Q2 2023 Philip Morris International Inc Earnings Call

Speaker 1: And disposals as such. Figures and comparisons presented on an organic basis exclude Swedish Match up until November , the eleventh 2020 -three.

As such figures and comparisons presented on an organic basis exclude Swedish match up until November 11 2023.

Speaker 2: Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements.

Today's remarks contain forward looking statements and projections of future results or direct your attention to the forward looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward looking statements.

Speaker 2: It is now my pleasure to introduce Emmanuel Bubble, our Chief Financial Officer, over to you, Emmanuel.

It is now my pleasure to introduce Emmanuel bubble, our chief financial officer over to you Emmanuel.

Speaker 3: Thank you James, and welcome.

Thank you James and welcome everyone.

Speaker 4: Everyone.

Speaker 3: Our business delivered outstanding performance in the second quarter of 2023, exceeding our expectations to reach a record. I quarterly adjusted dleted EPS of one do AR sixteenand.

Our business delivered outstanding performance in the second quarter of 2023.

Exceeding our expectations to reach a record quarterly adjusted diluted EPS of $1 16.

Speaker 3: This was driven by impressive zin and icqo growth, coupled with strong combustsible results.

This was driven by impressive Z and Iqos growth.

Coupled with strong combustible railroads.

Speaker 3: We delivered total cigarette and HTU shipment volume goals of plus 3%, putting us well on track for our third consecutive year of positive volumes.

We delivered total cigarette and <unk> shipment volume growth of three 3%, putting us well on track for our third consecutive year of positive volumes.

Speaker 3: This excellent resullt underpinned double-iged organic top line growth and its currency neutral adjusted diluted EPS growth.

This excellent result, underpin double digit organic top line growth.

And I teens currency neutral adjusted diluted EPS growth.

Speaker 3: We also expanded our leadership in smoke free product in the period.

We also extended our leadership in smoke free product in the period.

Speaker 3: Firstly icostrong momentum continued with adjusted in market sales volume ahead by plus 16% and shipments up by plus 27% and.

Firstly iqos strong momentum continued with adjusted in market sales volume ahead by plus 16% and shipments by plus 27%.

Speaker 3: This reflects very good yearer growth of plus one point four million in the quarter and continued strong traction across the world.

This reflects very good user growth of plus $1 4 million in the quarter.

And continued strong traction across the world.

Speaker 3: This is incredibly, driven by icociloma, which is now available in 23 markets, representing around two-thirds of our ico business by volume.

This is increasingly driven by Iqos <unk>, which is now available in 23 markets.

Representing around two thirds of our business by volume.

Secondly.

Speaker 5: Secondly.

Speaker 3: And now, two full quarters after the Swedish Match acquisition, zin is delivering an exceptional acceleration to our Smokefree business.

And now two full quarters after the Swedish match acquisition.

Zain is delivering an exceptional acceleration to our smokefree business.

Speaker 6: U's volumes grew by over plus 50%, including a notable step-up in June .

U S volumes grew by over plus 15%.

<unk> a notable step up in June .

Speaker 3: We are delighted with this performance.

We are delighted with this performance.

Speaker 3: Our combtiitible business also delivered better-than-expected results, with over plus 7% organic net revenue growth after a very robust quarter for pricing and resilient volume.

Our convertible business also delivered better than expected results with over plus 7% organic net revenue growth after a very robust quarter for pricing and resilient volume.

Speaker 3: This was a key contributor to the strong plus 7% organic operating income growth with the plus 200 and basis pocy quentction improvement in our adjusted operating income margin.

This was a key contributor to the strong plus 7% organic operating income growth with a plus 200 basis points sequential improvement in our adjusted operating income margin.

Speaker 6: Turning to the adlinenow.

Turning to the headline numbers positive volumes supported very strong organic top line growth of plus 10, 5% with continued excellent iqos momentum and a further acceleration in Congress stable pricing.

Speaker 3: Positive volumme supported very strong organic top line growth of plus 10%, with continued excellent ICOS momentum and a further acceleration in comustsible pricing.

Speaker 3: This does not include the remarkable plus 19% pro forma xcurrency top line growth of Swedish Match led by zin, with combined pro forma xcurrency net revenues increasing by plus 11% 0%.

This does not include the remarkable plus 19% pro forma ex currency topline growth of Swedish match led by <unk>.

With combined pro forma ex currency net revenues, increasing by 11, 1%.

Speaker 3: Our total reported currency mutrual net revenues grew by plus 19%.

Our total reported currency neutral net revenues grew by plus 19%.

Speaker 6: Our organic net revenue per unit.

Our organic net revenue per unit grew.

Speaker 6: Grew by plus 7%, driven by the increasing proportion of ICOS HTUs in our salmix and combsible pricing.

<unk> grew by plus 7% driven by the increasing proportion of Iqos Ht us in our sales mix and convertible pricing.

Speaker 3: Due to these positive factors adjusted, the perty income grew by a very robust plus 7% organically, despite continued inflationary headwinds.

Due to these positive factors adjusted operating income grew by a very robust plus 7% organically. Despite continued inflationary headwinds.

Speaker 3: This exclude the tremendous goals of Zen and starting in Q4. Our organic result win include Swedish Match.

This excludes the tremendous growth of <unk> and starting in Q4, our organic results will include Swedish match.

Speaker 3: Adjusted OI margin improved plus 210 basis points sequentially and while still organically lower year-on-year by 140 basis pointing. This better than expected performance was notably supported by comverusttible strength and favorable timing of certain cost.

Adjusted Oi margin improved plus 210 basis points sequentially.

And while still organically lower year on year by 140 basis point.

This better than expected performance was notably supported by convertible strength and favorable timing of certain costs.

Speaker 3: We also increased our participation in the below Tier one segment in Indonesia, which now represents close to 40% of its industry volumes and is slightly dilive to our margins.

We also increased our participation in the Bureau with tier one segment in Indonesia, which now represents close to 40% of its industry volumes and is slightly dilutive to our margins.

Speaker 6: This organic delivery, including the favorable timing of cost, combined with exceptional June Zen volume and a lower tax rate, allowed us to outperform our most recent Q2 forecast. We delivered adjusted diled EPS of 100 last 60, representing plus 17% growth, excluding an unfavorable currency impact of certain cents, notably due to the Japanese yen.

This organic delivery, including the favorable timing of cost combined with exceptional junes in volume and a lower tax rate allowed us to outperform our most recent Q2 forecast.

We delivered adjusted diluted EPS of $1 60, representing 16, 9% growth, excluding an unfavorable currency impact of certain <unk>.

Notably due to the Japanese yen.

While the first quarter of the year content, some exceptional at wins and distortion due to timing and comparison effect our business delivered a strong first half, including volume growth of plus one 1%.

Speaker 3: While the first quarter of the year contains some exceptional led winds and distortion due to timing and comparison effect, our business delivered a strong first Al including volume growth of plus 1% and.

Speaker 3: Organic net revenues grew by plus 7%. We sw ish much excellent excecurrency performa net revenue growth of plus sevenseventeen percent for H 1, demonstrating its growth accreion to our businesscombined per forma, current unutual net revenue increased by around plus 8%.

Organic net revenues grew by plus six 8% with Swedish match excellent ex currency pro forma net revenue growth of plus 17% for each one demonstrating its growth accretion to our business combined pro forma currency neutral net revenue increased by around plus seven 5%.

Speaker 3: Following peak margin headwinds and a notable operating some decline in the first quarter.

Following peak margin headwinds and notable operating income decline in the first quarter.

Speaker 3: The strong improvement in Q2 narrowed the honeorganic decline to minus 2% and.

The strong improvement in Q2, narrow the etch market decline to minus 2%.

Speaker 3: As in Q2. This excludes finish match with the, which delivered an excellent profit performance and made a significant contribution to our adjusted OI margin.

As in Q2.

This excludes Swedish match.

Which delivered an excellent profit performance and made a significant contribution to our adjusted Oi margin.

Speaker 6: We expect continued strong reported and organic operating income growth in the second half.

We expect continued strong reported and organic operating income growth in the second ads.

Despite these headwinds we delivered plus five 9% growth in currency neutral adjusted diluted EPS.

Speaker 3: Despite these headwinds we delivered plus five per 1% growth in incurance, usual adjusted diluted Ps to $2 98 in H 1, providing a strong PL atform for the second half of 2020 -three and beyond.

$2 98 in etch, one providing a strong platform for the second half of 2023 and beyond.

Speaker 6: Let me now walk through the mechanic of our Q2 net revenues.

Let me now walk through the mechanics of our Q2 net revenues.

Speaker 6: While not included in our reported shipment holding growth of plus 3%. 3% twish match smooke revolume grew by plus 15%, providing imperive accretion to our overall growth profile.

While not included in our reported shipment volume growth of three 3%.

Swedish match smoothly volume grew by plus 15%, providing impressive accretion to our overall growth profile.

Speaker 3: Combustible and hdu pricing contributed plus six point of growth.

Compostable in hte pricing contributed six points of growth.

Speaker 3: This primarily reflect comverusttible strengths, partly benefiting from timing effect.

This primarily reflects convertibles strength, partly benefiting from timing effect.

Speaker 3: As in Q1 hdu, pricing was impacted in Japan and Germany by the annualization of 2022 excise tax increase and, in the case of Japan, the transition to illuma.

As in Q1, which to your pricing was impacted in Japan, and Germany and utilization of 2022 excise tax increase and in the case of Japan the transition to Illumina.

Speaker 3: These factors will have less impact in the second halfp as annualization receiptves.

These factors will have less impact in the second half as annually.

And utilization receipts.

Speaker 3: We also continue to expect greater visibility on the likely outcome of the cot roling rated to the German tax surcharge throughout the end of the year.

We also continue to expect greater visibility on the likely outcome of the court ruling related to the German tax surcharge towards the end of the year.

Speaker 3: The increasing proportion of hdu in our business again contributed positively, reflecting higher net revenue per unit, partially offset by unfavorable geographic mix.

The increasing proportion of <unk> in our business again contributed positively reflecting a year on net revenue per unit, partially offset by unfavorable geographic mix.

Speaker 3: The positive mix impact of HTUs's overall volume. Growth and pricing are powerful drivers of our conformation and growth.

The positive mix impact of edge to us overall volume growth and pricing.

Powerful drivers of our transformation and growth.

Speaker 3: Let's now turn to gross margins. While the year-on-year trajectory remained negative, we saw improvement versuswas the first quarter, driven by strong growth fundamentals.

Let's now turn to gross margins.

The year on year trajectory remains negative we saw improvement versus the first quarter driven by strong growth fundamentals indeed.

Speaker 6: Indeed we achieved the quantal improvement of one point two percentage point, despite increased in fationary pressures as top line growth accelerated and supply chain disruption and illumabrelated factors started to dissipate in the quarter.

Indeed, we achieved sequential improvement of one two percentage points, despite increased inflationary pressures as topline growth accelerated and supply chain disruption and illumina related factor started to dissipate in the quarter.

