Q1 2024 Philip Morris International Inc Earnings Call - Q&A

Okay.

Unknown Executive: Good day, and thank you for standing by. Welcome to the Philip Morris International 2024 First Quarter Results Conference Call.

Good day, and thank you for standing by.

Speaker Change: Welcome to the Philip Morris International's 2024 first quarter results conference call.

Unknown Executive: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is ready.

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Speaker Change: After the speaker's presentation, there will be a question and answer session.

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Unknown Executive: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, James Bushnell, Vice President of Investor Relations. Please go ahead.

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Speaker Change: I would now like to hand, the conference over to your speaker today.

Speaker Change: James spoke to him.

James: Vice President of Investor Relations. Please go ahead.

James Bushnell: Welcome. Thank you for joining us.

James: Welcome and thank you for joining us.

James Bushnell: Earlier today, we issued a press release containing detailed information on our 2024 first quarter results. The press release is available on our website at PMI.com. A glossary of terms, including the definition of smoke-free products, as well as adjustments, other calculations, and reconciliations to the most directly comparable U.S. GAAP measures for non-GAAP financial measures cited in this presentation are available in Exhibit 99.2 to the Company's Form 8K, dated April 23, 2024, and on our Investor Relations website.

James: Earlier today, we issued a press release containing detailed information on our 2024, but quarter results.

Speaker Change: The press release is available on our website at <unk> Dot com.

Speaker Change: A glossary of terms, including the definition for smoke free products as well as adjustments other calculations and reconciliations to the most directly comparable U S. GAAP measures are non-GAAP financial measures started in this presentation are available in exhibit 99, two to the Companys form 8-K dated April 23rd 2024.

Speaker Change: And on our Investor Relations website.

James Bushnell: 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. I'm joined today by Emmanuel Babeau, Chief Financial Officer, and Jennifer Motlez, Chief Sustainability Officer. Over to you, Emmanuel.

Speaker Change: Today's remarks contain forward looking statements and projections of future results.

Speaker Change: Direct your attention to the forward looking at 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 of forward looking statements.

Speaker Change: I'm joined today by Emmanuelle Bible, Chief Financial Officer, and Jennifer Martin as Chief Sustainability Officer.

Emmanuel Babeau: Over to you Emmanuel.

Emmanuel Babeau: Thank you, James, and welcome, everyone. In Q1, we delivered outstanding performance that exceeded our expectations with double-digit growth in organic net revenue and operating income, as well as currency-neutral adjusted deleted earnings per share, all supported by robust volume growth. Excellent smoke-free business momentum continues with plus 25% organic growth in net revenues and plus 38% in gross profits, as ICOS Operating Leverage and ZMix Contribute Positives. ICOS continues to advance rapidly, with growth of plus 13% in adjusted in-market sales volumes and plus 21% in shipments. IKOS Iluma is a key driver of this progress and is now available in 64 markets, representing nearly 100% of IKOS volumes outside Russia.

Emmanuel Babeau: Thank you James and welcome everyone.

Emmanuel Babeau: In Q1, we delivered outstanding performance.

Emmanuel Babeau: That exceeded our expectations.

Emmanuel Babeau: Double digit growth in organic net revenue and operating income as well as currency neutral adjusted diluted earnings per share.

Emmanuel Babeau: Supported by robust volume growth.

Emmanuel Babeau: Excellent Smokefree business momentum continues with plus 25% organic growth in net revenues and plus 38% in gross profit.

Emmanuel Babeau: As iqos operating leverage and mix contributed positively.

Emmanuel Babeau: Iqos continues to advance rapidly with growth of plus 13% and adjusted in market sales volumes and plus 21% in shipments.

Emmanuel Babeau: Iqos Illumina is a key driver of this progress and is now available in 64 markets, representing nearly 100% of iqos volumes outside Russia.

Emmanuel Babeau: Zim also continued its considerable growth in Q1, with U.S. volumes up plus 80%. Importantly, this top-line performance translated into strong operating income growth and margin expansion, both organically and in dollar terms. This was notably driven by accelerating profitability in both our ICOs and in businesses, in addition to improving combustible performance. We faced higher-than-expected currency headwinds in the quarter, primarily due to the devaluation of the Egyptian pounds.

<unk> also continued its considerable growth in Q1 with U S volumes.

Emmanuel Babeau: 80%.

Emmanuel Babeau: Okay.

Emmanuel Babeau: Importantly, this top line performance translated into strong operating income growth and margin expansion, both organically and in the outbound.

Emmanuel Babeau: This was notably driven by accelerating profitability in both our Iqos engine businesses in.

Emmanuel Babeau: In addition to improving convertible performance.

Emmanuel Babeau: We faced unexpected currency headwinds in the quarter, primarily due to the devaluation of the Egyptian pound, we are taking mitigating actions, including additional pricing and accelerated cost initiatives, which allowed us to deliver Q1 adjusted diluted EPS a booth.

Emmanuel Babeau: We are taking mitigating actions, including additional pricing and accelerated cost initiatives, which allowed us to deliver Q1-adjusted deleted EPS above our prior expectations despite these pressures. While the prior year quarter was favorable for certain growth comparisons, this exceptional start to the year set the stage for us to deliver significantly better than expected 2024 currency neutral growth and robust growth in US dollars at prevailing rates. Turning to the headline numbers, very good shipment volume growth of plus 3.6% supported organic top line growth of plus 11 or plus 8.6%, including current.

Our prior expectation despite these pressures.

Emmanuel Babeau: While the prior year quarter with favorable for certain growth comparison. This exceptional start to the year sets the stage for us to deliver significantly better than expected 2020 for currency neutral growth and robust growth in U S dollars at <unk>.

Emmanuel Babeau: Prevailing rates.

Emmanuel Babeau: Turning to the headline numbers very good shipment volume growth of three 6% supported organic top line growth of plus 11, all plus eight 6% including currency.

Emmanuel Babeau: This reflects continued excellent ICOs and ZIN momentum, as well as strong combustible prices. Operating income grew by plus 22.2% organically versus a softer prior year quarter, notably driven by gross margin expansion and a deceleration in SG&A growth.

Emmanuel Babeau: This reflects continued excellent iqos and zing momentum as well as strong convertible pricing.

Emmanuel Babeau: Operating income grew by plus 22, 2% organically.

Emmanuel Babeau: It's just a softer prior year quarter, notably driven by gross margin expansion and a deceleration in SG&A growth.

Emmanuel Babeau: As a result, our organic OI margin expanded by plus 3.7 percentage points. In dollar terms, adjusted OI grew by plus 11.3%, and adjusted OI margin expanded by 90%. We outperform our Q1 adjusted EPS outlook due to three main factors. The first is the net revenue and profit impact of better volumes following the industry-leading performance of ZIN, the strong shipment growth of high cost HTUs, including some higher than expected timing benefits, and A Resilient Combustible Delivery. Second, is the benefit of our pricing action to mitigate currency headwinds.

Emmanuel Babeau: As a result, our organic Oi margin expanded by plus three seven.

Emmanuel Babeau: Percentage points in the Lockdown adjusted Oi grew by plus 11, 3% and.

Emmanuel Babeau: Adjusted Oi margin expanded by 90 basis points.

Emmanuel Babeau: Yes.

Emmanuel Babeau: We outperformed our Q1 adjusted EPS outlook due to three main factors.

Emmanuel Babeau: The first one.

Emmanuel Babeau: As a net revenue and profit impact of better volumes.

Emmanuel Babeau: Knowing the industry, leading performance of zoom, the strong shipment growth of Iqos Ht us, including some higher than expected timing benefit.

Emmanuel Babeau: And a resilient convertibles delivery.

Emmanuel Babeau: Second is the basis of our pricing actions to mitigate currency headwinds and third is on cost, including some timing benefit and a stepped up focus on manufacturing and back office efficiencies to prioritize growth investments.

Emmanuel Babeau: And third, cost, including some timing benefits, and a step of focus on manufacturing and back-office efficiencies to prioritize growth investment. The majority of the year's performance was driven by underlying business dynamics, which bodes well for the remainder of the year. Indeed, we delivered adjusted deleted earnings pressure of $1.50, representing plus 23.2% growth excluding an unfavorable currency impact of $0.20. This includes $0.09 from the devaluation of the Egyptian pounds, and a transactional impact of $0.06, primarily related to the balance sheet remeasurement of foreign currency payables. With increased liquidity in the Egyptian pounds, we are now reducing our balance sheet exposure, and this should be complete in the coming weeks.

The majority of <unk> performance was driven by underlying business dynamic, which bodes well for the remainder of the year.

Emmanuel Babeau: Indeed, we delivered adjusted diluted earnings per share of $1 50, representing 23, 2% growth, excluding an unfavorable currency impact of 20.

Emmanuel Babeau: This includes <unk> <unk> from the devaluation of the Egyptian pounds, including transactional impact of <unk>.

Emmanuel Babeau: Primarily related to the balance sheet re measurement of foreign currency payable.

