restricted, going back to the point on jurisdiction, on how it is that you can actually communicate with the consumers to get new consumers. Hence, about 97% of the new consumers that we get on any given day, we get from our organic rankings within Google.
This is where somebody picks out their phone, types in something around the category, and one of our sites will take the first position, another of our sites will take the second, another will take the third. This is why we run so many more stores than we do markets, and it's why we run so many stores within each market, so that we take the first position will generally take 2/3 of the traffic, the second position will take 2/3 of the remaining traffic, et cetera. There's a couple of dynamics to this. One, it means we have incredibly low marketing investment, so our marketing spend generally comes in at 1%-2% of our revenue.
Secondly, it creates an incredibly robust moat around our business, whereby if somebody can get their permits in place, get platforms going, get product, they have a good starting point, but without getting access to consumers, it is very hard for anybody else to grow. This is why we generally run with between 80% and 85% share of the online market in every geography that we operate within. Second point here is assortment. People often stand back and think, well, historically with cigarettes, people didn't move much within products, or people are that curious on what a new product was. Just to contextualize this, today, 30% of the products we will sell across the Group are products that did not exist a year ago. A year ago, 30% of the products we sold at that stage were products that did not exist one year prior to that.
There's a rapidly changing evolution here within it. This has been driven by, as the category grows, there's much more innovation and R&D being spent into it, which makes the products inherently better over time. As the products get better, the consumer evolve onto the next generation of products and where it is. It becomes quite a virtuous cycle as it runs through here. We launch a significant number of SKUs. On average, we launch a few hundred SKUs per market on any given year. Just to contextualize this number when it comes to our European markets so far, while this number might seem significant that we launched 200 SKUs, we rejected 94% of the products that came to us last year.
We test every individual product, and if the product is too strong or if there is anything within the ingredient that we are not comfortable with, or if we think it will be particularly attractive to underage usage, we will not allow that product onto our platform. In addition, the consumer wants to explore much more across this product than they did in any of the other nicotine categories before. Just to contextualize this, on the right-hand side, we can see some numbers. The average Swedish consumer with us in 2025 bought 8.9 different products from our site. It's not that people are using the same product each time. That is reasonably similar across our European markets, and it has been growing significantly in the U.S., where it's now up to 6.3. The third element within this is price. Why do people come to buy from us?
Is price a key factor within it? In Sweden and Norway, where you have a history of snus being controlled by a monopoly up until the late 1990s, you actually have historically very low traditional retail margins, which gives us much lower oxygen to be able to create bigger price differentials in Scandinavia than in other markets. We still operate with a 20% discount versus the grocery in Scandinavia and a 30% discount in prices versus convenience stores, such as a 7-Eleven or a Pressbyrån. If you move that across the growth markets, you deal with significantly higher retail margins in the offline space, which gives us even greater opportunity. We generally deal with a 40% discount towards mainstream grocery in the countries where groceries sell this product, and a 50% discount versus convenience.
This is a key factor for why consumers, once they're using enough, once they've made the switch across nicotine pouches completely, come to online. Moving on from there into the pricing. I touched earlier about our Media & Insights, and in Q1, that has continued to grow, and it's now 11.4% of our revenue as it comes in. Let me give a little bit of context here on what the Media piece is, and then in on the Insights. With this range of new products coming to the market, the brand owners need to create two dynamics around it. They must create awareness that the product exists, and then they must generate trial for that product among the existing nicotine pouch consumer base.
We offer a range of opportunities across the shopper journey on our site, from banners when they check in, to product placements in specific filters as it runs through, down even to the checkout, whereby somebody has put in 10 cans of A, 10 cans of B. We ask them, "For SEK 10, would you like to try a can of C, D, or E?" This is the most efficient form of trial which any brand owner can generate within the market. Even in markets like Sweden, where we account for 32% of the total nicotine pouches sold within the market, it's generally assumed that we account for about 66% of the trials of new products which occur on any day because of the capabilities that we have to guide the consumer towards what's the right product for them to try.
In other markets where we're much smaller, like the U.S., where we have about 2.5% of the market, we account for about 10% of the trials, so about four times our market share in the trial space. This is a significant money driver for us, which we reinvest back into the consumer offer to accelerate our growth over time. The complementary piece to this is Insights, which we developed in 2020 and have been extending ever since. We are the largest Insights provider to the industry, particularly to the main five manufacturers in this space over the last four years.