Speaker 6: In addition, cost phasing and the geographic mix of inventory movement, notably for HTU in Europe , increasingly normalized after an adversely affected Q1.

In addition cost phasing and the geographic mix of inventory movements, notably for <unk> in Europe increasingly normalized after and adversely affected Q1.

Our Ikea business contributed positively to our gross margin in Q2, and we expect this to continue partly mitigating compostable.

Speaker 3: Our Eco business contributed positively to our gross margin in Q2 and we expect this to continue. Part we mitigating comusttible.

Speaker 6: We expect further improvement in our year-on-year-goross margin trajectory in H two as headwinds continue to subceed, zin lltton goes continues and the underlying driver of our transformation accelerate.

We expect further improvement in our year on year gross margin trajectory in its true as headwinds continue to succeed in that.

Outstanding growth continues and the underlying driver of our transformation accelerates.

Speaker 6: As expected, genanic growth was much closer to net revenue growth in Q2 and at the more normalizedable growth rate with regard to our full year expectation.

As expected SG&A growth was much closer to net revenue growth in Q2 and at a more normalized growth rate with regard to our full year expectation.

Speaker 6: Indeed with such a strong Tom line in Q2 as gecost were lower as a percentage of net revenues.

Indeed, we such a strong top line in Q2, SG&A costs were lower as a percentage of net revenues.

Speaker 6: While we continue to invest in ICOS and thenin, our successful cost efficiency program, continue to deliver Ling to final growth investment and mitigate inflation, which remains a headwind.

While we continue to invest in Iqos and Zane our successful cost efficiency program continues to deliver LTE to final growth investment and mitigate inflation, which remains a headwind.

Speaker 6: With $1.9 billion of growth savings realized date, including eight do and 2, $2 million from lgna, we are on track to achieve our 2021 twotwentthousand and 23, two billion dollar target ahead of plan.

With $1 9 billion of gross savings realized to date, including $820 million from SG&A. We are on track to achieve our 2021 2023 2 billion dollar target ahead of plan.

Okay.

Speaker 6: Turning now to the 2023 outlook, we are raising our currency neutral. Top and bottom line goes forecast.

Turning now to the 2023 outlook, we are raising our currency neutral top and bottom line growth forecast.

Speaker 3: We aim to be a growth company starting with volumes in 2023 we expect to grow total volume for the third year in a row even before factoring in the excellent.

We aim to be a growth company starting with volumes in 2023, we expect to grow total volume for the third year in a row, even before factoring in the excellent progress of Swedish match portfolio.

Speaker 6: Progress of Swedish much portfolio.

Speaker 6: As part of this growth, we are reiterating our targeted HTU shipment range of 125 to 132 billion, whywhile we expect the cigarette volume decline of one point five to 2%.

As part of this growth we are reiterating our targeted <unk> shipment range of $125 billion to $132 billion, while we expect the cigarette volume decline of one 5% to two 5%.

Speaker 3: We are increasing our organic net revenue growth forecast to plus seven point five to plus 8%.

We are increasing our organic net revenue growth forecast.

Seven 5% to plus eight 5%.

Speaker 6: Reflecting the continued momentum of ico's, the resilience of our comtible business and the ongoing excellent growth of zin, which we expect to contribute positively in Q4.

Reflecting the continued momentum of Iqos, the resilience of our convertible business and the ongoing excellent growth of <unk>, which we expect to contribute positively in Q4.

We expect strong organic operating income growth in the remainder of the year to support edge to margin expansion. Despite the headwinds previously mentioned and certain technical impact.

Speaker 6: We expect strong organic operating income growth in the remainder of the year to support H two margin expansion, despite the headwinds previously mentioned and certain technical thatact.

Speaker 6: These relate to the increased use of surparty manufacturing in a few markets such as Indonesia and Ukraine and the.

These relate to the increased use of third party manufacturing in a few markets, such as Indonesia, and Ukraine, and the relative growth of the below tier one segment in Indonesia, Ive already mentioned.

Speaker 6: relatedto growth of the blow TI one segment in Indonesia. I already mentioned.

Speaker 6: The full year estimated impact of this factor is around 40 basis points on our adjusted OI margin and without this impact we would expect to be broadly in the middle of our forecast organic margin range.

The full year estimated impact of this factor is around 40 basis points on our adjusted Oi margin and without this impact we would expect to be broadly in the middle of our forecast organic margin range.

Speaker 3: On top of this organic evolution, we expect sw ish match to add around 50 basis pointints of acuation.

On top of this organic evolution, we expect Swedish match to add around 50 basis points of accretion.

Speaker 6: Our on top line and OI outlook allows us to raise our forecast for current neutral adjusted diluted epl growth two plus 8, two plus 10% and.

Our strong top line and Oi outlook allows us to raise our forecast for currency neutral adjusted diluted EPS growth to plus eight two plus nine 5%.

Speaker 3: This translate to a revised range of $6 13 to $6 22, including 33 cents from unfavorable currency at prevailing exchange rate, notably due to the japaneseyen and Russian ruble.

This translates to a revised range of $6 13 to $6 22, including 33.

From unfavorable currency at prevailing exchange rate.

Notably due to the Japanese yen and Russian ruble.

Speaker 3: This forecast continues to assume around 1, $5 million for incremental investment in the? U's and our wellareness and enscare business.

This forecast continues to assume around $50 million for incremental investment in the U S and our wellness and a scale business.

Speaker 3: It also assumes around $1.2 billion in net finance costs, which includes higher interest on viuable debt, partly offset by better returns on cash deposit.

It also assumes around $1 $2 billion in net finance costs, which includes higher interest on valuable debt, partially offset by better returns on cash deposit.

Speaker 3: As previously mentioned, our focus do not assume any contribution from a potential favorable ruling on the Germany tax surcharge.

As previously mentioned our forecast does not assume any contribution from a potential favorable ruling on the Gemini tax surcharge.

Focusing on the second half in more detail, we expect strong performance on all key metrics are smoke free product deliver an increasingly positive impact.

Speaker 3: In Q3 we forecast high single-digit organic tooupl line growth with ht shipments of 31 to 33 billion unit and adjusted diled psers of 100 are 60 to 100 are 65, including six cents of unfavorable currency at prevailing ex change rate.

In Q3, we forecast I single digit organic topline growth with <unk> shipments of 31% to 33 billion unit and adjusted diluted EPS of $1 60 to $1 65, including <unk> <unk> of unfavorable currency at prevailing exchange rate.

Speaker 6: Looking ahead to Q4, we expect notably strong reported and organic OI growth as certain inflationary impact are annualized and we increasingly benefit from an optimized luma supply chain and conable.

Looking ahead to Q4, we expect notably strong reported and organic Oi growth as certain inflationary impact our annualized and we increasingly benefit from an optimized illumina supply chain and consumables.

Speaker 3: As I mentioned, Swedish Match will also be included in our organic figure during the quarter.

As I mentioned Swedish match will also be included in our organic figures during the quarter.

The exceptional growth of Zain is clearly marching accretive as visible in our adjusted excellent figures.

Speaker 7: Turning back to our results, our total shipment volume increased by plus 3% for Q2 and plus 1% year to date.

Turning back to our results our total shipment volume increased by plus three 3% for Q2, and plus one 1% year to date.

<unk> shipment volume grew by plus 26, 6% in Q2.

$31 4 billion unit, notably driven by continued strong performance in Europe and Japan.

Speaker 6: In addition to fundamental strength, hdu shipment to Japan were boosted in Q2 by around two billion unit as we increas se rate, with corresponding increase in inventory level.

In addition, two fundamental strengths <unk> shipment to Japan were boosted in Q2 by around 2 billion unit as we increase sea freight with corresponding increase in inventory level.

Speaker 3: As I mentioned earlier, total PI adjusted im's volume of ht increased by plus 16% in Q2, continuing the excellent trends in Q1.

As I mentioned earlier total PMI adjusted IMS volume of etch to use increased by plus 16% in Q2 continued the excellent trends in Q1.

Speaker 6: H one shipment were U grew by plus 18%.

Excellent shipment volume grew by plus 18, 5%.

Notably this does not include the excellent growth prospect of oral nicotine for which shipments volume grew by plus 14% in Q2 and plus 12% in each one on a pro forma basis.

Speaker 6: Notably does not include the excellent growth prospect of or nicotine, for which shipment volume grep by plus 14% in Q2 and plus 12% in H one on a pro forma basis.

Speaker 6: Cigarette volume declined by modest zero, 0% - in Q2 we is not able to support- from Turkey and egypt- and by 2% for H 1, reflecting a solid category share performance in a resilient category despite steep-up pricing.

Cigarette volume declined by a modest 0.4% in Q2 with notable support from Turkey, and Egypt and by one 7% for each one.

Reflecting a solid category share performance in a resilient category despite stepped up pricing.

Speaker 6: Our smooth fleet confiration continues to progress rvenue.

Our small free transformation continues to progress.

Speaker 6: Due to the continuous impressive performance of ICOS. eers tobacco units comprised 16% of our total shipment volume in H 1, as compared to 14% in the fertile or 2022, despite resiliency direct category.

Due to the continued impressive performance of Iqos heated tobacco units comprised 16, 4% of our total shipment volume in each one as compared to 14% in the first half of 2022, despite resiliency Garrett category.

Speaker 6: Including allre smoke reproduct, this will be close to 18%.

Including all Smokefree product this would be close to 18%.

Speaker 7: Powered by ICOS and zin MO reported made up 35% of our adjusted net revenue in H 1, compared to 30 perpoint 9% for the Centre year in 2022. ico devices: thataccounted for approximately 4% of our H one ininealables. Mo freenet revenue.

Powered by Iqos engine.

Smoothly product made up 35% of our adjusted net revenue in each one.

239% for the same period in 2022.

Iqos devices accounted for approximately four 5% of our excellent enables more <unk>.

Focusing now on convertible.

Speaker 6: Focus see now.

Speaker 7: On conversible.

Speaker 6: Our portfolio delivered strong organic net drivenue growth of plus 7% in Q2 and plus five perpoint 2% in H one.

Our portfolio delivered strong organic net revenue growth of plus seven 4% in Q2 and precise from 2% in each one.

Speaker 6: This reflects strong Q2 pricing, with a notable contribution from Indonesia and the Philippines.

This reflects strong Q2 pricing with a notable contribution from Indonesia and the Philippines.

Speaker 6: While we don't expect the exceptionally fromong Q2 pricing of 9%, which benefited from tening factors, to be fully replicated in H 2, we now forecast a full year increase of plus seven 2, plus 8%.

While we don't expect the exceptionally strong Q2 pricing.

Of nine 4%, which benefited from timing factors to be fully replicated in its too we now forecast full year increase of precision to plus 8%.

Our CRE category share grew by plus 0.7 points in Q2 on a year over year basis, including contribution from duty free a jeep and Turkey.