Emmanuel Babeau: With increased liquidity in the Egyptian pounds, we are now reducing our balance sheet exposure and this should be complete in the coming weeks.

Emmanuel Babeau: Focusing now on volumes, our Q1 HTU shipments of 33.1 billion units exceeded our outlook with robust underlying growth across geographies and a higher than anticipated timing impact of shipment to Japan. This incremental trading impact was around 1 billion units and was primarily related to red sea disruption. While uncertain, we assume this will normalize in the second half of the year.

Emmanuel Babeau: Focusing now on volumes, our Q1 <unk> shipments of $33 1 billion units exceeded our outlook with robust underlying growth across geographies and higher than anticipated timing impact of shipment to Japan.

Emmanuel Babeau: This is incremental shading impact was around 1 billion unit.

Emmanuel Babeau: And was primarily related to ritzy disruption.

Emmanuel Babeau: Uncertain, we assume this will normalize in the second half of the year.

Emmanuel Babeau: As mentioned previously, we believe the best indicator of underlying HTU growth is adjusted in market sales as the closest metric to the consumer. Adjusted IMS volume grew nicely by plus 12.5%, including the expected impact from the characterizing flavor ban in Europe. We continue to see strong high-cost momentum with excellent growth in Japan, robust underlying fundamentals in Europe, and a growing contribution from newer markets such as Indonesia. We continue to target plus 14 to plus 16 adjusted IMS growth for the year, with around plus 10% growth in Q2, followed by an H2 acceleration driven by the timing of the commercial program, Illuma uptake, the newer market, and a less demanding prior year comparison.

Emmanuel Babeau: As mentioned previously we believe the best indicator of underlying <unk> growth.

Emmanuel Babeau: Is adjusted in market sales.

Emmanuel Babeau: Closest metric to consumer offtake.

Adjusted IMS volume grew nicely by plus 12, 5%, including the expected impact from the characterizing flavor ban in Europe.

Emmanuel Babeau: We continue to see strong the iqos momentum with excellent growth in Japan.

Emmanuel Babeau: Robust underlying fundamentals in Europe.

Emmanuel Babeau: The growing contribution from newer markets such as Indonesia.

Emmanuel Babeau: We continue to target to plus 14, two plus 16 adjusted IMS gross for the year with around plus 10% growth in Q2, followed by an H two acceleration driven by the timing of commercial programs.

Emmanuel Babeau: Thick newer market and less demanding prior year comparison.

Emmanuel Babeau: Total smoke-free volume growth of plus 22% includes the impressive expansion of our oral smoke-free portfolio, powered by Zin, with pouch equivalent shipment volumes up by plus 35.8%. U.S. Zin shipments grew by plus 80 percent to 132 million cans. Cigarette shipments declined by a modest 0.4% in the first quarter, with a notable positive contribution from Turkey, as we increased share in a strong overall market.

Emmanuel Babeau: Total smokefree volume growth of plus 22% includes the impressive expansion of our overall smoke free portfolio powered by <unk> with pouch equivalent in shipment volumes up by plus 35, 8%.

Emmanuel Babeau: U S. <unk> shipments grew by plus 80% to 132 million tons.

Emmanuel Babeau: Okay.

Emmanuel Babeau: Cigarette shipments declined by a modest 0.4% in the first quarter with a notable positive contribution from Turkey, as we increased share in a strong overall market.

Emmanuel Babeau: Let me now walk through the drivers of our Q1 Net Revenue. As I mentioned, volume grew by a remarkable plus 3.6%, including oral. Pricing contributed plus 5.5 points of growth, primarily from combustibles, as well as pricing of around plus 3% on H2Us. The smoke-free category mix added plus 3.1 percentage points to the top line, reflecting the higher net revenue per unit of ICOs and, to an even greater extent, ZIN. Overall, smoke-free products overall boosted our organic net revenue growth by plus 2.2 points, showcasing its role as a meaningful accelerator to report a positive contribution from our VIV eVapor business, which, while still small in the context of the group, delivered good revenue growth. In 2023, there was a negative geographic mix within our combustible business, our margin market. Often, without smoke-free products, it grows faster, and smoke-free products accelerate cigarette decline elsewhere.

Speaker Change: Let me now walk through the drivers of our Q1 net revenues.

Speaker Change: As I mentioned volume grew by a remarkable plus three 6% including oral.

Speaker Change: Pricing contributed plus five five points of growth primarily from convertible as well as pricing of around 3% on edge to us.

Speaker Change: Smoke free category mix added plus three one percentage points to the top line reflects the net revenue per unit of Iqos and to an even greater extent xena.

Speaker Change: Overall smokefree product overall boosted our organic net revenue grows by plus two two points.

Speaker Change: Showcasing its role as a meaningful accelerator.

Speaker Change: To report a positive contribution from our <unk> EBIT per business.

Speaker Change: Which was still small in the context of the group delivered good revenue growth.

Speaker Change: In 2023, there was a negative geographic mix within our combustible business to a margin market.

Speaker Change: We though it's mostly product grew faster.

Speaker Change: And smoke free product accelerated cigarette declines elsewhere.

Emmanuel Babeau: Positive category mixed impact of smoke-free products, and Pricing are the three enduring engines of our transformation and growth. Focusing now on the key dynamic of our Q1 profit delivery. Smoke-free growth profit grew by an impressive plus 38% organically, with top-line growth of plus 25%. This reflects the very strong performance of US Zin and the growth and scale effect of ICOs, including manufacturing productivity. This strong underlying acceleration was amplified by only a few percentage points due to the HTU shipment phase.

Speaker Change: The positive mix impact of smoke free product.

Speaker Change: And pricing.

Speaker Change: The three enduring engines power transformation and growth.

Speaker Change: Okay.

Speaker Change: Focusing now on the key dynamic of our Q1 profit delivery.

Speaker Change: <unk> gross profit grew by an impressive plus 8% organically with topline growth of plus 25%.

Speaker Change: This reflects the very strong performance of <unk> and.

Speaker Change: And the growth and scale effect of iqos, including manufacturing productivity.

Speaker Change: This strong underlying acceleration was amplified by only a few percentage points due to <unk> shipment phasing.

Emmanuel Babeau: Gross margin expanded substantially for both if-not-burn and oral nicotine and by a striking plus 600 basis points organically for smoke-free overall, which made up close to 39 percent of total gross profit, an increase of plus six percentage points versus prior year. Combustible organic growth profit growth was notably improved and exceeded our expectation at plus 2.3%. Gross margins were also better than anticipated, leading to an improved full-year outlook. Residual volumes, strong pricing, and manufacturing productivity more than offset the continued cost pressure in the category, the geographic mix, and the impact of high-cost cannibalization.

Speaker Change: Gross margin expanded substantially for booth.

Speaker Change: The oral nicotine and via striking plus 600 basis points organically for Smokefree overall.

Speaker Change: Which made up close to 39% of total gross profit and.

Speaker Change: An increase of plus six percentage points versus prior year.

Speaker Change: Congress stable organic gross profit growth was notably improved and exceeded our expectation at plus two 3%.

Speaker Change: Gross margins were also better than anticipated leading to an improved full year outlook.

Speaker Change: Resilient volumes strong pricing and manufacturing productivity more than offset the continued cost pressure in the category geographic mix and the lack of Iqos cannibalization.

Emmanuel Babeau: As previously flagged, cost increases in LEAF, wages, and certain other inputs carried over into 2024, and this should ease next year. We were also impacted by around $30 million of costs from the implementation of the EU Single-Use Plastic Directive, primarily on cigarettes.

Speaker Change: As previously flagged costing.

Speaker Change: Cost increases in wages and certain other inputs carried over into 2024 and this should ease next year.

Speaker Change: We were also impacted by your own 30 million dollar of cost from implementation of the EU single use plastic directive primarily on cigarettes.

Emmanuel Babeau: A key feature of Q1 was strong open income margin expansion. Growth margins increased organically by 150 basis points and by 80 basis points, including current. This reflects excellent expansion within smoke-free products, their growing weight within our business at higher margins, and the better-than-expected evolution of combustibles. These factors, combined with productivity savings, significantly outweighed the unfavorable technical dilutive impact of third-party manufacturing in Indonesia, which equated to 30 basis points in the quarter for ASGENICOS.

Speaker Change: A key feature of Q1 was strong operating income margin expansion.

Speaker Change: Gross margin increased organically by 150 basis points and by 80 basis points, including currency.

Speaker Change: This reflects excellent expansion within smoke free product there.

Speaker Change: They are growing weight within our business at higher margin.

Speaker Change: The better than expected evolution of convertible.

Speaker Change: These factors combined with productivity savings.

Secondly, outweighed.

Speaker Change: February about technical dilutive impact.

Speaker Change: A third party manufacturing in Indonesia.

Speaker Change: Which equated to 30 basis points in the quarter.