Our insights run through both quantitative insights, where people will log into our BI platforms and understand how their consumers are behaving, or competitors' consumers are behaving with their products when it comes to understanding who's aware of the product, who's considered it, who's tried it, who's repeat purchase, who's loyal, and when they're switching, what they're switching to. They can also understand the price elasticity per segment, the brand strength per consumer segment, et cetera. This has become a very robust part of our relationship with the suppliers, and we're the only retailer which can provide this form of data to them globally. To the extent that the insights tools over the last four years have extended into other spaces as well. All of the large five global tobacco manufacturers utilize our data for determining what M&A they're doing as they regularly acquire smaller businesses.
Our data is also shared with some of the leading universities, both in Europe and in North America, where there's much more scientific studies done on the impact that this category is having on improving public health, which also feeds through into governments and to regulators, and is part of the reason why the scientific community is becoming much more supportive of this space as it goes through. Moving along to our category and to convenience a little bit here. Our products are, even if we do carry a significant number of SKUs, for example, in Europe, we generally carry north of 1,000 SKUs in each market. The dimensions of the products are very harmonized, so they're perfect for automizing, picking, and packing, which makes the cost extremely low. They're also a very high value-to-weight ratio, and we get incredibly low levels of returns.
There is no seasonality running through it. This is a perfect category for online sales. Of course, you get a lot of repeat purchase within the category as well. Compliance. I could break compliance down here into two aspects. One is a kind of a general principle on this. Then we can look at each of the two continents and the regulatory structure within them. The most important dynamic for our business, what we keep as being core to us, is keeping these products out of the hands of underage consumers. We run with robust age verification on every platform we have. For example, here in Sweden and in Norway, every order is validated with BankID. Then even when the order is being delivered to home, for example, the vast majority of the orders here in Sweden are being delivered via Instabox.
BankID is required again in order to make sure that it is an overage person which is actually picking up the product at the time. We have equally valid solutions across the rest of Europe and the rest of the U.S. These systems not only are they rigorously tested, but we share each of these processes with regulators so they can understand how well it can be done. We ask regulators to raise the level so that everybody else is forced to comply at the same standards on this one as well. Because of our scale, the vast majority of these solutions are one-off fixed costs to build, and we are about 14x the size of the second biggest player globally. Because of our scale, this is quite a robust barrier to entry for us as well.
Moving across to the right and looking at the regulation across the two markets. In Europe, in Sweden and Norway, because snus has been here for so long, the regulation is quite stable. It evolves gradually over time. In the U.K., we have been pushing very hard along with the industry to bring in much stricter regulation than has been there, and that regulation received royal decree in the last week of April and expects to be imposed from the 1st of June 2027, which will strip out the ultra-strong products, the child-friendly products, and will force everybody up to our level when it comes to age verification. In the U.S., the regulatory environment is extremely complex.
You're dealing with both federal, state, and in some cases, county and city legislation, all of which we've had to build into our infrastructure to make sure we meet all of the requirements on it, which again, creates significant impacts on this. However, in the U.S., there has been a sea change about two weeks ago, in fact, two weeks ago today, regarding the pace of change of new products coming to the U.S. Just to give some context on this, the U.S. is running at about five years behind where Scandinavia is when it comes to the product quality within nicotine pouches because each new product had to be approved itself. The FDA have now said if you meet the basic requirements on this and you submit the products into them for review and it moves into scientific review, after 180 days, you can launch the products.
We expect a significant number of new products to be coming, particularly from the majors, into the U.S. before the latter part of this year, and this is likely to create an environment within the U.S. whereby the majority of the market 18 months from now will not be products which exist in the U.S. today. Tying back to the assortment point that I'd said earlier, this is one of the key benefits that we can offer to both the consumer and to the brand owners. Nextly, on the management team, I guess it's a bit uncomfortable for me to stand here and say that we're a seasoned management team, I consider that we actually are on this one. We have an average of six years within the business.