Speaker 6: Our seareic category share grew by plus zero point Seven point in Q2 on a year-over-year basis, including contribution from duty 3, Egypt and Turkey, and by plus zero point one point in H 1, resulting in only modest volume declines.

<unk> one point in each one resulting in only modest volume declines.

Speaker 7: Our leadership in convusttible helps to maximize switching to smokey product and we have fully achieved our ongoing objective of stable category share over the last 18 months, despite the impact of ico canbalization.

Our leadership in convertible.

To maximize switching to smoke free product and we are fully achieved our ongoing objective of stable category share over the last 18 months, despite the impact of Iqos cannibalization.

Yes.

Speaker 6: The combination of a stable sharing combustible and the continued growth of our leading smove freebrands position us to deliver total market share growth over time.

The combination of a stable sharing convertible in the continued growth of our leading smokefree brands position us to deliver total market share growth overtime.

Speaker 6: We captured plus one point one points of international cigarette and HTU share in Q2 and plus zero point five point in H 1, with notable contribution from Turkey and Japan.

We captured plus one one points of international cigarette and <unk> share in Q2, and plus 0.5 point in each one with notable contribution from Turkey and Japan.

Impressively, despite increasing competition in many markets.

Speaker 6: Impressively. Despite increasing competition in many markets, our volume share of the growing enoburn category remains stable at around 75%.

Our voting share of the growing eternal brand category remains stable at around 75%.

Speaker 6: This is supported by ongoing illuma market launches and increasing focus on our two tier ht portfolio, providing adult smokers with an expanding range of innovative and high-quality alternatives to cigaretes.

This is supported by ongoing illumina market launches and increasing focus on our two tier HQ portfolio, providing adult smokers with an expanding range of innovative and I quality alternatives to cigarettes.

Speaker 6: tmihdus again strengthened their position as the second largest nicotine brand in markets where ICOS is present, with the second ial share gain in Q2 of presz open two points to record nine perpoint 2% share.

PMI has to use again strengthened our position as the second largest nicotine brand in markets, where iqos is present with a sequential share gain in Q2 of <unk> two points to record nine 2% share.

Speaker 6: We estimate there were 27.2 million icconuser as of June the thirtiest.

We estimate there were $27 2 million iqos user as of June 30th.

Speaker 3: This reflects excellent growth of plus one point four million other user in Q2, with notable progress in Japan and Europe , in addition to a broad range of other geographies.

This reflects excellent growth of plus $1 4 million either user in Q2 with notable progress in Japan and Europe . In addition to a broad range of other geographies.

Speaker 3: While fundamentals remain very strong, I remind you that Q3 user growth can often be below the average for the year due to the seasonal factors evident in prior years.

While fundamentals remain very strong I remind you that Q3 user growth can often be below the average for the year due to the seasonal factors evident in prior years.

Speaker 7: I will now turn to I O.

I will now turn to Iqos in the Europe region, where we are pushing a milestone of 12 million users.

Speaker 6: In the Europe region where we are waching a milestone of 12 million users.

Speaker 3: This reflects the further rollout of hilumoma, which is now available to around 70% of ICOS users in the region, and the expansion of our two -tiyear portfolio.

This reflects the further rollout of <unk>, which is now available to around 70% of Iqos users in the region.

The expansion of our <unk> portfolio.

Speaker 3: As a illisrtion of its progress, terria is already close to hundred percent of our hduu in market sales volume in the first launch market of Spain and Switzerland.

As an illustration of its progress area is already close to 100% of our <unk> in market sales volume in the first launch market of Spain and Switzerland.

Our second quarter <unk> share increased by plus one six points year over year to 9% over two of total cigarette and <unk> industry volume.

Speaker 3: Our second quarter. Htu share increased by plus one point six points year over year to 9% over of total cigaretes and HTU industry volume.

Speaker 3: While the second control share is, as usual, optically affected by the seasonality of the cigareic category.

While sequential share is as usual optically affected by the seasonality of the cigarette category.

Speaker 7: Adjusted IMS volume continued to exhibit robust se control growth and reached a record iye on the fourth quarter moving average.

Adjusted IMS volume continued to exhibit robust sequential growth and reached a record high on a four quarter moving average.

Speaker 3: This reflect strong year-on-year growth of plus 20% in Q2, outsripping the plus 11 growth in HTU shipments which were affected by some resual effect from the inventory dynamics seen in Q1.

This reflects strong year on year growth of plus 20% in Q2.

Outstripping, the plus 11 growth in <unk> shipments, which were affected by some residual effect from the inventory dynamics seen in Q1.

Speaker 3: We expect robust' growth in htwou shipments, adjusted IMS and overall region organic rate revenue in the second half.

We expect robust growth in <unk> shipments adjusted IMS and overall region organic revenue in the second half.

Speaker 3: We continue to be anchoragage by the increasing number of European countries adopting multiyear excise tax plans with clear differentiation of smoke free product.

We continue to be encouraged by the increasing number of European countries.

Opting multiyear excise tax plans with clear differentiation of smoke free product.

Speaker 7: Over as of EU member states, has now passed multi plants.

Over as of EU member States have now passed multiyear plans.

Speaker 3: Also in the EU. A number of member states are currently transposing the delegicated directive withdrawing the ea tobacco product exemption from the faser band into national legislation.

Also in the EU the number of member States are currently transporting the delegated directive.

Withdrawing the heated tobacco product exemption from the flavor ban internationalization.

Speaker 6: The band is scheduled to come into effect on October twenty-third and we will be adjusting our hg portfolio as required in line with this H' position.

The ban is scheduled to come into effect on October 23rd.

And we will be adjusting our <unk> portfolio as required in line with his transposition.

Speaker 3: While short-term volatility is possible, we do not expect a significant change in the structural growth of the category.

While short term volatility is possible, we do not expect a significant change in the structural growth of the category.

Speaker 3: giveave some further color on our content. Progress in the region. This slide shows a selection of the latest keycity of tech shares.

To give some further color on our continued progress in the region. This slide shows our selection of the latest key city of SEC shares.

Speaker 7: The success of ICOS continues across diverse range of geographies from Western Southern, Central and Eastern Europe , including market wheiz and without ILUMA.

The success of Iqos continues across a diverse range of geographies from western and south central and eastern Europe , including market with and without Illumina.

Speaker 6: Despite the denomator effect of the compatible category I just mentioned, share results remain very strong.

Despite the denominator effect of the convertible category I just mentioned share results remain very strong.

Speaker 7: We are very pleased with strengding Rome showing a second control stepper to 28% share following the ILUMA launch. Robert, progress in London and mic also bodes well for these two key marketts.

We are very pleased with trends enroll showing a sequential step up to 28% share following the illumina launch robust progress in London in Munich also bodes well for these two key market.

Speaker 3: While Q2 2020 -two comparison for sharing engineers was held by the popularity of certain bundle offers, the share of over 40% remained impressive and underlying of techck continues to grow.

While the Q2 2020 tubes comparison for sure ingenious was helped by the popularity of certain bundle offers.

Share of over 40% remains impressive.

Underlying uptake continues to grow.

In Japan.

Speaker 8: E phone.

<unk> continues to drive impressive growth momentum.

Speaker 7: Smooth reported made up over 75% of our Japan net revenue in H one.

<unk> products made up over 75% of our Japan net revenue in each one.

Clearly showing the path for the broader company.

Speaker 6: Adjusted total bacco share for our hdu brands increased by plus three point four points in Q2 to 26%, further strengthening terria and centres's position as a clear number one and two enot burn brands, despite intensified price competition for me and low price offering.

Adjusted total tobacco share for our <unk> brands increased by three four points in Q2 to 26, 3%.

Further strengthening Tara and <unk> position as the clear number one and two Eaton outbound brands, despite intensified price competition for mid and low price offering.

Speaker 7: Importantly adjusted, IMS volume again grew sequentially reaching a record I of nine point three billion unit on the four quarter moving average. As IOs, our goody is not done category.

Importantly, <unk>.

The IMS volume again grew sequentially, reaching a record high of $9 3 billion unit on a four quarter moving average.

<unk> outgrew the eternal brand category.

Speaker 6: In addition to this excellent consumer trend, our Q2 shipment to Japan also benefited from progressatively switching back to sefreight during the quarter.

In addition to these excellent consumer trend, our Q2 shipment to Japan also benefited from progressively switching back to sea freight during the quarter.

Speaker 6: In addition to strong ICOS gains in developed countries, we continue to see very promising growth in low and middle-income market.

In addition to strong iqos gains in developed countries. We continue to see very promising growth in low and middle income market.

Speaker 7: This slides. I highlike a selection of Q2 qcity of take shares across market Eastern Europe Africa, Asia and Latin America.

This slide highlights the selection of Q2, TCT offtake shares across markets in Eastern Europe Africa, Asia, and Latin America.

Speaker 7: Notable ongoing successes include EIT, to its care of TA shares for passing 8%, and Bulgaria, with offtake shar in Sofia exceeding 15%, despite the usual impact of seasonality that I mentioned.

Notable ongoing successes include Egypt with care offtake share surpassing eight 5%.

In Bulgaria, with offtake sharing Sasha exceeding 15%, despite the usual impact of seasonality that I mentioned.

Speaker 7: We continue to see robust of the growing growth across this important future markets.

We continue to see robust offtake volume growth across these important future markets.

Okay.

Speaker 3: Now moving to Swedish March, which is meaningfully accelerating our smokefyree growth trajectory.

Now moving to Swedish match, which is meaningfully accelerating our smoke free growth trajectory.

Speaker 3: As covered earlier, the business delivered outstanding current and neutual nettro venue growth of plus 19% in Q2 and plus 17% in H one.

As covered earlier the business delivered outstanding currency neutral net revenue growth of plus 19% in Q2 and plus 17% in each one.

Speaker 7: This means that in the first half of the year to ish much as added 70 basis points of currency who goes to our pro forma appline and plus 16 basis points to our adjusted OI margin.

This means that in the first half of the year Swedish match as added 70 basis points of currency neutral growth to our pro forma top line and plus 60 basis points to our adjusted Oi margin.

Speaker 7: In the U's zein delivered another exceptional quarter with volingos of over 50%, reflecting positive momentum across the country.

In the U S. <unk> delivered another exceptional quarter with volume growth of over 50%, reflecting positive momentum across the country.

Elsewhere in smoke free recent trends of share gain in U S moist snuff as well as category mix headwinds in Scandinavia broadly continued.

Speaker 6: Elsewhere in smoke-free recent trends of share gain, us smooess as well as category mixed headwinds, is continueria, broadly continued.

The cigar business performed well with Q2 organic net revenue growth of plus 16%.

Speaker 3: The cigar business performed well with due to organic netturing growth of plus 16%, and.

Speaker 7: This reflects ongoing share gains, despite being a non remover on category pricing.

This reflects ongoing share gains despite being an early mover on category pricing.

Speaker 6: I would like to again congratulate and thank all the Swedish Match employees for continuing to deliver a terrific results as we thoughtfully integrate our activities, which is progressing very well.