Emmanuel Babeau: Currency neutral growth of only plus 1.4 drove plus 220 base points of organic margin expansion. This benefited from our resource allocation and prioritization programs, including the delivery of approximately $160 million in gross cost efficiency across COGS and SG&A towards our $2 billion target for 2024-2026. Although the Q1 margin impact of SG&A cost evolution, including currency, was small due notably to Egyptian pound transactional currency, we continue to target SG&A progression below top line growth for the year.

Speaker Change: SG&A costs.

Speaker Change: Currency neutral growth of only plus one four drove plus 220 basis points of organic margin expansion.

This benefited from our resource allocation and prioritization programs.

Speaker Change: Including the delivery of approximately $160 million in gross cost efficiency across Cogs and SG&A.

Speaker Change: Our $2 billion target for 2020 for 2026.

Speaker Change: Although the Q1 margin impact of SG&A cost evolution, including currency was small unitary gypsum pumps transactional currency, we continue to target SG&A progression below topline growth for the year.

Emmanuel Babeau: We expect higher organic SG&A increases in the remainder of 2024, notably reflecting investment spend phasing, which was favorable in Q1. The combination of these factors powered a remarkable plus 370 basis point expansion in our organic operating income margin and plus 90 basis points, including current. This exceeded our expectations, and we are now raising our full-year operating income growth outlook, as I will come back to. Taking another lens on Adjusted Operating Income Margin by Geography.

Speaker Change: We expect higher organic SG&A increases in the remainder of 2024, notably reflecting investment spend phasing, which was favorable in Q1.

Speaker Change: Okay.

The combination of these factors powered remarkable plus 370 basis point expansion in our organic operating income margin and plus 90 basis points, including currency.

Speaker Change: This exceeded our expectation and we are now raising our full year operating income growth outlook as I will come back to.

Speaker Change: Taking another lens on adjusted operating income margin by geography.

Emmanuel Babeau: We see broad-based global momentum with all regions delivering strong organic progress. In dollar terms, margin expanded in every region except South and Southeast Asia, CIS, and Middle East Africa, mainly reflecting the transactional currency impact of the Egyptian pound and the technical dilution in Indonesia. Seeing these factors, this region grew margin at a very similar rate to the group. Two ICOs.

Speaker Change: We see broad based global momentum with all regions delivering strong organic progress.

In dollar terms margin expanded in every region, except south and southeast Asia.

And Middle East Africa region, mainly reflecting the transactional currency impact of the Egyptian pound and the technical dilution in Indonesia.

Speaker Change: These factors this region grew margin at a very similar rate to the group.

Speaker Change: To iqos.

Emmanuel Babeau: With Illumina now widely launched, PMI-HTUs continue to strengthen their position as the second largest nicotine brand in markets where IQOS is present. PMI-HTUs now exceed the 10% market share milestone on the prior basis excluding Indonesia, which we now include following broader commercialization in the market. Our HCUs are the number one nicotine brand in 11 markets. And, as shown at Cagney, high cost net revenues have surpassed those of Mar

Speaker Change: With Illumina now widely launched PMI Hq's continue to strengthen our position as the second largest nicotine brand.

Speaker Change: In markets, where iqos is present.

Speaker Change: PMI Ht used now exceed the 10% market share milestone on the prior year basis, Excluding Indonesia, which we now include following broader commerce solution in the market.

Speaker Change: Our skus are the number one nicotine brand in 11 markets.

And as shown at Cagny Iqos net revenues are surpassed rules of Basel.

Emmanuel Babeau: Focusing on ICOs in Europe, Q1 HTU share increased by plus 0.09 points, also crossing the 10% regional share milestone for the first time. While still early in many markets, the growing availability and uptake of Philuma is a key driver, and we are seeing a strong acceleration in a number of historically slower growth markets. Adjusted IMS volumes continue to exhibit robust sequential growth and reached a record high of 12.6 billion units on the four-quarter moving average. This reflects a year-on-year progression of plus 9.4% in Q1, with excellent growth in Greece. Portugal, Germany, Spain, the UK, and the Netherlands.

Speaker Change: Focusing on Iqos in Europe, Q1, SGU share increased by plus zero nine points also crossings at 10% regional share milestone for the first time.

Speaker Change: While still early in many markets through growing availability and uptake of <unk> is a key driver and we are seeing a strong acceleration in the number of historically slower growth markets.

Speaker Change: Adjusted IMS volumes continued to exhibit robust sequential growth and reached a record of $12 6 billion units on a four quarter moving average.

Speaker Change: This reflects year on year progression of plus nine 4% in Q1 with excellent growth in Greece to go, Germany, Spain, UK and the Netherlands.

Emmanuel Babeau: Growth was slower in certain Central European markets, such as Poland and the Czech Republic, where increased economic pressure and price sensitivity are visible. We continue to evolve our portfolio in this market under the recently launched Illuma system to drive further growth. Excluding Ukraine, where growth was absent, adjusted in-market sales grew strongly. As anticipated, the 11 markets so far affected by the EU's characterizing flavor restriction saw an impact in line with our total region estimate of around $2.6 billion for the year. Consistent with similar past situations, we observe an initial consumer adjustment followed by a reversion of growth rate to the previous level.

Speaker Change: Growth was slower in southern and central European markets, such as Poland, and Czech Republic.

Speaker Change: Were increased economic pressure and price sensitivity are visible.

Speaker Change: We continue to evolve our portfolio in this market under the recently launched Illumina system to drive further growth.

Speaker Change: Excluding Ukraine, where gross was absence adjusted in market sales grew double digit.

Speaker Change: As anticipated.

Speaker Change: 11 markets. So far are affected by EU characterizing flavors restriction.

Speaker Change: So an impact in line with our total region estimate of around 2 billion seek for the year.

Speaker Change: Consistent with stimulus past situation, we observe and initial consumer adjustment followed by a reversion of growth rates to previous levels.

Emmanuel Babeau: We have not seen meaningful shifts towards e-vapor or competitor heat not burn products, and we expect the structural growth of ICOs to fuel continued HTU progression over the rest of the year. The strong fundamental progress in the region is highlighted by the expansion in key city off-tech shares. Very strong gains in cities with already high cost adoption rates, such as Lisbon, Rome, Athens, and Budapest, demonstrate the potential for further growth at the national level.

Speaker Change: We have not seen meaningful shifts towards E vapor or competitor is not one product and we expect the structural growth of Iqos to fuel continued hte progression over the rest of the year.

Speaker Change: The strong fundamental progress in the region is highlighted by <unk> expansion in key city offtake shares.

Speaker Change: Very strong gains in cities with already Iqos adoptions, such as leads within the home center in Budapest.

Speaker Change: Demonstrate the potential for further growth at the national level.

Emmanuel Babeau: Acceleration in London, Madrid, Munich, and Amsterdam is also very promising for GEICO's brand in this market and for Europe overall. In Japan, the adjusted total tobacco share for our H2O brand increased by an excellent plus 3.1 points to 29.3%. Adjusted IMS volumes increased by plus 13 percent, maintaining the rapid progress of the recent quarter.

Speaker Change: Recent acceleration in London Madrid unique.

Speaker Change: And Amsterdam is also very promising for the Iqos brand in this market and for Europe overall.

Speaker Change: Okay.

Speaker Change: In Japan.

Speaker Change: Just a total tobacco share for our <unk> brand increased by an excellent three one points to 29, 3%.

Speaker Change: Adjusted <unk> increased by plus 13%, maintaining the rapid progress of recent quarters.

Emmanuel Babeau: Such impressive growth in a market with already high category penetration is a clear testament to the sustainable growth potential of ICOs around the world. In connection with ICO's strong brand equity and commercial footprint, we are fostering growth through continued innovation on both devices and consumables. In March, we launched the latest ICO device, ILUMA-I, in direct channels with national expansion ongoing. We remain laser-focused on innovation. Our innovation in consumables has included a number of new variants and test experiences for the premium Terrier brand, as shown by the off-tech data on this chart.

Speaker Change: Such interest in growth in a market with already I category penetration is a clear testament to the sustainable growth potential of iqos around the world.

Speaker Change: In connection with Iqos strong brand equity and commercial footprint, we are fostering growth through continued innovation on boost devices and consumables.

Speaker Change: In March we launched the latest Iqos device Illumina I indirect channels.

Speaker Change: National expansion ongoing.

Speaker Change: We remain laser focused on innovation our innovation in consumables as included a number of new variants and test expenses on the premium <unk> brand.

Speaker Change: As shown by the offtake data on this chart.

Emmanuel Babeau: This has helped Terea to continue growing Japan's share at the same time as mainstream prices sent here. This successful strategy of broadening consumer appeal with different price tiers while reinforcing and growing the premium lineup is a good illustration of how our high-cost business is evolving across markets as the category continues to grow. The potential of the category is clearly demonstrated by the performance in Tokyo, as shared at Cagney.

Speaker Change: This area to continue growing Japan's share at the same time as mainstream price Cynthia.

Speaker Change: This successful strategy of broadening consumer appeal with different price tiers, while reinforcing and growing the premium lineup.