I myself joined nine years ago. Across the management team, around about one-third of us come from some senior roles within the tobacco industry. I was the general manager for British American Tobacco for Scandinavia for a few years before I took this role. We also have a range of very capable people with a lot of experience with e-commerce across the management team as well. We run with a compensation model whereby each year we issue a new round of warrants, which are 30% out of the money. We pay for them with our own cash. If we do not perform with the overall equity story above that 30% over a three-year window, we are down money. We put our money where our mouth is on being able to deliver on this.
Back to the competitive moats around our business when it comes to why we have been able to sustain such a high share and even grow share of the nicotine of the online market over the years. We tend to benefit if we break this down into two groups first, the financial and then the operational moats. On the financial moats, because of our scale, we are the largest retailer of nicotine pouches in the world, online or offline. Because of our scale, we can generally get lower inbound pricing because there's only one single distribution point in each country for products to be delivered to. There is no point-of-sale material. You don't need trade reps to go to markets, et cetera. Even with this lower inbound pricing, we are still the most profitable retailer per unit for any brand owner.
We also get, this is a slide which we said 8%-10%, it's now running in the 10%-12%, auxiliary income coming in from the Media & Insights. Because of our scale, nobody can meet our requirements because of the automation that we have on fulfillment. We are 5-10 percentage points ahead of that. What this generally means is that over the medium term, we can operate with 10% EBITDA within a market wherein any competitor, even adjusting for overheads, needs to be operating with -20% to offer the consumer the same offer.
Operationally, I talked about SEO. Why we have, again, because of our scale, the capabilities we have in SEO in-house and the technology suite is part of the reason why we have dominated all of the triple A locations in this space and have continued to strengthen those positions from year to year. Our product and compliance knowledge, which I talked about earlier. Also our supplier relationships often hinged on our insights, which we talked about earlier. These are the key competitive moats which I'd like to highlight today. If I was to try and quantify some of those financial ones down, this is where we're talking about here that we see from some of the challengers.
I have seen roughly 60 challengers come and go in the nine years now I've been here, with generally a dark hole in the ground financially on where they'd stood before they left. Our performance since the IPO, we've been showing reasonably strong growth, predominantly driven by nicotine pouches, which now accounts for 70% of our sales. We've seen that feeding through to adjusted EBIT. We have made a conscious decision to invest heavily into the U.S. given how the circumstances have improved over the last 18 months. That has been one of the dynamics running through that I will touch on in a moment. Our guidance for 2028 is that between 2024 and 2028, we will grow our top line by 18%-25%. We are on track for that and towards the upper end of that range at this point in time.
We will guide for 5.5% adjusted EBIT because some of our markets will still very much be in robust growth mode at that stage, and we want to give ourselves the flexibility of 150 basis points on that, subject to what new countries we may choose to expand into over time. At this point in time, we're generating around about a 40% return on capital employed year on year. We do not envisage that we will return the money back to shareholders for this window so long as we can see that return continuing. However, towards the end of this, if we do not see that we're able to sustain that sort of return on capital investment, we will start returning money to the investors at that stage.
Our biggest opportunities are the U.S. and the U.K. If we take a look at these two markets when it comes to scale on where they are at this point in time. Perhaps I can just contextualize this. The U.S. market so far this year has grown by more than the size of the total Swedish market. It is growing at a slightly different pace on what we're dealing with here. The U.K. market, while significantly smaller, is showing some phenomenal growth trajectory coming through on it as well. We tend to be running with online, the vast majority of it tends to be running at 36% and 22% in Sweden and Norway. There's some unique nuances to Germany of why it is so high.
If we look at the U.S. and the U.K., because the category is still in its infancy, we feel as though there's a lot of potential for the channel growth, and of course, we continue at 85% of the channel in both of those markets. The key takeaways from Q1. This is our nicotine pouches volume, which now accounts for 70% of our sales. It dropped for a number of periods during late 2024 and early 2025 because there was a shortage of ZYN supply within the U.S. As that ZYN returned, you can see the growth rates reverting back up, and we grew by 40% year-on-year on nicotine pouches in Q1.