I would like to again congratulate and thank all of the Swedish match employees for continuing to deliver terrific results as we thoughtfully integrate our activities, which is progressing very well.

Speaker 6: Looking at Z? U's performance in more detail, exceptional year-over-year volume growth in can of plus 53% also reflect a plus 22% second shoial increase versus Q1: 20 and twenty-three.

Looking at U S performance in more detail exceptional year over year volume growth in Jan of plus 53%.

So reflect a plus 22% sequential increase versus Q1 2023.

Speaker 3: This accelerated growth reflect progressive increase in distribution and a broad nationwide step up in store of velocity as a category against contraction, with adult nicotity user for its.

This accelerated growth reflects progressive increase in distribution and broad national wide step-up instill velocity as the category gained strong traction with other nicotine user for its convenience and pleasurable experience.

Speaker 6: Convenience and pleasurable experience.

Speaker 7: This includes California, which implemented a statewide flavor Bank in December .

This includes California, which implemented statewide flavor ban in December .

Speaker 7: While such elevated rates of growth may not continue indefinitely, the structural indicators remain very encouraging.

While such elevated rates of growth may not continue indefinitely, the structural indicators remain very encouraging.

Speaker 7: Impressively. Zinc category volume share grew plus two point two points compared to prior year and plus one points sequentially, despite continued discounting from less premium offerings.

Impressively zinc category volume share grew plus two two points compared to prior year and plus one point sequentially. Despite continued discounting from less premium offerings.

Speaker 7: Retail value share also grew to six 77%, highlighting its premium positioning and suor brand equity.

Retail value share also grew to $6 76, 8%.

Lighting, its premium positioning and superior brand equity.

Now, let me provide an update on our innovation and expansion plan as we further accelerate our smokefree transformation.

Speaker 8: Now let me provide an update on our invation.

Speaker 6: And expansion plan as we further accelerate our smokef retransformation.

Speaker 3: First and foremost, the global rollout of IO ILUMA continues to be a top priority.

First and foremost the global rollout of Iqos Illumina continues to be a top priority.

Speaker 7: We launched iloma in six market in Q2 and, with HTU manufacturing constraint now normalized, we aim to be present in around 50 markets by the end of the year.

We launched Illumina six market in Q2, and with HQ manufacturing constrained now normalized we aim to be present in around 50 markets by the end of the year.

Speaker 7: The most significant opportunity to drive accelerated growth is in the U? S.

The most significant opportunity to drive accelerated growth is in the U S.

Speaker 6: We are investing behind zin and readying our organizational and commercial capabilities for the launch of cycles in Q2 next year.

We are investing behind Zane and readying, our organizational and commercial capabilities for the launch of Iqos in Q2 next year.

Speaker 6: As mentioned in today's release, we are also on track for ICOS ILUMA, PMTA and supplemental MRT submission in Q4 2020 -three.

As mentioned in today's release, we are also on track for Iqos, Illumina, PMT and supplemental <unk> Cta submission in Q4 2023.

Our philosophy on the U S remains unchanged.

Speaker 3: Our philosophy on the? U's remains unchangedwe will seek to accelerate our top line with ICOS and zin, supported by disciplined investment and leveraging both our extensive experience in mphy product and sw ish match infrastructure and knowledge, while continuing to deliver strong bottom line growth for PMI.

We will seek to accelerate our top line with Iqos and zing.

Posted by disciplined investment and leveraging both our extensive experience in smoke free product and Swedish match infrastructure and knowledge, while continuing to deliver strong bottom line growth for PMI.

Speaker 9: I were.

Our pilot city launches for bond in the Philippines, and Colombia continued to progress well the learning from this market will be integrated as we rollout more broadly starting next year.

Speaker 7: City launches for Bones in the Philippine and Colombia continue to progress well. The learning from this market will be integrated as we roll out more broadly, starting next year.

Speaker 6: The international expansion of nicotine pouchers remains a key medium-term opportunity, notably for zin as the world's leading brand. We are now preparing for the launch of the launch of zin in several market.

The international expansion of nicotine pouches remains a key medium term opportunity, notably foreseen as the worlds leading brand. We are now preparing for the launch of relaunch of Zain in several market.

Speaker 6: In e-apor, our refocused approach in select market is progressing with V 1, our newly design purase system introducing four market, and V, now our disposable product in six market.

In E vapor our refocused approach in select market is progressing with VB one our newly designed the system introducing four market and we've now our disposable product in six markets.

Speaker 8: Now let me discuss our wellareness and essk segment, starting with its first clinical trial result for our label planing product.

Now, let me discuss our wellness and SCS segments, starting with its first clinical trial results for our ineligible SPM product.

While it was observed that the experimental product at the rapid onset of effect, which is a team medical advantage suite.

Speaker 8: While it was observed that the experimental product at the rapid onset of effect, which is a three medical advantage, sit.

Speaker 7: There was significant viability in email. Do among subject.

There was significant variability in email dose among subjects.

Speaker 8: The study was therefore been unsuccessful and, as a result, product design improvements are required.

The study was therefore deemed unsuccessful and as a result product design improvements are required.

Our plan was to file this product with the FDA later this year.

Speaker 8: Our plan was to F the product with the FDA later this year. However, additional time is now required and the outcome is therefore less certain.

However, our additional time is required and the outcome is therefore less certain.

Speaker 6: In addition, the CDMO business has been facing slower than anticipated development, including cost-related challenges.

In addition, the CDM business has been facing slower than anticipated development, including costs related challenges.

Speaker 3: Consequently, we recorded a noncash goodwill impairment from our annual assessment, as detailed in today's release.

Consequently, we recorded a noncash goodwill impairment from our annual assessment as detailed in today's release.

Speaker 8: While these elements will postpone the achievement of our 2025 aspiration to reach over $1 billion of net revenue from wellness and eskcap product, there will result in the corresponding decrease in the level of investment in 2020. -four and.

While these elements will postpone the achievement of our 2025 exploration to reach over $1 billion.

Net revenue from wellness and escape product.

They will result in a corresponding decrease in the level of investment in 2024.

Speaker 6: Our ambition to build and monetize our product pipeline are andunchange.

Our ambition to build and monetize our product pipeline are unchanged.

As in the early days of developing Iqos certain Edwin ought to be expected and the 2021 acquisition in this segment.

<unk> provides us with unique and enabling R&D capability.

Speaker 7: We remain committed to developing our wellareness and althcare business and continue to see attractive Med and long-term growth potential. On many frms, such as innoable drugs, nffe and consumer wellareness product, including non-recurions, can be loed in line with applicable regulatory enquirements.

We remain committed to developing our awareness and <unk> business and continue to see attractive mid and long term growth potential on many fronts, such as enable drugs NFC and consumer awareness product, including nonrecurring cannabinoid in line with applicable regulatory requirements.

Speaker 3: We also aim to accelerate victo growth and will be exploring potential partnerships to enhounance its CDMO business.

We also aim to accelerate Victor as growth and we'll be exploring potential partnership to enhance its CDM business.

Speaker 3: We plan to discuss all these topics, including our planant for icqs in the U's and will fu based on our wellness and calpe business, as our Investor Day on the twenty-eighth of sepber in lthern, swedzerland.

We plan to discuss all these topics, including our plans for Iqos in the U S. At a full update on our awareness and discount business at our Investor day on the 20 <unk> in Luzon, Switzerland.

Speaker 3: Moving now to sustainability.

Moving now to sustainability.

Addressing the product as the impact of convertible product by switching adult smoker to smoothly products, such as Iqos and Dean <unk>.

<unk> remains our most critical priority.

Speaker 6: This transformation is at the core of our strategy, driving accelerated growth and returns over time from a more sustainable business.

This transformation is at the core of our strategy driving accelerated growth and returns over time from a more sustainable business.

Speaker 6: In addition, we remain committed to delivering best-in-class progress in other key sustainability areas.

In addition, we remain committed to delivering best in class progress in other key sustainability areas.

With our extensive agricultural and manufacturing supply chain.

Human rights are very important responsibility for our company.

Speaker 8: We relieved our first dedicated report on the topy classforms, detailing our strategy to promote, respect and protect human rights and the progress to date in implementing our human rights commitments.

We released our first dedicated report on the 30 plus months detailing our strategy to promote respect and protect human rights.

And the progress to date in implementing our human rights commitments.

Speaker 6: Our performance on human rights is included in the nineteen.

Our performance on human rights.

Is included in the 19 Kpis of our sustainability index, which comprises 30% of executive long term equity compensation weighted towards our product transformation.

Speaker 8: Kpis of our sustainability index, which comprises 30% of executive long term equity compensation weighted towards our product transformation.

Speaker 6: Our goal is to conduct comprehensive human rights impact assessments in our 10 highest risk market by the end of 2020. -five and.

Our goal is to conduct comprehensive human rights impact assessment in our 10 August risk market by the end of 2025.

Speaker 8: These helppers.

These help us better understand and address our impacts and we are making excellent progress with seven completed to date.

Speaker 6: Better understand and address our impacts, and we are making excellent progress. We seven competed to date.

Speaker 8: Addressing climate change is another priority for us and I am pleased to share that tmi was included in the fourth first-ever net zero leaders last list.

Addressing climate change is another priority for us and I am pleased to share that <unk> was included in the Forbes first ever net zero leaders list list.

Speaker 3: Ranking sevenants overall for all U's public recompany, higher than any other consumer product or service company.

Ranking seventh overall for all U S public company other than any other consumer product or service company.

Speaker 6: To conclude today's presentation- we delivered a very strong first Al, despite the number of 8- means putting us on track for the thir consecutive year of positive volume and organic net venue growth of over plus 7%, and.

To conclude today's presentation, we delivered a very strong first as despite the number of eight wins, putting us on track for the third consecutive year of positive volume and organic net revenue growth of over 7%.

Speaker 8: The powerful trajectory of our smoke free business gave us confidence in a strong fully year performance with excellent operating income growth.

The powerful trajectory of our Smokefree business give us confidence in our strong full year performance with excellent operating income growth.

Speaker 8: outstand. invironmental continues for icqos and seen the world leading inaburn and oral nicotine brands, and we have exciting plans to further grow oral nicotine pouches in the? U's and internationally, along with the? U's commercialization of ICOS next year.

Outstanding momentum continues for Iqos and <unk>, the world, leading even though.

Oral nicotine brands and we have exciting plans to further grow oral nicotine pouches.

The U S and internationally.

Along with the U S commercialization of Iqos next year.

Speaker 8: Importantly, we remain steadfast on in our commitment to generously reward our shareholders, including through our progressive dividend policy.

Importantly, we remain steadfast in our commitment to generously reward our shareholders, including through our progressive dividend policy.

Speaker 6: In short, our smokef transformation continues to deliver suical growth.

In short our Smokefree transformation continues to deliver sustainable growth, we look forward to sharing more with you on the next phase of our transformation at our Investor Day on September the 20 eights.