Speaker Change: Good illustration of our Iqos business is evolving across market cap.

Speaker Change: Category continues to grow.

Speaker Change: The potential of the categories clearly demonstrated by the performance in Tokyo as Jed at Cagny heat not burn category volume surpassed convertible in January and have continued to grow since then.

Emmanuel Babeau: Heat and outburn category volumes surpassed combustible in January and have continued to grow since then, led by Japan and Korea, the East Asia and Australia region, which generated almost two-thirds more clean energy revenue in Q1. While somewhat flattered by shipment timing, this clearly demonstrates the path forward for the broader company as we strive towards our ambition of becoming substantially smoke-free, surpassing two-thirds by 2030. Outside of Japan and Europe, we continue to see very promising high-cost growth across the globe, including low- and middle-income markets, as highlighted by TCT in TechShare.

Speaker Change: Led by Japan, and Korea, The East Asia, and Australia region reached almost <unk> net revenue in Q1.

While somewhat flattered by shipment timing this clearly demonstrate the path forward for the broader company as we strive towards our ambition of becoming substantially smokefree, surpassing two sell by 2030.

Speaker Change: Yeah.

Speaker Change: I would say of Japan, and Europe, we continue to see very promising iqos growth across the globe, including low and middle income market as highlighted by TCT offtake shares.

Emmanuel Babeau: A notable call-out is Indonesia, where we have expanded commercialization to targeted areas in New City and introduced terrier-clove variants, catering to catechist preference. We have witnessed an uplift in user growth, and now I have over 150,000 estimated ICOS users in the country.

Speaker Change: Notable call out of Indonesia, where we have expanded commercialization two targeted areas in new city and introduce <unk> variants.

Speaker Change: During two critic taste preferences.

Speaker Change: We have witnessed an uplift in user growth.

Speaker Change: And now have over 150000 estimated iqos users in the country.

Emmanuel Babeau: Our city of tech share in urban Jakarta is one indicator of this, with +1.6 percentage point growth to 3.4% in a growing total industry. We are also pleased to report the re-acceleration of ICOS growth in South Korea following the introduction of Iluma. Terria recently became the number one HTU brand, as measured by the National Seastore of Tech, and in Seoul, iQOO's market share grew by 1.8 points to 12.8 percent. Egypt continues to stand out, with Cairo's off-tech share up plus 1.3 to 9.1 percent, despite recent pricing.

Speaker Change: Our CTO fixed share in European Checkout is one indicator of this with plus one six percentage point growth to three 4% in the growing total industry.

Speaker Change: Okay.

Speaker Change: We are also pleased to report the re acceleration of Iqos growth in South Korea followings interdiction of illegal.

Speaker Change: Terry I recently became the number one hte brand as measured by National's historic stake and in sale Iqos market share grew by $1 eight to 12, 8%.

Speaker Change: <unk> continued to stand out we scare offtake share of plus one three to nine 1%. Despite recent pricing and we also see promising results in Malaysia, Morocco, Lebanon and <unk>.

Emmanuel Babeau: And we also see promising results in Malaysia, Morocco, Lebanon, and the Baltic. While not shown on this slide, Saudi Arabia also had a promising restart with a Q1 national off-tech share of 1.3% following the resumption of high-cost commercialization in late 2023. In a similar vein to some of our European markets, the novel launch of Illuma in Canada has coincided with an acceleration in key city growth, as shown here by Torrent. While still early days for Illuma and in a very restrictive regulatory environment, this is clearly a positive development.

Speaker Change: While not shown on this slide Saudi Arabia also added promising restart with Q1 national Offtake share of one 3% following the resumption of Iqos commercialization in late 2023.

Speaker Change: In a similar vein to some of our European markets.

Speaker Change: The launch of ILUVIEN in Canada as coincided with an acceleration in <unk> growth as shown here by Toronto.

Speaker Change: While still early days for Illumina and in a very restrictive regulatory environment. This is clearly a positive development.

Emmanuel Babeau: Moving now to Zinn, where excellent U.S. progress continues in Q1, with plus 70% sequential growth in 12-month rolling shipments. Impressively, category volume share grew for the fourth consecutive quarter to 74.3%, an increase of plus 6.9 points year-on-year and plus 1.3 points sequentially, despite a $0.15 per can price increase in March. Retail value share also grew to 79.3%, highlighting Zin's premium positioning and superior brand equity. This accelerated growth, again, reflects a broad step up in nationalized toll velocity and gradual distribution expansion as the category gains strong traction with adult nicotine use.

Speaker Change: Moving now to <unk>, where excellent U S. Progress continued in Q1, we split 70% sequential growth in 12 months rolling shipments.

Speaker Change: Impressively category volume share grew for the fourth consecutive quarter to 74, 3% an increase of plus six nine points year on year and plus one three points sequentially. Despite.

Speaker Change: Despite a 15 X cents per ton price increase in March.

Speaker Change: Retail venue share also grew to 79, 3% highlighting <unk> premium positioning.

Speaker Change: <unk> our brand equity.

Speaker Change: This accelerated growth again reflect a broad step in nationalized tour velocity and graduate distribution expansion as the category gained strong traction with other nicotine users.

Emmanuel Babeau: As outlined at CACNI, we remain focused on marketing ZIN responsibly to prevent unintended use. We support the FDA's effort to ensure only consumers over 21 have access to nicotine products. Swedish Match follows a robust U.S. marketing code that prohibits using social media influencers.

Speaker Change: And I would like at Cagny, we remained focused on marketing zine responsibly to prevent unintended use.

Speaker Change: We support the FDA default to ensure only consumer over 'twenty, one have access to nicotine product.

Speaker Change: Swedish match follows a robust U S marketing code that prohibit using social media influencer.

Emmanuel Babeau: H-Gate Digital Platform 221 Plus, and includes partnering with WCAG to ensure retail sales only to legal-age adults. I'd like to spend a moment now on combustibles, where our portfolio delivered robust organic net revenue growth of plus 3.7% in Q1. This primarily reflects better-than-expected pricing of plus 7.9%, with a notable contribution from Germany and stepped-up pricing in Egypt. The pricing environment remains favorable, and we now forecast a full year increase of plus 6 to plus 7 percent, with the annualization effect lessening in H2. Our cigarette category share grew by plus 0.3 points in Q1, and this included a positive contribution from Algeria, Poland, and Turkey, resulting in only a modest volume decline in the total cigarette industry, which fell by 0.6%.

Speaker Change: <unk> digital platform to 'twenty, one plus.

Speaker Change: And includes partnering with week out to help ensure retail sales only to legal age adults.

Speaker Change: I'd like to spend a moment now on convertibles well.

Speaker Change: Our portfolio delivered robust organic net revenue growth of plus three 7% in Q1.

Speaker Change: This primarily reflects better than expected pricing of plus seven 9% with a notable contribution from Germany and stepped up pricing in Egypt.

Speaker Change: Pricing environment remained favorable and we now forecast full year increase of plus 6% plus 7% with annual edition effect lessening in etch too.

Speaker Change: Our CRE category share grew by plus 0.3 points in Q1.

Speaker Change: And this includes positive contribution from Algeria, Poland, and Turkey, resulting in only a modest volume decline in the total cigarette industry, which fell by 6%.

Emmanuel Babeau: Our global brands gained category share during the quarter, with Marlboro gaining plus 0.4 points. As previously flagged, our 2023 share of the segment was flattered by competitors' supply constraints in Egypt, which may normalize this year. As I already mentioned, strong pricing in Q1 coupled with accelerated manufacturing productivity also resulted in a better-than-expected margin evolution. Now, let me provide an update on our latest innovation and expansion plans as we further accelerate our smoke-free transformation.

Speaker Change: Our global brands gained category share during the quarter with Marlboro, gaining plus 0.4 points.

Speaker Change: As previously flagged at our 2023 share of segment.

Speaker Change: Was flattered by a competitor supply constraint in Egypt, which may normalize this year.

Speaker Change: As I already mentioned strong pricing in Q1, coupled with accelerated manufacturing productivity also resulted in a better than expected margin evolution.

Speaker Change: Now, let me provide an update on our latest innovation and expansion plans as we further accelerate our smoke free transformation.

Emmanuel Babeau: As I covered earlier, we recently launched ICO's ILUMA-I, our most innovative offering to date in Japan. The ILUMA-I portfolio consists of three devices, offering a range of adaptable new features. This includes a new touch screen on the device holder, which allows users to see experienced relevant information quickly and easily, as well as a pause mode so users can pause and resume their smoke-free moment where they left off.

Speaker Change: As I covered earlier, we recently launched Iqos illumina.

Speaker Change: Our most innovative offering to date in Japan.

Speaker Change: The portfolio consists of three devices offering a range of added stable new features.

Speaker Change: This includes a new touch screen on the device order, which allows user to see experience relevant information quickly and easily as well as opposed mode. So user can pause and resume the smoke free moment, where they left off.