We also gave guidance in our announcement that 40% showed acceleration throughout the quarter, which I assume people would interpret as something like 35% for January, 40% for February, 45% for March, which I think will help people understand where we should be coming in for Q2. The key performance highlights within it is that the consumer momentum continues to grow very fast. The volume continues to increase per consumer on where we are, and that translates into net sales growth of just over 24%. The gross profit has been running at just over 18.6%, and that's a very constant rate of gross profit that we have over time. Our EBIT is under pressure as we have made a conscious decision during 2025 to ramp up our team in the U.S. to handle the scale for the future.
We are planning, we're approaching this with the same basis in 2025 for the U.S. as I did when I went into 2018 for Sweden. We're building a team now which will be able to manage the business in the U.S. when it is 8-10 times bigger than it is today. That does apply pressure in the short term to our EBIT, which will affect Q1, and we expect comparable levels for Q2 before it starts to scale with the 20% gross margin as we move into the latter part of 2026. The summary of the quarter is that we're very happy with the volume and the sales.
We've been investing in capabilities in the U.S. and the U.K. while the marketing window is opened, and there's also a lot of fixed overheads going into it, and we feel very comfortable with being on track for our 2028 targets. The final slide from my side here is the fundamentals of it is there's a secular shift away from cigarettes to risk-reduced products. This happened first in Scandinavia but is now expanding across a range of other markets. The economies of scale philosophy that we have is that as we grow bigger, we don't let all of that drop to the bottom line, but we share a significant share of that with our consumers to further accelerate the onflow of people from offline to online and to create no oxygen for any competition, has borne great results so far and will continue into the future.
The Media & Insights products which we service creates a fantastic moat to our business and is a core element to that offer that we can do to our consumers. The jurisdictional complexity around the category is not something which we're afraid of. It is something which we consider as our edge as it runs through. While our valuation multiples may seem high, as we have invested heavily into OpEx in the last few quarters, particularly for the U.S. and to an extent for the U.K., we are very comfortable that we will sustain our gross margins, we will sustain our top level, our top line, and we will burn this through and come back towards the 5.5% adjusted EBIT in two years' time.
Thank you very much.
I'll pass over.
I have a couple of questions as well for you. First of all, maybe, I believe it's fair to say that you've essentially taught Swedish consumers to buy nicotine pouches online. How do you judge the risk of forward integration or D2C sales by manufacturers?
Yeah. I guess what you mean there is regards to the brand owners launching their own stores.
Exactly.
The brand owners have launched their own stores about 10 years ago in many cases. Over that 10 years, they're all operating in many of the markets. Over that 10 years, they have turned them on, turned them off, turned them on, turned them off. I think we're at about the seventh cycle for some of the markets at this stage over the 10-year window.
The reasoning why they keep turning them off hinges on two fundamental dynamics. Firstly, as I touched on the assortment side, the consumer is looking for multiple brands when they come into their basket, and it is really difficult for a D2C platform to sell their competitors' products.
That's a significant assortment disadvantage that they have. The second challenge on this is the relationship with the brick-and-mortar retailers. We are operating, like I say, with a 20%-30% price gap here in Scandinavia, a 40%-50% price gap outside of Scandinavia. That is not something which traditional retailers such as a 7-Eleven or a Tesco or people like that will accept from a brand owner's own platform, that the people that there is their business partner is undercutting them by 40%-50%. This is part of the reason why they take a look at how well we've been doing. They enter, they then see the systemic problems.
they exit, new management comes in, they go through the cycle again.
Even at their peak, there was never one platform that I'm aware of that their sales of their products online accounted for more than 10% of our sales of their product online. It is always a fraction and on the way.
Sounds like the risk is fairly low then.
Yeah.
I was wondering as well if you could perhaps elaborate on the margin bridge to 5.5% EBIT margins in 2028. What are the main moving parts here?
Yeah. The biggest part of this is we're operating with 18.5% gross margin. We don't expect that to increase. We do expect the Media & Insights to continue to ramp up, and that has already grown, for example, by 2 percentage points in the last year. As that ramps up, we actually give that back to the consumer in the form of either better pricing or better shipping or free shipping as it comes through. The main driver of this is going to come from as that margin continues, the top line continues, the overheads scale as it comes through.
Perfect. Thank you very much. I believe that's all we have time for today. I would like to thank you for coming in. Thank you for listening in.
Thank you. Thank you all.