Speaker 8: We look forward to sharing more with you on the next phase of our transformation at our Investor Day on September to twenty-eighth.

Speaker 8: Thank you very much, and we are now delighted to answer your questions.

Thank you very much and we are now delighted to answer your questions.

Speaker 10: Thank you. We will now conduct a question and answer portion of the conferenceagain. In order to ask a question or make a comment, Please press starkey, followed by the 1, on your touchstone phone. In the interest of fairist and time, we ask that participants keep to a maximum of two questions each.

Thank you we will now conduct a question and answer portion of the conference again in order to ask a question or make a comment. Please press star followed by one on your Touchtone phone and the interest of fairness.

We ask that participants keep to a maximum of two questions each.

Speaker 10: If time allows, follow-up questions may be taken. You may rejoin the queue again by pressing star and one on your touchstone phone. Our first question comes from Pamela coffman, from Morgan Stanley . Your line is now open.

If time allows a follow up question, maybe taking you may rejoin the queue again by pressing star one on your Touchtone phone.

Our first question comes from Pamela Kaufman.

Stanley Your line is now open.

Speaker 11: Hi good morning.

Hi, good morning.

Speaker 12: Co.

Speaker 13: Oh mean B.

Morning, Bob.

Speaker 14: I wanted to ask about your full year guidance.

I wanted to ask about your full year guidance.

Speaker 15: You exceed your own Q2 guidance by at least 13 cents, but then did not flow through the epsb to the full year outlook, even when factoring the greater FX headwinds.

You exceeded your own Q2 guidance by at least <unk>.

It did not flow through the EPS beat.

Our full year outlook, even when factoring the greater FX headwinds.

Speaker 15: What's tempering the flow through of Q2 upside and how much does this reflect conservatism around the balance of the year versus a more cautious outlook on the second half or higher investment?

Tempering the flow through of Q2 upside and how much does that reflect conservatism around the balance of the year.

His outlook on the second half or higher and Beckman.

Speaker 16: Ink.

Thanks.

Speaker 17: Thank you. When we look at the driver for beating our initial expectation for Q2, I think we can probably make three buckets. one is the out performance of Z that to our expectation and that's something that we of course taking into account as we see a better trajectory for than initially icipated. Remember that we only contribute to our organic growth on revenue in Q4 but that is of course helping the adjusted EPS growth, excluding for X.

Thank you Pam.

When we look at the driver for beating our initial expectation for Q2, I think we can probably make three buckets one is the.

Our outperformance of Zain versus our expectation and Thats something that we are of course, taking into account as we see a better trajectory foreseen than initially anticipated remember that will only contribute to our organic growth on revenue in Q4.

That is of course LP.

Adjusted EPS growth excluding Forex.

Speaker 7: We also see some cost that have been moved to H two and that is, if you want, becauses that are we going to see in H 2, So it's not a net addition for the year.

We also see some cost as we move to <unk> and that is if you want because that's how we're going to see in etch too. So it's not a net.

Net additions for the year and then there was as we said some better news on a financial cost to cost on our debt.

Speaker 7: And then there was, as we said, some better news on a financial cost cost on our debt.

Speaker 7: There was also some element on tax and of course this one is more uncertain and more difficult to predict for the second part of the year. But I think, as always you know, we are building scenario for the full year. We've been put including in a clear way what we see, a real change in the traject, ory and on which we have visibility for the second Al on scen, where we are postponement of things with good news, But of course we still a lot of uncertainty on H two of course we have to be a bit more cautious when we take them in the scenarios.

There was also some element on tax and of course. This one is more uncertain and more difficult to predict for the second part of the year, but I think as always you know we are building scenario for the full year we've been.

Including in a clear way what we see.

A real change in the trajectory and on which we have visibility for the second half on <unk>, where we are postponement or things with good news, but of course, we still have a lot of uncertainty.

<unk> of course, we have to be a bit more cautious when we take them in the scenarios.

Yeah.

Speaker 15: Okay Thank. And then just on operating margins, you pointed the operating margins closer to the lower end of your initial guidance range of down 50 to one hundred and 50 basis points for the year. Can you discuss the puts?

Okay. Thanks.

And then on operating margin.

Operating margins closer to that level.

So guidance range of down 50 to 150 basis points for the year can you discuss that.

Speaker 15: Impacting your margin performance in the second half.

Impacting your margin performance in the second half.

So when you look at the margin really things are happening as expected I would say so after Q1, which was not coming as a surprise to US. We said from now on we're going to see an improvement of the margin trajectory.

Speaker 3: So when you look at the margin, really things are atening as expected.

Speaker 7: That would say So after Q1 we are not coming as the supplies to us. We said from now we re going to see an improvement of the margin trajectory. We knew that inflation we still be there know, for the rest of the year, although in the second part of the year we going to be facing comparison where inflation was starting to kick. So that is going have some some impact.

Knew that inflation would still be there for the rest of the year, although in the second part of the year, we're going to be facing comparison, where inflation was starting to kick in so that's going to have some some impact.

Speaker 3: But we knew that a number of other wind will start to bedate and year and talking about the disruption on the supply chain and among other things, things connected we rate the cost attach to the launch of the fact that not everything was ptimal. So we start to see improvement in Q2 as expect and we going to continue to see in improvement in the rest of the year.

We knew that a number of other headwinds start to abate and year I'm talking about the disruption of the supply chain and.

Among other things things connected with air freight the costs attached to the launch of Newmont. The fact that not everything was optimal so we started to see improvement in Q2 as expected and we're going to continue to see improvement in the rest of the year and then what we see playing in Q2 that we.

Speaker 6: And then what we see playing in Q2, that we expect to see playing in the rest of the year, as the fundamental positive drivers that we have for our margin. First of all, the fact that I could growth is positive impact on our margin. We said itis in the beginning. We expect a positive contribution on margin evolution for the year from the the business.

Checked to see playing in the rest of the year as a fundamental positive drivers.

For our margin first of all the fact that <unk> growth is having a positive impact.

On our margin we said it since the beginning we expect a positive contribution on margin evolution for the year from the ethanol business remember, we have a higher gross margin rate on our consumable for Iqos. So as we are growing iqos that is having a positive impact there is no when it comes to our Smokefree business. Another driver that is positive.

Speaker 7: Remember we have a higher growth margin rate on our consumable for I. So as we are going, I course that is having a positive impact. There is no when it come to our business and not a driver that is positing our margin, which is and the? U us, which is also accretive to the margin we do'not see in the organic reportking So farbut is going to start to kick in Q4 and we expect to have another nice positive.

For our margin, which is zain and zain in the U S, which is also accretive to the margin you don't see it in the organic reporting so far but it is going to start to kick in in Q4, and we expect to have another nice positive and then the third element that I think you see of course, a nicely in Q2.

Speaker 6: And then is the certain element that I think you see of course nicely in Q2 is our pricing power. We see to today very clearly on composustsible. We have some wind temporary coming from Germany and Japan, not done, but we retain pricing power which is positive for the long term and these are good element. Of course in ont of that will keep investing and and making sure that we are maximiz the growth potential.

Our pricing power, we see today very clearly.

On <unk>, we have some edwin that are temporary coming from Germany, and Japan on it's not done, but we retain pricing power, which is positive for the long term and these are good element of course in front of that we will keep investing and.

Making sure that we are maximizing the growth potential, but thats really what is behind the margin development for the year now on top of it and I think we've been flying debt. During this quarter. We have the development of businesses that are coming with lower margin because we are buying to sell parties and that is a different.

Speaker 7: But that is really what is beyin, D the margin development for the year. On top of it, and I think been trylying that during this quarter, we have a development of businesses that are coming with lower margin. We are buying to sou parties and that is a different margin dynamic. And also this business which we we call below V 1, which is in facttor we reduce exc dutive in Indonesia.

Margin dynamic and also this business.

Which we called <unk>, one which is in factor with reduce.

Speaker 7: That is coming with lower margin is more a technical effecttor would say, and as mention. Without that we would have been, in fact, in the middle of the bracket that we gave the 50 to one and 50 negive and again, this is not reaffecting the positive contribution for for. So I would say as a summary, things are happening as expected and we start to the fact that we have, on the long term, fundamental positive driver for our margin.

Excise duty in Indonesia that is coming with lower margin. It's more of a technical effect I would say and as I mentioned without that we would've been in fact in the middle of the bracket that we gave the 50 to 150 negative and again this is not reflecting the positive contribution for 14, So I would say as a summary.

Things are happening as expected and we start to see the fact that we have on the long term fundamental positive driver for our margin debt.

Speaker 7: That summar.

<unk> summarized.

Speaker 15: Thank you, that's very helpfully.

Thank you that's very helpful.

Speaker 18: Thank you.

Thank you.

Speaker 10: We will take our next question from vivian azther. With TD Cowen, your line is open.

We'll take our next question from Vivien <unk> with TD Cowen Your line is open.

Hi, good morning.

Speaker 19: Hi good morning.

Speaker 20: I.

Hi, Vivien.

Speaker 21: So I wanted to follow up on the commentary on then. Certainly consistent with the very robust trends that we're seeing.

I wanted to follow up on the commentary on it.

Certainly consistent with the very robust trends that we're seeing and the Nielsen scanner data accelerating ground strong market share gains.

Speaker 22: In the Nielsen thener data: accelerating grow strong. marketts're gting.

Speaker 22: He've spoken in the past about the opportunity to offer some incremental investment to that business unit to expand the sales force in.

And in the past about the opportunity to incur.

Incremental investment for that business unit.

On the sales force improved distribution and drive velocity.

Speaker 22: Prove this.

Speaker 22: abusion and drive velocity. Can you just talk to us about where you are in that investment time horizons for bentley. Thank you.

Can you just talk to us about where you are in.

On the time horizon.

Thank you.

Speaker 6: Provision here Z is lo.

Yes.

Speaker 8: I mean we knew that the brand was greatade. I think we are seeing something that is both our initial expectation to be very clear for the timebeing as the time of of the acquisition of Swedish Match. There is clearly growing awareness of this category. We see a lot of poly us age So you have a percentage that is fully converted. That lot of that. We talk about people discovering that we can enjoy the nicity in moment where they cannot enjoy whether the comversustsible together or all enable product that is certainly playing.

We knew that the brand was was great.

We are seeing something that is.

Both our initial expectation to be very clear for the time being at the time of the acquisition of Swedish match.

There is clearly a growing awareness of <unk>.

This category, we see a lot of.

Poly usage. So you have a percentage that is fully converted by the other producers we took about people discovering that they can enjoy the nicotine in moment, where they cannot enjoy whether they're convertible cigarette order.

Enable product that is certainly playing I think there is a very positive lifestyle elements around the development in the U S that is gathering momentum. So that is I think explaining the success of zinc that is the icon of the category and of course, taking today the lion's share of the growth of nicotine.

Speaker 6: I think there is very positive lifestyle element around the development in the us that is gathering momentum. So that is, I think, explaining the success of Z, that the IC of the category and course taking the, the lineion share, the growth of this n getting CH progression in the? U us. Now that is very good news, of course, because that mean that we have very dynamic business in the?