Emmanuel Babeau: Initial consumer feedback has been very positive. Japan was the first market to launch ILUMA in H2 2021, and we plan to gradually roll out ILUMA-I to more geographies over time. As shown in our Japan and Indonesia performance, consumable innovation on the Illuma platform is also critical as we broaden our offering across markets. Livia HTUs, which contain nicotine but no tobacco leaf, were launched nationwide in the Czech Republic and Romania in Q1 with promising initial results.

Speaker Change: Initial consumer feedback has been very positive.

Speaker Change: Japan was the first market to launch Illumina in its 2021, and we plan to gradually rollout illumina.

Speaker Change: Two more geographies over time.

Speaker Change: Yeah.

Speaker Change: As shown in our Japan, and Indonesia performance consumable innovation on the platform is also critical as we broaden offering across markets.

Speaker Change: <unk> Ht use which contain nicotine, but note that I believe.

Speaker Change: We have launched nationwide in the Czech Republic, and Romania in Q1 with promising initial results.

Emmanuel Babeau: More markets are planned later this year. Delia, our new mainstream prize brand for HTUs, was rolled out in Switzerland, Hungary, and Lithuania. In the U.S., we continue to prepare for the first consumer pilot in select cities with the ICO3 system. As mentioned previously, the commercialization will be initially limited in scope and will be focused on direct activation of select legal-age nicotine users in a few cities, allowing us to experiment with different elements of the commercial model.

Speaker Change: More markets are planned later this year.

Speaker Change: <unk>, our new mainstream price point for <unk>.

Speaker Change: <unk> rolled out in Switzerland, and Gary and Australia.

In the U S. We continued to prepare for the first consumer pilot in select cities with the Iqos III system.

Speaker Change: As mentioned previously the commercialization will be initially limited in scope and will be focused on direct activation of select legal age nicotine user in a few cities, allowing us to experiment with different element of the commercial model.

Emmanuel Babeau: The main purpose of this consumer activation is to fine-tune our approach in anticipation of the at-scale launch of icosiluma following authorization from the FDA. The international expansion of nicotine pouches remains a key focus, notably for Zin as the world's leading brand. We have launched or relaunched in 11 markets so far, with more planned later this year.

Speaker Change: The main purpose of this consumer activation is to fine tune our approach in anticipation of the at scale launch of Iqos Illumina following authorization from the FDA.

Speaker Change: The international expansion of nicotine pouches remain a key focus notably foreseen as the worlds leading brand.

Speaker Change: We have launched our relaunched in 11 markets. So far with more planned later this year.

Emmanuel Babeau: In eVapor, our focused strategy for VIV is showing very good early results. Positive consumer feedback is translating into promising repeat purchase and conversion rates, and we are on the path to profitability in H2. This brings me to our outlook for 2024. With unparalleled smoke-free volume momentum, best-in-class pricing, and expanding margins, we are raising our fully currency-neutral growth rate for. This strong pricing, combined with positive smoke-free mix and efficient cost allocation, also helps us to mitigate currency headwinds and should allow us, at prevailing rates, to deliver on our objective of robust growth in dollar terms. Given continued Zin volume progress, we are increasing our U.S. shipment forecast to around 560 million cans. We have further accelerated our capacity expansion plans to support this additional step.

Speaker Change: In E vapor our focused strategy for <unk> is showing very good early results.

Speaker Change: Consumer feedback is translating into promising repeat purchase and conversion rate and we are on the path to profitability in H two.

Speaker Change: This brings me to our outlook for 2024.

Speaker Change: And parents smoke free volume momentum best in class pricing and extending margin, we are raising our full year currency neutral growth forecast.

This strong pricing combined with positive smoked premix and efficient cost allocation also helps us to mitigate currency headwinds and should allow us at preventing rates to deliver on our objective of robust growth in dollar terms.

Speaker Change: Given continued zinc volume progress, we are increasing our U S shipment forecast to around 560 million cans.

Speaker Change: We have further accelerated our capacity expansion plans to support this additional step up.

Emmanuel Babeau: We continue to target strong growth in both adjusted IMS and shipments of high-cost HTUs and to reach close to $15 billion in 2024 smoke-free net revenue at prevailing exchange rates. Factoring the increase in shipment forecast and the strong pricing outlook on both combustible and smoke-free products, we are increasing our organic net revenue growth forecast to plus 7% to plus 8.5%. In addition to higher revenue growth, we expect accelerated organic margin expansion

Speaker Change: We continue to target strong growth in both adjusted IMS and shipments of Iqos Ht us and to reach close to $15 billion in 2020 for smoke free net revenue at prevailing exchange rates.

Speaker Change: Factoring the increase in shipment forecast as a strong pricing outlook on boost convertible and smoke free product.

Speaker Change: We are increasing our organic net revenue growth forecast to plus 7% to plus eight 5%.

Speaker Change: In addition to our revenue growth, we expect accelerated organic margin expansion.

Emmanuel Babeau: This is strongly driven by a significant expected uplift in our smoke-free gross margin due to the ICO scale effect, ZIN mix, and accelerated manufacturing productivity. It also includes organic gross margin expansion in combustible, where we had previously assumed a negative development. In addition, we are focused on delivering further SG&A efficiency while continuing to invest in smoke-free growth.

Speaker Change: This is strongly driven by a significant expected uplift in our smokefree gross margin due to iqos scale effect zinn mix and accelerated manufacturing productivity.

Speaker Change: It also includes organic gross margin expansion in <unk>, where we had previously assumed a negative development.

Speaker Change: In addition, we are focused on delivering further SG&A efficiency, while continuing to invest in small fee growth.

Emmanuel Babeau: As a result, we are raising our Organic Operating Income Growth Forecast to plus 10 to plus 12%. Accordingly, we are raising our forecast currency-neutral adjusted diluted EPS growth to plus 9 to plus 11 percent. This translates into an adjusted deleted EPS range of $6.19 to $6.31, including an unfavorable currency impact of $0.36 at prevailing rates. The increased forecast headwind is primarily explained by the devaluation of the Egyptian pound and recent weakness in the Japanese yen.

Speaker Change: As a result, we are raising our organic operating income growth forecast to plus 10 to plus 12%.

Speaker Change: Accordingly, we are raising our forecast currency neutral adjusted diluted EPS growth to plus nine two plus 11%.

Speaker Change: This translate into our network to diluted EPS range of $6 19 to $6 31, including an unfavorable currency impact of 36.

Speaker Change: At prevailing rates.

Speaker Change: The increased forecast Edwin is primarily explained by the devaluation of the Egyptian pound and recent weakness in the Japanese yen.

Emmanuel Babeau: As I mentioned, we are taking proactive actions to mitigate the incremental impact. We expect full-year growth and operating income margin expansion in both organic and dollar terms at prevailing exchange rates. This includes organic growth in both H1 and H2.

Speaker Change: As I mentioned, we are taking proactive actions to mitigate the incremental impact.

Speaker Change: We expect full year growth and op income margin expansion in both organic and drop them at prevailing exchange rates.

This includes organic expansion in both <unk> and <unk>.

Emmanuel Babeau: After the excellent Q1 performance, we expect a strong H1 overall with organic net revenue and ROI growth around the high end of our full year range. For Q2, specifically, we assume HTU shipment volume of $34 to $35 billion and continued strong volume growth for Zin. We forecast currency-neutral adjusted diluted EPS of $1.50 to $1.55, including an unfavorable currency variance of $0.14 at prevailing rates.

Speaker Change: After the excellent Q1 performance, we expect a strong XY and overall with organic net revenue and Oi growth around the high end of our full year ranges.

Speaker Change: For Q2, specifically, we assume SGU shipment volume of 34% to 35 billion and continued strong volume growth for <unk>.

Speaker Change: Forecast currency neutral adjusted diluted EPS of $1 50 to $1 55, including an unfavorable currency variances of 14th at prevailing rates.

Emmanuel Babeau: With regard to our balance sheet, de-leveraging remains a key priority. We continue to target a 0.3 to 0.5 times improvement in our net debt to adjusted EBITDA ratio in 2024, driven by profit growth and strong cash flow generation. We also continue to target reaching around two times by the end of 2026, and we'll consider buybacks once it is confirmed that we are on track. Switching gears, as this quarter coincides with the publication of our 2023 Integrated Report, I would like to welcome Jennifer Motles, PMI's Chief Sustainability Officer, to share an update on our sustainability progress. Jennifer, it's over to you.

Speaker Change: With regard to our balance sheet.

Speaker Change: Deleveraging remains a key priority.

Speaker Change: We continue to target.

Speaker Change: Three to <unk> five turn improvement in our net debt to adjusted EBITDA ratio in 2024, driven by profit growth and strong cash flow generation.

Speaker Change: We also continue to target reaching around two times by the end of 2026, and we'll consider buybacks once confirm we are on track.

Speaker Change: Switching gear as this quarter coincides with the publication of our 2023 integrated report.

Jennifer Modulis: I would like to welcome Jennifer modulus, PMI Chief Sustainability Officer.