In pouch.

Progression in the U S. Now that is very good news of course, because that mean that.

We have a very dynamic business in the U S to be very clear, it's not margin all at the group level. So you will see and you already see in the performance impact of this zine U S performance. So that's great to have.

Speaker 6: U's. To be very clear, it is not margin know at the group level. So you will see, and we are ready see in the performance impact of this Z's performance. So that great to have another driver for our smoke free performance and globally for the financial performance of the companybut say the seen very well for IC because because on top of what is successful we are going to be able to build very efficient commercial engine.

Another driver for our smoke free performance and globally for the financial performance of the company, but I would say things are seen very well for iqos because on top of what is successful we're going to be able to build a very efficient commercial engine.

Speaker 6: You said it increase force we making of that. It is certain, progressively it is of course going to both Z and I? O but that also both very well for our capacity to develop IC successfully in the future in in the? U we do not have a convergence strengths between Z and and I? o. So to be very wellven being know increasing at that stage by several under people the for is certain gradually as we build capacity for IC O starting Q to next year.

<unk> increased sales force wings, making of that is.

It's happening progressively is of course going to boost Zane and Iqos.

But that also bodes very well for our capacity to develop iqos successfully in the future in the U S. We don't have a convergence of strengths between <unk> and Iqos. So.

To be very clear, we haven't been suddenly increasing at that stage by.

Several hundred people, the salesforce et cetera, and gradually as we build.

The capacity for Iqos, starting Q2 next year. There is other investment that we're doing in our digital capacity and the digital commercial engine again, just the beginning so I don't think it is really to date behind the growth that we see behind <unk>, but these are additional strength and capacity.

Speaker 6: There is all investment that we are doing in our digital capacity and the digital commercial and ine. Again, just a beginning. So I don't think it is really today behind the growth that we see behind Z. but these are additional strength and capacity and again, I think we are very excited about the amazing team that I, O and Z can in the future in the us.

Again, I think we are very excited about the amazing teams that iqos engine can be in the future in the U S.

That's really helpful. Thank you for that and then.

Speaker 22: That's really helpful. Thank you for that. And then just moving wellness and the health care.

Yes.

Wellness and healthcare segments for my second question. Please.

Speaker 22: My second question, Please. You know understanding some of the challenges around the clinical trial. I was wondering if you could this comment on your aspiration to delever the balance sheet postesslease match transaction versus the potential.

Understanding some of the challenges around the clinical trial I was wondering if you could just comment on your aspiration to delever the balance sheet.

That transaction versus the potential need for incremental M&A.

Speaker 23: Need for incre.

Speaker 22: mma is: do you think about?

And opened.

Speaker 22: You know, an ultimate $1 billion revenue targets.

$1 billion revenue target understanding that pushed out.

Speaker 22: Understanding that that you pushed out today.

Speaker 24: For that, Thank you.

Thank you.

Speaker 8: Yes and I want to be very clear. I mean, the focus is on deleveraging the balance sheet. We are focusing on extracting the great potential that we have in our smoke free business. I mentioned ico and in together we certainly want to move V as well, but I think there is so much potential on ICOS and that it's, of course, the key focus today and and we are spending our time energy, on maximizing the potential there and that's going to generate deleveraging.

Yes.

Want to be very clear I mean, the folks.

<unk> is on deleveraging the balance sheet, we are focusing on extracting the great potential that we have in our Smokefree business I mentioned Iqos and together, we certainly want to grow <unk> as well.

There is so much potential in iqos and Zane that it's of course.

Our key focus.

Today.

And we are spending our time energy on maximizing the potential there and that's going to generate deleveraging. So the time today is not for us too.

Speaker 3: So the time today is not for us to think about, I would say, structural move on on other spaces. We are very much focus on optimizing these great potential that we have in our smoothly business today.

To think about I would say store.

Structural move.

Move on.

M&A in other spaces, we are very much focused on optimizing these great potential that we have in our smokefree business today.

Speaker 25: Thank you.

Thank you.

Speaker 26: Thank you.

Thank you.

Speaker 10: We will take our next question from chroin with.

We will take our next question from trough Jang with.

Speaker 10: claz, your line is open.

Barclays. Your line is open.

Hi, good morning.

Speaker 27: Hi good morning.

Speaker 28: I go have.

Hi, Dara.

Speaker 29: See I a question on then in the? U's sort of volumes are coming in much ahead of where I think consensus where we were. We also know that U's igarette volumes have persisted at very weak rate despite easy comps. So what do you think is the cannibalization rate of Z on U's cigaretes today- And as you project out, I cause growth over the next seven years- is since cannibalization is higher than.

A question on Zen and the U S. So the volumes are coming in much ahead of where I think consensus is where we were we also know that U S. Cigarette volumes have persisted at very weak right.

<unk> easy comps.

What do you think is the cannibalization rate of xenon use cigarettes today and kind of as you project out our cost growth over the next seven years zero cannibalization is higher then.

Speaker 30: And then what is thought of? And does it mean that the cigarette universe is smaller, which implies that the I os opportunity is smaller?

And then what is part of and does it mean that the cigarette universal smaller which implies that the iqos opportunity in smaller.

Speaker 31: It's go of an excellent.

It's going to have an excellent question I believe.

Speaker 6: Question I believe photo all I'm not going to give able to give a precise, as you can imagine. I believe that there is probably some cannyiabization for the reason I mention. We see, know behaviors developing of people that probably are or where combustsible user and the discovever that they can enjoy the nicotine in a different manner, with certainly political perception on when they can do it and impfact you know, on them.

First of all I'm not going to give us to give a precise answer as you can imagine I believe that there is probably some cannibalization for the reason I mentioned, we see behaviors.

Developing of people that probably.

Are aware.

Congress table.

And they discover that they can enjoy the nicotine in a different.

Minor.

Certainly.

Positive perception on when they can do it and the impact on on then.

Speaker 3: Now i'mam not able to tell you whether this is. This is something very, very meter, So I don't have any DAT at that stage and i'am showing we we try to elaborate on the zin driver on the 20 eigh of September But at that stage I' not able to share with you, you know, any hard data on our nataterialzing. Frankly, I don't think that this is going to be really relevant for I Les because maybe you know, in the kind of super marginal manner that you know we talk about, we I cho smokers wants to enjoy, when they are still enjoy to the combsible cigarette, a different produ that is mimicking very closely the pleasure, clearly personal benefit on the else but also on their lifestyle.

Now I am not able to tell you whether this is.

This is something very very material. So I don't have any debt at that stage.

I'm sure.

We will try to elaborate on zinc driver on the 28th of September , but as I said I'm not able to share with any hard data on all its materializing.

Frankly, I don't think that.

This is going to be really relevant for for Iqos because.

Maybe kind of super marginal manner that took about with Iqos smokers, who wants to enjoy.

They are still enjoying today convertible senior at a different product that is mimicking very closely that pleasure with clearly personal benefit on.

They're ALS, but also on their lifestyle.

Speaker 7: So I don't see a zin moment something that is going to compete with IC Les in the meaningful manner. So I think that that not something that we see as a risk to undermine I cho potential in the future.

So I don't see Zane movement.

As something that is going to compete with iqos in a meaningful manner. So I think that that's not something that we see as a risk to undermine iqos potential in the future.

Speaker 29: Thank you, and the second question I have is on this e U heated tobacco flavor ban, and you mentioned that there could be some volatility. Now the experience in California has been pretty bad for poll the menthal cigarette ban, in that only 70% of the menthal smoker seems seem to have been retained in the cigarette marcket. So like, what is the precedence?

Thank you and the second question I have is on this EU hated.

Tobacco flavor ban and I know you mentioned that there could be some volatility.

Experience in California has been pretty bad.

The menthol cigarette ban and that only 70% of the mentor.

More questions.

We retained in the cigarette market. So like what is the precedent is there any precedence of our flavored heated tobacco ban anywhere rich.

Speaker 29: Is there any precedence of a flavvored heated tobacco ban anywhere which helps you form the view that the pactle will be quite minable?

You formed a view that the.

That will be quite minimal.

Yes. There is go up so I will take two examples one in Europe . When there was incremental dollars are favorable in May 2020, where it at.

Speaker 3: Yes there is. So I will take two example: one in Europe , when there was the mental fvor band, may 2020 , where it minimal impact on the combustsiible business very, very small. So that 1, one minisration and the other one is actually because we talk about growing product. The other one year is ban on flavor in California, that impact of at the end of 2020 -two and there was a few weeks with a blelip on the volume and then the momentum came back, a nonflavred product actually with even more intensity and blelip that has been soled and and you don't see today in impact of this ban.

Minimal impact on.

The convertible business very very small.

So thats one one illustration.

And the other one is actually because we talk about growing product. The other one year is.

Then on flavor in California that impacted <unk> at the end of 2022, and there was a few weeks with a.

Blip on the volume and then the momentum came back on non flavored products.

Actually with even more intensity and.

<unk> has been solid and you don't see today any impact of this then so I think you have.

Speaker 3: So I think you have to element experiences that show that this is having minimum impact and again we're comparing in California is growing category, which maybe is is more appropriate, but but referring to combustible in Europe in May two thousand and twent the impact for the minimes.

Two elements experiences that show that.

This is adding minimum impact.

And again were comparing in <unk>.

<unk> is growing category, which maybe.

It is more appropriate, but referring to convertible in Europe in May 2020.

The impact was de Minimis.

Speaker 29: Ok sure, Thank you so much.

Okay sure. Thank you so much.

Speaker 32: You.

Thank you.

Speaker 10: We will take our next question from bonny herurs. Off with Golden's SA, your mind is now open.

We will take our next question from Bonnie Herzog with Goldman Sachs. Your line is now open.

Speaker 33: allright. Thank you HI, Emmanuel.

Alright, Thank you Hi, Emmanuel.

Speaker 34: I have good money B.

Good morning Bernie.

Speaker 35: Circle back to your guidance.

Circle back to your guidance with just maybe a quick follow on question.

Speaker 35: Just maybe a quickfall one question.

Speaker 36: You know.

Speaker 33: Your full ER guidance implies, I guess, more riditing at Q4, So just hoping.

Your full year guide.

This implies I guess more riding on Q4, so just hoping.

Speaker 35: You could help us understand.

You could help us understand maybe your level.

Speaker 35: And you know, maybe your level is confiiced.

Speaker 33: And visibility that your business really will stren.

And our visibility.

It's really both strengthened so much later this year and then.

Speaker 35: And so much later this year and then.

Speaker 33: I deal with early and I I'm.

I know it's early.

Speaker 35: Don't expect you to to guide Nick year, but is there anything we should think about that you're investing in this de.ar? That really couldn't position you.

Johnny to guide next year, but is there anything we should think about that you're investing in this year that really position you for even greater growth next year and beyond.

Speaker 33: For even greater grows.