Jennifer Modulus: To share an update on our assistant BTT progress Jenny.

Jennifer: Jennifer over to you.

Jennifer Motles: Thank you, Emmanuel. I'm very pleased to be joining in today's earnings. As Emmanuel mentioned, our sustainability, transformation, and business strategies are one and the same. We're focused on creating value for the long term. We are generating shareholder returns requires us to deliver on transformation, and delivering on transformation requires us to deliver on sustainability. As shown in our recent results, our product transformation fosters profitable growth and short, medium, and long-term value creation. However, our transformation also means reshaping both our value chain and how we engage with society.

Jennifer: Thank you Amanda Im very pleased to be joining today's earnings call.

Jennifer: Emmanuel mentioned, our sustainability transformation and business strategy are one and the same.

We are focused on creating value for the long term, while generating shareholder returns that requires us to deliver transformation and delivering on transformation requires us to deliver on sustainability.

Jennifer: As shown in our recent results.

Jennifer: That transformation process perfect level growth and short medium and long term value creation. However, our transformation also means reshaping both our value chain and how we engage with society as we venture into new product category, we actively collaborate with different stakeholders and advocate.

Jennifer Motles: As we venture into new product categories, we actively collaborate with different stakeholders and advocate for regulatory frameworks that can accelerate industry change and end smoking. However, business transformation is a company-specific journey, which sustainability reporting standards and frameworks often fail to adequately capture. To help illustrate our progress towards achieving our smoke-free purpose, we regularly report our business transformation methods, a bespoke set of financial and non-financial KPIs. Some of them were already presented by Emmanuel in our financial results.

Jennifer: For regulatory framework that can accelerate industry changed and and smoking.

Jennifer: Business transformation is a company specific Jeremy which sustainability reporting standards and frameworks often fail to adequately capture.

Jennifer: To help illustrate our progress towards achieving our <unk> repair that we regularly report our business transformation metrics.

Jennifer: <unk> set of financial and Nonfinancial Kpis.

Some of them were already presented by manifest in our financial results.

Jennifer Motles: Others you can see here. For example, the growing proportion of commercial and R&D spend on smoke-free products demonstrates the allocation of resources away from our legacy business and towards replacing cigarettes with better alternatives. As another example, increasing the availability and access of adult smokers around the world to smoke-free products are two key pillars of achieving this replacement. As our geographic expansion continues, low- and middle-income markets now make up 47% of our market presence.

Jennifer: Others look at this year.

Jennifer: For example, the growing proportion of commercial and R&D spend on smoke free products demonstrates the allocation of resources away from our legacy business and towards replacing cigarettes with better Asbury method.

Jennifer: As another example, increasingly availability and access of adult smoker around the world to smoke free products are key pillars of achieving this replacement.

Jennifer: Geographic expansion continues no in middle income markets now make up 27% of our Michael Preston.

Jennifer Motles: These metrics, together with our overall performance for 2023, can be found in the latest integrated report published last month and available on our website. It is a comprehensive document covering our most important sustainability topics, starting with our product. The report highlights progress on a continued expansion of smoke-free alternatives across categories and geographies, as well as social and environmental profits with and in parallel to these products in support of sustainable value creation. These include responsible marketing and sales practices, use, and efforts to reduce post-consumer waste.

Jennifer: Yeah.

Jennifer: These metrics together with our overall performance for 2023.

Jennifer: Can be latest integrated report published last night and available on our website it.

Jennifer: It is a comprehensive document covering our most important sustainability topics starting with our product.

Jennifer: The report highlights progress on a continued expansion of smoke free alternatives across categories and geography.

Jennifer: Well social and environmental.

Probably wait and in parallel to these products in support of sustainable value creation.

Jennifer: These include.

Jennifer: <unk> marketing and sales practical use.

Jennifer: And efforts to reduce plus consumer way.

Jennifer Motles: In addition, it highlights our progress on improving the quality of life of people in our supply chain, decarbonizing our operations and value chain, and preserving nature. We're also very pleased with the continued recognition of our sustainability performance and our robust reporting. To highlight just a few from 2023, PMI was included in the Dow Jones Sustainability World Index for the first time and for the fourth year in the BGSI North America. In addition, PMI was the only US company to obtain a AAA rating from CBP. More than 20,000 companies worldwide participated in this rating, and only 10 obtained this prestigious recognition.

Jennifer: Sorry, there it highlights our progress on improving the quality of life of people in our supply chain Decarbonizing, our operations and value chain and preserving nature.

Jennifer: We're also very pleased with the continued recognition of our sustainability performance and a robust reporting.

Jennifer: To highlight just a few from 'twenty to 'twenty three PMI was included in the Dow Jones sustainability World Inbox for the first time and for the fourth year in the Bgs Diners America. In addition, PMI was the only U S company to obtain a triple a rating from CDP more than 20000 companies.

Jennifer: Worldwide opening this ranking and only pan obtain this prestigious recognition.

Jennifer Motles: Notably, for investors in parts of Europe but also in ESG or sustainability-themed funds in the US, we are subject to sector exclusion policies because we are a tobacco company. It is clear that excluding companies or sectors from the consideration set does nothing to address the underlying reasons for the exclusion, which in our case would be the harm linked to combustible tobacco use. Many funds that may be excluding tobacco on ESG considerations will still own stocks in other consumer sectors despite many of these companies not having comparable harm reduction strategies in place to address the impacts of their products.

Notably for investors in parts of Europe, but also in ESG or sustainability implant in the U S.

Jennifer: Our subject to sector exclusion policy, because we have tobacco company.

Jennifer: It is clear that excluding companies or sectors from the consideration set that's nothing to address the underlying reasons for the exclusion, which in our case would be the Hamlin for combustible tobacco use.

Manny fan that may be excluding tobacco on ESG considerations will still own stocks and other consumer sectors. Despite many of these companies not having comparable harm reduction strategies in place to address the impacts of that product.

Jennifer Motles: As we transform our company away from combustibles and work to end smoking at a societal level, we welcome the engagement and challenge of investors to help us accelerate this critical shift. Thank you. I'll now turn it back to Emmanuel.

Jennifer: As we transform our company away from combustible and work to and smoking at a societal level. We welcome the engagement and challenge of investors to help us accelerate is critical.

Speaker Change: Thank you and now I'll turn it back to ammonia.

Emmanuel Babeau: Thank you, Jennifer. I will conclude today's presentation with some key messages. Our excellent high-cost and zinc-volume momentum, best-in-class pricing, positive category mix, and step-up cost efficiency put us on track for a strong 2024 with accelerated top-line growth and margin expansion. Following an exceptional and better-than-expected start to the year, we have raised our full-year currency-neutral growth forecast. Critically, we are also focused on delivering performance in dollars. We are taking measures to mitigate currency headwinds through pricing, accelerated manufacturing productivity, and judicious resource allocation to prioritize growth investment.

Ammonia: Thank you Jennifer.

I will conclude today's presentation with some key messages.

Ammonia: Our excellent iqos and zinc volume momentum.

Ammonia: And glass pricing positive category mix and stepped up cost efficiency.

Ammonia: This on track for a strong 2024.

Ammonia: <unk> accelerated topline growth and margin expansion.

Ammonia: Following an exceptional and better than expected start to the year, we have raised our full year currency neutral growth forecasts.

Ammonia: Critically we are also focused on delivering performance in doors.

Ammonia: We are taking measures to mitigate currency headwind through pricing accelerated manufacturing productivity.

Ammonia: And judicious resource allocation to prioritize growth investment.

Emmanuel Babeau: Our 2024 Outlook places us firmly on track to deliver our 2024-2026 CAGR target. Beyond 2026, we have further exciting opportunities to grow our smoke-free business as we progress towards our ambition of being substantially smoke-free by 2030. Finally, and importantly, our strong growth outlook and highly cash-generative business underpin our ability to deliver while maintaining a steadfast commitment to our progressive dividend policy. We look forward to further rewarding our shareholders as our transformation delivers sustainable growth. Thank you, and we are now very happy to answer your questions. As a reminder, to ask a question:

Ammonia: Our 2024 outlook places us firmly on track to deliver our 2020 for 2026 CAGR targets.

Ammonia: Beyond 2026, we are further exciting opportunity to grow our smokefree business as we progress towards our ambition of being substantially smoke free by 2030.

Ammonia: Finally, and importantly, our strong growth outlook and highly cash generative business underpins, our ability to deleverage, while maintaining a steadfast commitment to our progressive dividend policy.

Ammonia: We look forward to further rewarding our shareholders as our transformation delivers sustained growth.

Speaker Change: Thank you and we are now very happy to answer your question.

Unknown Executive: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A Roster. Our first question comes from Matt Smith with Stiefel. Your line is now open.

Speaker Change: As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Speaker Change: Please standby, while we compile the Q&A roster.

Speaker Change: Yeah.

Speaker Change: Our first question comes from Matt Smith with Stifel. Your line is now open.