Speaker 33: ne Dear and beyond.

Speaker 3: Yes So, but it trying to be back on H two.

Yes so.

Trying to be back on its too.

Speaker 7: I think you see already in Q2 and in the momentum behind I Co is there. We see one point imate, one point for million D, the growth in Q2 that the nextceand numberber we see in market sales going up. We know that there is seasonality but it doesn'ting that the consumer of take is going to decrease. There is more launch of ILUMA and some of them that happen in the and of H one that is going to contribute as well in the second part of the year.

I think you see it already in Q2, I mean, the momentum behind Iqos is there we see it one for we estimate $1 4 million user growth in in Q2 that is a mix and a number we.

We see in market sales going up we know that there is seasonality, but it doesn't mean that.

The consumer offtake is going to decrease.

There is more launch of Illumina and some of them that happens.

<unk> of each one that is going to contribute as well in the second part of the year. So we see very robust momentum there we see the.

Speaker 7: So we see very robust momentum there. We see the work that we've been doing and, as we said you know, the high intensity of price increase as happen in Q2, is going to be lower. H two and we've been defending our market share well in the market. That is resilient and we may discussed why C C So resilent that the fact is com, ustble, is is proving to be be a resilient in many, in many geographies.

Work that we've been doing and as we said.

Ias intensity of price increase as happened in Q2 is going to be lower.

In <unk>, two and we have been defending our market share well in a market that is resilient and we may discuss why.

So resilient, but the fact is that convertible is.

Is proving to be resilient in many in many geographies and then there is the <unk>.

Speaker 7: And then there is a seen moment, clear a in momentum which know when I thing growgoing at 50% of course. But but really we expect momentum to continue super nicely on seen and starting Q4 that we also contribute to the organ growth but limicated going to fully contribute to adjust thir PE growth, excluding four X. So all that giversus, the confidident that we have set for very, very good and very STR?

<unk> cases in momentum.

When are they going to keep growing at 50% of course, but but clearly we expect momentum to continue super nicely.

On <unk> and starting in Q4 that will also contribute.

To the organic growth, but in many cases going to fully contribute to.

To adjusted EPS growth, excluding Forex, so all of that.

Give us the.

Confident that we are set for a very very good and very strong edge to in term of performance now when we look towards 'twenty 'twenty four.

Speaker 6: extrtreme ter of performance. Now when we look the 20 20 4, we believe that the growth driver are going to St the same. So I Co we, of course the launch Q2 in the be going to be good begining. So it is not going to immediately a uion impact, going to be a rampup, as as we explain, but there will be a number of country where luma will be fully deliveringlook at jap, that interesting happen in Japan.

We believe that the growth drivers are going to stay the same so.

Iqos with of course, the launch in Q2 in the U S, but let's be clear, it's going to be the beginning so.

It's not going to.

Recently.

Huge impact going to be a ramp up as we as we explained.

But there will be a number of country, where illumina will be fully delivering Luke.

I look at Japan, that's quite interesting what happened in Japan. In fact, we've seen a kind of another acceleration on market share and volume one year. After the launch of Illumina. So it's not as these are all positive impact was happening in the first.

Speaker 3: In fact we've seen a kind of another excegenerlgeneration on market share and volume one year after the launch of luma. So it is not as if the all positive impact was happening in the first, in first weeks. I would say takekes some time to create awareness, the understanding and the positive appreciation. Then we going to have seen and we get powerouches in for the all, starting in the that the number of exciting launch outside the's as well.

In the first weeks I would say it takes some time to create the awareness the understanding and the positive appreciation.

And then we're going to have seen.

Nicotine pouches in first of all starting in the U S. But a number of exciting launch outside the U S. As well so that is boding well for for 2024, but of course, it's premature to talk about 'twenty four and we'll we'll give guidance in due course.

Speaker 7: So that is buring well for for two thousand and 20: four But of course is preurure to to talk about 20: four and will give guidance in. You call.

Okay that all makes sense and helpful and then Jim.

Speaker 35: Okay that only make sense and helpful. And then I.

Speaker 35: You know, for my second question, I was be hoping for some more color on just.

For my second question.

Yeah, hoping for some more color on Japan, and yes. It looks like your shipment volume was really strong in the quarter and then your market share has increased nicely.

Speaker 37: And it looks like your ship and volume was really strong in the quarter and then your market share ceed nicely.

Speaker 38: yeah.

Excuse me could you talk through.

Speaker 35: C use me So could you talk through key drivers of this and then?

Key drivers of this and then I believe heading.

Speaker 33: I believe the a is cutting their prices on Glow hyper starting in August , So can you talk through the current competitive environment and then maybe you know how you expect it might.

Cutting their prices Anglo hyper starting in August so can you talk through the current competitive environment and then maybe how.

How you expect that might change in light of these actions as well.

Speaker 39: In light of these actions as well. How?

Speaker 39: You may need to respond us at all. Thank you.

You may need to respond if at all thank you.

Speaker 3: So Japan, of course, is a matter of great satisfaction. Alluding to on the fact that one year after the launch of luma, we see further acceleration of our market share. We are both 26% and and, as I said, that show that the brand keeps doing in roads, converting more people, making a big difference versus competition. And and we are actually we've seen our capture share of of the growth of the category that goinges to grow, increasing.

Japan of course is a matter of great satisfaction.

He was alluding to the fact that one year after the launch of.

Illumina, we see a further acceleration of our market share we are now above 26% and <unk>.

As I said that show that the brand keeps doing inroads are converting more people, making a big difference versus our competition and we are actually we've seen our capture share of the growth of the category that continue to grow.

Speaker 7: We have two tiar strategy between area and Centre that is proving to the very efficient. So we are the premium rangech area. We a lot of innovation, no great flavor experience, and then we have Centre, which is, of course, at a lower level in them of of positioning, but with is 2- I would say rangech, we manageed to really reich the boardest possible member of of and that clearly showing some some great success.

<unk>, we have a two tier strategy.

Between Korea, and Cynthia that is proving to be very efficient. So we have the premium ranch area with a lot of innovation.

No great flavor experience and then we have Cynthia which is.

Of course at a lower level in terms of positioning but with this too.

I would say ranch, we managed to really rich.

Broadest possible number of.

Illuminate user and that's clearly showing.

Some some great success, we are back in Japan to sea freight progressively so.

Speaker 6: We are back in Japan to see F progressively. So that was expected. Last the shipments were a lower than the consumer of deck and this year that is of course we are going back to the normal situation. That was absolutely plan and we see indeed competition trying to fight. This is category that keeps havingthink a lot of traction and gaining share. They are fighting to keep growing when luma is cle doing well and so far they believe that way forward is to come with cheaper consumable.

That was expected.

Last year.

Shipments were lower than the consumer offtake and this year. There is of course, we're going back to the normal situation.

Absolutely plan.

We see indeed.

Petition while trying to.

<unk>. This is a category that keeps adding a lot of traction and gaining share.

We are fighting to keep growing when illumina is clearly doing well and.

So far they believe that the way forward is to come with cheaper consumable.

Speaker 8: That, of course there the decision I one comment on that. it'is clear that despite that we managed to grow the share, but it's good to see that there is clear growing commitment from the whole industry beyhindthe category in Japan.

That's of course there are.

The decision I won't comment on that.

It's clear that the.

Despite that we managed to grow the share.

But it's good to see that there is a clear growing commitment from the whole industry beyond the category in Japan.

Speaker 39: Alright, Thank you again.

Alright, Thank you again.

Speaker 6: Thank you, beny.

Thank you Bonnie.

Speaker 10: We will take our next question from Matt myith. With deel, your line is open.

We'll take our next question from Matt Smith with Stifel. Your line is open.

Speaker 40: Thank you. Particular question.

Hi, Thank you for taking my question.

Speaker 41: We notice.

When asked about I wanted to ask about the pacing of the rollout of alumina to 50 markets from the 23 markets, where it's available today do you expect that to be fairly evenly spread across the second half and could you talk about the rollout or the expansion the impact on your operating margin in the second half as well as your gross margin.

Speaker 42: I want to ask about the pasting of the rollout of a luma to 50 markets from.

Speaker 40: The 23 marke T available today.

Speaker 42: You expect that to be fairly evenly spread across the second half.

Speaker 40: And could you talk about the rollout or the expansion?

Speaker 40: The impact on your operating margin.

Speaker 40: Second half, as well as your gross margin.

Speaker 3: Yes So there will be probably dis good for me. I mean there will be events in Q3 and Q4 of launch of the number of coun, whether very depending on the size of each market, but it'is going to be rularly. Let be clear: we have already to serve of the ico's volume that are exposed or our benefit from euma's presence. So it's not much know that a big part of it has already been been done and as we said, you know, at the beginning of luma we were not fully optimized on the product, on the productivity doesn't mean that everything will be done at the end of the year, but we expect to certainly see an acceleration of productivity, reduction in the weight in the second part of the year and that we have a positive impact on margin evolution, absolutely in line with what I explain, a number of edwind that are receeding, in line with expectation.

Yeah, Matt so there.

It would be.

Difficult for me I mean, there will be events in Q3, and Q4 of launch of <unk> and number of countries symptoms anywhere.

So I think that with us.

We're pleased to do that depending on the size of each market, but it's going to be.

Right.

Well, let's be clear we are already two thirds of the iqos volumes that are exposed or benefit from illumina presence. So it's not marginal that's a big part of it has already been that.

Dawn.

As we said at the beginning of Illumina, we were not fully optimized on the product on the productivity doesn't mean that everything will be done at the end of the year, but we expect to certainly see an.

An acceleration of productivity reduction in the weight in the second part of the year and that will have a positive impact on margin evolution, absolutely in line with what I explained and number of Edwin.

That are receding in.

Speaker 6: But that's, that's really what you can expect for you the second part of the year.

In line with expectation.

That's really what you can expect for you remind the second part of the year.

Speaker 42: Thank you for that and if I could ask.

Thank you for that and if I could ask just a follow up question on the combustible performance, it's been stronger in terms of both volume and organic revenue contribution.

Speaker 40: A fellow of question on the combustible.

Speaker 40: Performance that's been stronger in terms of both value and.

Speaker 40: Organic revenue contribution.

Speaker 40: And you've made a couple of comments about.

Made a couple of comments about the demand environment holding up better than your expectation relative to the elevated pricing can you talk about the factors that are allowing consumers to.

Speaker 40: The demand environment holding up better than you re expected.

Speaker 40: Relative to the elevated praise.

Speaker 42: Keep talk about the factors that that are allowing the consumers.

Speaker 40: To hold up elasticity better than your expectation.

Hold up elasticity better than your expectations do you expect that to continue now that you're going to lap some pricing action.

Speaker 42: Do you expect that they continue now that you're going?

Speaker 40: To lapse embricing action.

Speaker 31: Look so far, I think that we've seen that pricing it doesn't mean that the consumer is going away. I'm not able to tell you how going to further evolve in the future. I think what we see globally on the combusttible market is, first of all, a few markets where, because of the demographic, we see the consumption of combusttible going up. I could certainly mention India, probably Egypt 30, probably Vietnam, even if it's not a big market for us- where we see combusttible business going up.

Look so far I think we.

We've seen that pricing doesn't mean that the consumer is is is going away.

Im not able to tell you are going to further evolve in the future.

I think what we see globally on the convertible market is first of all a few markets where because of the demographic.

We see the consumption of <unk> going up.

And you mentioned India.

<unk>.

30.

Probably Vietnam, even if it's not a big market for us, where we see convertible business growing up.

Speaker 31: The resilience is also coming.

The resilience is also coming from a number of markets, where there is a ban on smoke free products. So of course that is to some extent protecting the convertible business as you know that's telling us something that we like we think that it's a big mistake.

Speaker 8: From a number of markets where there is a ban on smokefree products. So of course that to some extent protecting the combusttible business. As you know, that cle up something that we like. We think that it is a big mistake, but that is probably providing some resilience to the category overall, though that would be my analogy: combustible.

But that is probably providing some resilience of the category.

Overall, though that would be my analysis on convertible.

Speaker 40: Think of that emmanuualpassing.

Thank you for that Emmanuel I'll pass it on.

Speaker 43: Thank you, Matt.

Thank you Matt.

Speaker 10: We will take our next question from Owen Bennett. With jeffreyase, your mind is now open.

Well take our next question from Owen Bennett with Jefferies. Your line is now open.

Afternoon, ammonia out hope Youre well.

Speaker 44: Afternoon emman, U El hope you are well.

Speaker 45: Ion.

Hi, Owen.

Speaker 46: And ogae.

And yes. Thank you yes.

Speaker 47: Thank you and so.

Yes.

Speaker 46: He did impact the dyomic.

Okay.

Speaker 48: So.

So.

Speaker 44: All three of your. Your major tobacco Pears now appears to be in a ved spot, at least.

Great.

Tobacco is now needs to be in a bad spot.

Speaker 49: spe of pass.

Uh huh.

Speaker 49: With regard to fl of offering.

Product offerings and add money back into today.

Speaker 44: Lease and money that invest in cit this. I was just wondering if you could comment on ipost trends in some of the more competitive futred marketts where or free of your major fears- now have a presence So like to it, for example. So how would I post shareholding? Or is a luma having West traction in these markets? And August , are you seeing trial of brands and consumers coming about to white bothankyou?

Just wondering if you could comment on high cost trend in some of the more competitive market.

All three of your major teams now have a package that would likely be examples of that.

We've got cross shareholding of.

Having less traction in these markets.

Are you seeing trial of our brands and consumers coming back right all right. Thank you.

Sure actually.

Speaker 3: So when actually you may have seen that our share of the category has remained stable in Q2 at around 75%. So we shows that indeed there is increase competition, that the quality of ICOS and notably uma, but not just umat, the overall Las.

You may have seen that our share of the category as remained stable.

In Q2.

At around 75% so it show that indeed, there is an.

Increased competition, but.

Quality of Iqos, and notably Illuminable logistically module aqueous.

Speaker 7: Proposition is allowing us to, even for a more premium, to maintain our share of the category, which is very good new year. I'm talking about volume. We can imagine the term of value that is even high. Now let's be clear: since the beginning we knew and I can say we were opening for the whole industry to embrace. It's not done as the category of the future for enable nicotine product and it's great to see a growing commitment from all the player behind that.

Physician is is allowing us to even for a more premium.

To maintain our share of the category.

Which is very good news, even thinking about volume you can imagine in term of value.

There is even a year now let's be clear since the beginning we knew and I can say, we were opening for the whole industry to embrace it as the category of the future for inhalable nicotine product.

And it's great to see a growing commitment from all the player behind that so no doubt that they will come with innovation.

Speaker 7: So no doubt that they will come with innovation ourselves. As you can imagine, we're going to continue to innovate as well and we will see certainly innovation and maybe new things coming in the future.

Our sales as you can imagine we're going to continue to innovate as well.

And we will see.

Certainly.

Innovation, and maybe new things coming in the future.

Speaker 50: No.

Speaker 31: After six 7, almost eight years.

Now after six seven almost eight years of launch of Iqos I think in term of franchise in terms of impact in terms of strength in term of brand tower. I think we are really second to none and we made a clear gap.

Speaker 6: Of launch of IOs. I think, in terms of franchise, in terms of impact, in terms of strength, in terms of brand power, I think no, we are really second to non and we made a clear gap and different shoal and- and I think that this is exactly what we did with marbor in the past, which no maro was a superor product and recognize for the brand that was unique, But on top of that, we managed to create a unique brand that was extremely appealingand I think with I?

And differential.

And I think that this is exactly what we did with mobile in the past, which no Marlboro was a super product and recognized for the blend that was unique but on top of that we managed to create a unique brand that was extremely appealing and I think with Iqos thats. What we are repeating today. So iqos product are clearly.

Speaker 7: O that what we are repeating today. So I O product are clearly better recogniz a search. it'is a different customer experience then the I? os brand is also e onic and people are seeing that as part of lifestyle and product they want to associate themselves with, which is a reive for long term success.

Better recognized.

Recognized as such it's a different customer experience and then the Iqos brand is also I couldnt and people.

That is part of lifestyle and product they want to associate themselves with.

Which is a recipe for long term success.

Speaker 46: Thank you to appreciate it.

Thank you Sir appreciate it.

Speaker 51: Thank you and.

Thank you.

Speaker 10: And we will take our final question from jerry deans with JP mork and your line is open.

And we will take our final question from Jerry teams with Jpmorgan. Your line is open.

Speaker 3: yeah how guysso. You talked about the ability to use see rree finally to supply Japan.

Yes, hi, guys.

So you talked about the ability to seek rate finally to supply Japan.

Speaker 3: You know as you progress throughout Q2.

As we progressed throughout Q2.

Speaker 3: Would you be able to confirm that you're no longer capacity constrained on the teratistics?

Would you be able to confirm that you are no longer capacity constrained on the three asics.

Yes, so we can confirm that for the markets, where we've been launching today.

Speaker 7: Yes So we can confirm that for the market where we've been launching today we have no constraint and therefore that's the reason why we'll be able to move to C rate now. There is still a ramp for the remaining market that do not as luma today, and this ramp is of course, accompanying the growing capacity. So it doesn't mean that today we could serve, on the first of July , 100% of all the market- iicos market with uma consumable, but we have no longer pressure or restriction and the factget we have back to C rate and we have a plan to accompany the growth of the remaining marketts in the coming months.

We have no constrained and therefore, that's the reason why we've been able to move to see right. Now there is still a ramp up for the remaining market that do not as illumina today and this ramp up is of course accompanying.

The growing capacity so it doesn't mean that today, we could serve.

The first of July 100% of all the market Iqos market.

Yes.

Illumina consumable, but we are no longer pressure restriction and the fact that we are back to sea freight and we have a plan to accompany the growth of the remaining markets.

In the coming months.

Speaker 3: Got it. Maybe just a follow up on thatbill.

Got it and maybe just to follow up on that.

Speaker 3: You know, you guys did call out.

You guys did call out.

Speaker 52: Europe .

Speaker 3: In with, icqo, saw some further negative, negative inventory movement.

Europe .

With Iqos.

Other negative negative inventory moved.

Speaker 3: In Q2. Should we expect that to averse in H to, because actually it's been, you know, on the whole in age. But it's some trizable and.

In Q2.

Should we expect that to reverse in <unk> because actually it's been.

On the whole and each one is somewhat sizable the negative.

Speaker 31: Inventory: yes, in fact just.

Inventory, yes in fact.

Speaker 8: Sure in fact, that Japan was finishing with lower shipment volume than consumer of take in 2000 and thousandtwenty-two that has been reversing in 2000 and twenty-three. And Europe went the other way round. Remember we had to low because of uncertainty on the availability of product than energy supply in the manufacturing side and that was expected that the catchup has been happening mostly in Q1.

Sure in fact that.

Japan was finishing with lower shipment volume than consumer offtake in 2022 that has been reversing.

In 2023 in Europe went the other way round remember, we are too low because of uncertainty on the availability of product in the energy supply in the manufacturing side.

And that was expected that the catch up as been happening mostly in Q1, but still a little bit in Q2, and now we expect to move to normal patterns of shipment versus.

Speaker 31: That's still a little bit in Q2 and now we expect to move to normal pattern of shipment versus consumer of takeorin market sales and therefore we expect to have a strong H two boo in terms of shipment progression and in market sales in Europe .

Consumer offtake of our in market sales and therefore, we expect to us.

Strong H two.

In terms of shipment progression and in market sales in Europe .

Speaker 3: Back to normal. That's cook.

Back to normal.

Speaker 3: That's clear. If I can just follow up, just one last one on Russia.

That's clear and if I could just follow up just one last one.

On Russia.

Speaker 3: You know, given the loose.

Given the news.

Speaker 52: You know last, last week or this week?

Last week or this week.

Speaker 3: Just can you give an update on if that business is's fully Ring fant at this point?

Just can you give an update on if that business is fully ring fence at this point.

Speaker 8: Look on Russia. We have nothing new to say. We've been explaining in the past communication, but the situation was complex. There is no new element. I'm not going to comment on the situation of company that I know nothing about and and we have nothing new to report on Russia at that stage.

On Russia, we have nothing new to say we've been explaining.

In the past communication that institution was complex there is no new element and not going to comment on the situation of company debt.

I know nothing about.

And we have we have we have nothing new to report on Russia at that stage.

Speaker 3: Ok maybe it's just in terms of.

Okay, maybe just in terms of.

Speaker 52: Supply like Russia is not supplying. You know any neighboring markets at this point right?

Supply like Russia is not supplying any neighboring markets at this point right.

Speaker 8: Well we are, as you can imagine, complying with all regulation, restriction sanction today, and we are obviously fully compliant.

Well we are.

You can imagine complying with.

Regulation.

A restriction sanction.

Today, and we are obviously fully compliant.

Perfect. Thank you.

Speaker 3: Perfect expension.

Thank you.

Speaker 53: Thank you.

Speaker 10: And appears we have no further questions on the line at this time, I will turn the program back over to management for any additional or closing remarks.

And it appears we have no further questions on the line at this time I will turn the program back over to management for any additional or closing remarks.

Thank you that concludes our call today. Thank you again for joining us if you have any follow up questions. Please contact the investor relations team have a great day.

Speaker 2: Thank you. That concludes our call today. Thank you again for joining us. If you have any follow-up questions, please contact the Investor Relations team. Have a great day.

So too soon thank you bye.

Speaker 8: Too soon. Thank you, goodbye.

Speaker 10: This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful.

This does conclude today's program. Thank you for your participation you may disconnect at any time and have a wonderful day.

Sure.

Speaker 54: Thank.

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Speaker 57: Oh.

Speaker 55: I thought.

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Speaker 58: No.

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