Matthew Edward Smith: Hi, thank you, Emmanuel. If we start with the first quarter, it was a strong start to the year. You noted a better revenue and margin performance supporting your ability to raise the outlook for both organic revenue and constant currency EPS. At a high level, on a constant currency basis, the first quarter EPS was about 20 cents ahead of your one-cut guidance, and you raised the full year outlook somewhat below that. Can you talk about unique benefits in the first quarter that may have changed the timing through the year, or how are you viewing the rest of the year differently now in terms of the fundamental environment or investment level?

Matthew Edward Smith: Alright, Thank you Emmanuel.

Matthew Edward Smith: Good morning.

Matthew Edward Smith: If we start the first quarter. It was a strong start to the year you noted a better revenue and margin performance supporting your ability to raise the outlook for both organic revenue in constant currency EPS.

Matthew Edward Smith: From a high level on a constant currency basis first quarter EPS was about <unk> <unk> ahead of your <unk> guidance and you raised the full year outlook somewhat below that can you talk about unique benefits in the first quarter that may have changed the timing through the year or how are you viewing the rest of the year different now in terms of.

Matthew Edward Smith: The fundamental environment, our investment level.

Emmanuel Babeau: Sure, I'm happy to explain some of the bits, but only part of it, of course, because we started the year in a very strong manner, in an underlying way. But in addition to the very strong momentum that we are experiencing, indeed, there was around an additional one billion HTUs ticked because of the Red Sea, so that has been a plus in Q1. And we expect that to reverse later in the year for the time being.

unknown: Sure Matt.

unknown: Explain.

unknown: Why.

unknown: Some of the beat but part of it of course, because we started as I explained.

unknown: My prepared remark the year in a very strong manner in an underlying manner, but in addition to the very strong momentum that we are experiencing indeed, there was around an additional 1 billion extra usage because of rates. So that has been a plus in Q1, and we expect that to reverse later in the year for the time.

Emmanuel Babeau: So that's one element that is important. We may have been helped a bit by some volumes on combustibles, but it's probably more marginal and, you know, at the scale of the combustible business, it's probably smaller. And then the other element, of course, is the SG&A evolution, an organically 1.4% increase only. We want to grow organic revenue faster than SG&A, but, of course, we won't have the 10 points of difference that we've been experiencing in Q1.

unknown: For the time being.

unknown: So thats one element that is important we may have been a bit by some volumes on convertible, but it's probably more marginal in the scale of the convertible Venus is probably smaller and then the other element of course is the SG&A evolution organically, one 4% increase.

unknown: Only we want to grow organic revenue faster than SG&A, but of course, we will have the 10 points of difference that we've been experiencing in.

Emmanuel Babeau: So that will also reverse partially in the rest of the year, as we are coming with some phasing on commercial actions and marketing, and advertising later in the year and starting in Q2, where we will have more SG&A. So I think that with that, you have the key elements that have been adding to what was, as I said, a very strong momentum anyway in Q1.

In Q1, so that will also reverse partially in the rest of the year as we are coming with some phasing on commercial actions and.

unknown: Marketing advertising.

unknown: Later in the year and starting in Q2, where we will have more SG&A. So I think that with that you have the key elements that have been adding to what was as I said very strong momentum any way in Q1.

Unknown Executive: Thank you, Emmanuel. I'll pass it on.

Speaker Change: Thank you Emmanuel I'll pass it on.

Unknown Executive: Thank you. One moment for our next question. Our next question comes from Bonnie Herzog with Goldman Sachs. Your line is now open.

Speaker Change: Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from Bonnie Herzog with Goldman Sachs. Your line is now open.

Bonnie Lee Herzog: All right. Thank you. Good morning.

Emmanuel Babeau: Emmanuel, I wanted to maybe ask for a little bit of more color on a point you made about or at the end of your script regarding currency headwinds and how you're hoping to mitigate these headwinds. You highlighted pricing and productivity savings, etc. So maybe just provide a little bit more color on those, I guess, levers if you can pull them, and maybe why you're more optimistic going forward given the never-ending currency headwinds since it continues to impact your business. I think that would be helpful.

Bonnie Lee Herzog: Alright, Thank you good morning.

Bonnie Lee Herzog: I wanted to maybe ask for a little bit of more color on a point you made about her at the end of your script regarding currency headwinds and how you're hoping to mitigate these headwinds you highlighted.

Bonnie Lee Herzog: Missing and productivity savings et cetera, So maybe just provide a little bit more color on those.

Bonnie Lee Herzog: I guess levers if you can pull them in maybe why you're more optimistic going forward given the never ending currency headwinds since it continues to impact your business I think that would be helpful.

Bonnie Lee Herzog: Sure, Bonnie; happy to share our view and what we're doing on that one. So we said it at the beginning of the year, and when we're at CACNI, we want to deliver performance in dollars terms. And therefore, that means that even when we have another significant forex headwind, and you know, some of that, I mean, we have in Q1, actually, six cents coming from the Egyptian pound that won't be there next year. So that's not something that's going to stay with us.

Speaker Change: Sure Bonnie.

Speaker Change: To show, our view and what we're doing on that one so.

Speaker Change: We said at the beginning of the year and when we're at Cagny, we want to deliver performance in <unk> and therefore that means that even when we have.

Bonnie Lee Herzog: Another significant forex headwinds and you know some of that I mean, we have.

Bonnie Lee Herzog: In Q1, actually <unk> coming from <unk> down that won't be there next year. So that's not something that's going to stay with us. So it's a kind of one off negative impact that we want to deliver robust growth in the long term so in order to deliver that we have.

Emmanuel Babeau: So it's a kind of one-off negative impact, but we want to deliver robust growth in dollar terms. So in order to deliver that, we have two big levers, I would say, the one is on price. And to be clear, when we talk about price, it's, of course, in the countries where we can see some devaluation, but not only, it's really across the board, how can we push the boundaries and push, you know, to the maximum of the limit, the price increase, while we think that we're doing in a way that is not necessarily taking a big risk on market share, but we are clearly here, and notably on combustible, pushing on price increase.

Bonnie Lee Herzog: Two big levers levers I would say is one is on price.

Bonnie Lee Herzog: And to be clear when we took about price.

Bonnie Lee Herzog: Of course in the countries, where we can see some diversion, but not amish.

Bonnie Lee Herzog: It's really across the board or can we.

Bonnie Lee Herzog: The boundaries and.

Bonnie Lee Herzog: Pushing you know to.

Bonnie Lee Herzog: So the maximum of the limit the price increase while we think that we are doing in a way that is not necessarily.

Bonnie Lee Herzog: Taking a big risk on market share, but we are clearly ear and notably on convertible pushing on price increase so that's something that we can do that.

Emmanuel Babeau: So that's something that we can do, that is taking into account a certain economic environment. And in the current environment, we are doing, you know, what we think is optimal and the best we can. Of course, if there was some more depreciation, more devaluation, we would reconsider whether more action could be taken.

Bonnie Lee Herzog: That is taking into account a certain economic environment.

Bonnie Lee Herzog: <unk>.

Bonnie Lee Herzog: In the current environment, we're doing what we think is optimizing the best we can of course, if there was some more depreciation modification, we would reconsider whether more action can be can be it can be done.

Bonnie Lee Herzog: And then on productivity and on cost efficiency, that means really accelerating everything we can do to improve productivity, and we are working across the board. It's, of course, on procurement, it's on optimizing the manufacturing footprint, it's on logistics, I mean, everything where we can generate extra savings and, you know, deal with this environment of a strong dollar. And then on cost allocation, I mean, of course, we are working permanently as part of our $2 billion saving program on plans to be simpler, to generate efficiency, to work in a more efficient manner.

Bonnie Lee Herzog: And then on productivity and on cost efficiency that means really.

Bonnie Lee Herzog: Accelerating everything we can do on productivity and we are working across the board. It's of course on procurement is on optimizing the manufacturing footprint. It's on logistics I mean, it's on everything where we can generate extra saving.

Bonnie Lee Herzog: And playing with this environment of the strong dollar and then on cost allocation I mean of course, we are working permanently.

Bonnie Lee Herzog: As part of our 2 billion saving program on plans.

Bonnie Lee Herzog: To be simpler to generate efficiency to working in a more efficient manner. So we do that we try to accelerate that you again, we we are trying to do things faster.

Bonnie Lee Herzog: So we do that, we try to accelerate that. Here again, we're trying to do things faster, and we are also making sure that when it comes to investment allocation, we really prioritize what is having the biggest and strongest and, I would say, clearest return, which is allowing us to also generate some profitability improvement to partially offset the negative forex. So that's really all the action that we are doing.

Bonnie Lee Herzog: We are also making sure that when it comes to investment allocation, we really prioritize on what it is in.

Bonnie Lee Herzog: It's our biggest and strongest and I would say.

Bonnie Lee Herzog: Clearest return.

Bonnie Lee Herzog: Which is allowing us to also generate some profitability improvement.

Bonnie Lee Herzog: Partially.

Bonnie Lee Herzog: Offset the negative Forex, so that's that's really or everything that all the action that we are.

Bonnie Lee Herzog: We're not saying we can offset any kind, of course, of forex environment, but I think our Q1 numbers and the outlook for the year are showing that we have some good capacity to mitigate to a very significant extent the forex impact.

Speaker Change: <unk>, we're not saying, we can offset any kind of course of forex.

Speaker Change: <unk>, but I think our Q1 numbers.

Speaker Change: For the year is showing that we have some good capacity too.

Emmanuel Babeau: Okay, that is helpful. And then I just had a quick question, if I may, about Zen. We're actually hearing about some out-of-stocks in the U.S. from some of our industry trade contacts. So, you know, maybe hoping for a little more color on this and, you know, how much it might have impacted volumes in the quarter. Also, you know, curious if these issues are related to maybe specific production issues or more related to the strong demand and ultimately when you expect them to be resolved. Thank you. Thank you, Bonnie.

Speaker Change: Mitigate to a very significant extent the forex impact.

Okay that is helpful. And then I just had a quick question. If I may and then we are actually hearing about some out of stocks in the U S from some of our industry trade contacts so maybe hoping for a little more color on this and how much that might have impacted volumes in the quarter also curious if these issues.

Speaker Change: As a related to maybe specific production issues are are more related to the strong demand and ultimately when do you expect that to be resolved. Thank you.

Speaker Change: Thank you Ben this is very much the latter.

Speaker Change: You mentioned in one of the business is growing 80% and we are growing 80% that is indeed, creating some tensions owns a supply chain without any doubt.

Unknown Executive: This is very much the latter. I mean, you can imagine when a business is growing 80% and we are growing 80%; that is indeed creating some tensions in the supply chain without any doubt. I'm not sure that out-of-stock is still the proper word, you know, given where we are today. As we said, we are working very hard to maximize our capacity in this fast-growing environment for ZIN. We are comfortable, of course, with our capacity to deliver around 560 million cans.

Speaker Change: Sure that out of stock is.

Speaker Change: Still the appropriate word.

Speaker Change: Given where we are today.

Speaker Change: Think that maybe some time a restaurant is not going to be available not everything is going to be is going to be.

Speaker Change: Going to be fully available in the range at the at the certain point in time, but look at what the needs that are telling us on on Q1, and our volume I mean, we we seem to be growing faster.

Speaker Change: It's difficult to see any kind of impact coming from restriction on availability.

Speaker Change: As we said we are working very hard to maximize our capacity in this fast growing environment regime, we are comfortable of course.

Speaker Change: With our capacity to deliver around our 560 million gun that is not the limit that we are putting of course in term of collection capacity.

Unknown Executive: That is not the limit that we are putting, of course, in terms of production capacity. But we are in this phase of adaptation to this strong growth and fast-rising demand, I think so far, maybe with some tension, but with limited impact on volume. Okay. Thank you.

Speaker Change: But we are in.

Speaker Change: Yes.

Speaker Change:

Speaker Change: Phase of adaptation to to see strong growth in <unk>.

Speaker Change: And a fast rising demand.

Speaker Change: I think so far maybe with some tension, but with limited impact on volumes.

Unknown Executive: Thank you. One moment for our next question. Our next question comes from Owen Bennett on Jeffries or Lines Now.

Speaker Change: Okay. Thank you thank.

Speaker Change: Thank you.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from Owen Bennett with Jefferies. Your line is now open.

Owen Michael Bennett: Morning Emmanuel, hope all well. First question on heated: can you maybe talk a bit more about the contribution from newer markets? Is this trending in line with expectations, or do you see potential for upside here? Because some of the trends you called out sound very encouraging, and I'd also love an update on bonds and the latest on this, if possible. Thank you.

Owen Michael Bennett: Good morning <unk>.

Owen Michael Bennett: First question on <unk> can you maybe talk a bit more about the contribution from newer market is trending in line with expectations or do you see potential for upside here and get some of the trends you called out some very encouraging and I'd also love Nok on bonds in the latest best possible. Thank you.

Emmanuel Babeau: Yeah, with pleasure, Owen. So I think we see, and you said it, I've been elaborating on a number of markets where we see a very interesting trajectory for new markets. We've been speaking about Indonesia, and, in addition to all the markets I've been covering, I could have been speaking about Mexico, where we have also seen a nice acceleration, and we are just launching Illuma now. So the good thing is that we're not relying on one or two names, but we are starting to have a growing team of new markets where we see clearly ICOs getting traction and increasing their stake, first, That's where, in many of these countries, we have the biggest potential. But that's, I would say, happening in line with expectation.

Nok: Yes with pleasure Owen.

Nok: So I think we see.

Nok: You said it has been elaborating on the number of market.

Nok: We see a very interesting trajectory for.

Nok: New market, we've been speaking about Indonesia.

Nok: We could have been speaking in addition towards the market is recovering.

Nok: Equivalent speaking about Mexico, where we have also a nice acceleration and we are just launching illumined now so it's a good thing is that we're not relying on one or two names.

But we start to have a growing team of new markets.

Nok: Where we see.

Nok: Clearly iqos getting traction and an increasing.

Nok: At stake first as always in the big cities.

Nok: We're in many of these countries we have the biggest potential.

Owen Michael Bennett: And as I said, we expect further acceleration in the second part of the year. We believe that then Taiwan will also start adding to the flow of this new market. So it's in line with expectation and clearly coming with great potential for ICOs, being perceived in many big cities as an aspirational product, which is extremely positive for the future and the brand franchise that we're going to be able to build there.

Nok: But that's I would say in line with expectation and as I said, we expect even a further acceleration in the second part of the of the year, we believe that Daniel Taiwan. We also start so adding to the flow of these newer market. So it's in line with expectation and clearly coming with.

Nok: Great potential with.

Nok: Iqos.

Nok: <unk>.

Nok: In many big cities rapidly as an aspirational product, which is <unk>.

Nok: Extremely positive for the future and the brand franchise thats going to be able to to build there.

Owen Michael Bennett: Then on top of this new market and the high cost trajectory in this new market, we have bonds that we plan to develop in the future. We've been conducting the test, as we explained, in the Philippines and Colombia. We are working on the result. We are making a number of adjustments, and we'll come up with a detailed plan in the coming quarters. We want to make sure that we come up with a product that has all the ingredients, all the features to be a great success, and we're working on it.

Nok: Then on top of this.

Nok: New markets.

Nok: And the Iqos trajectory in this new market, we are indeed bonds that we.

Plant two.

Nok: <unk> developed in the future we have been making the test as we explained in the Philippines and Columbia, We are walking on the results. We are making a number of adjustments and will come with a detailed plan.

Nok: In the in the coming quarters, we want to make sure that we come with a product that has all the ingredients. All the features to be a great success and we are working on it.

Owen Michael Bennett: So that's going to be really important in this market because we know that the affordability here is different to come up with a portfolio that is segmented and where ICOs will have a role to play, but we need to also come up with the rest of the portfolio bonds in order to cover this mark.

Nok: Sure.

Nok: That's going to be really important in all this market because we know that affordability is different to come with with.

Nok: A portfolio that is segmented and where iqos will have a role to play, but we need to also come with.

Nok: With the rest of the portfolio bonds in order to cover this market.

Emmanuel Babeau: Thank you very much for your help, and I just have one more. I want to talk a bit more about vapes and what sort of volumes you think you can do here for the year. And, if I heard you right, you said you'll be profitable already in H2, which would suggest volumes have been really healthy already. And any kind of commentary on which markets you're seeing the strongest traction so far?

Speaker Change: Thank you very helpful. And then I just had one more I want you to talk a bit more about vape.

Speaker Change: What sort of volumes do you think you can take half of the year and if I heard you right you said youll be profitable already in H, two which would suggest volumes as being fairly healthy already and just any kind of commentary on which markets youre seeing the strongest traction so far.

Owen Michael Bennett: Sure, so on VIVE, it of course stays modest, you know, versus ICOS and VIVE in terms of impact at the group level, and we stick to our strategy, which is we don't want to be big in vaping if it's to lose money. We want to really go with VIVE in markets where we are having the right commercial impact, where VIVE can make a difference and in a profitable manner. Indeed, the year started well in terms of volumes.

Speaker Change: Sure so on the <unk>.

Of course stays modest versus Iqos and Z demos impact at the group level and we stick to our strategy, which is we don't want to be big in <unk>. If it's to lose money, we want to be really going with these in market, where we are.

Speaker Change: I think the right commercial impact where <unk> can make the difference and in a profitable manner.

Speaker Change: Indeed.

Owen Michael Bennett: We have this outlook of moving into a positive bottom line for VIVE in the second part of the year, which would be very good news. And we are prioritizing markets where we have the critical mass, where I would say the nature of the vaping market is interesting. And we are developing very nicely today, I would say, in markets such as Italy, the Czech Republic, France, the UK, and are developing in Canada. These are markets where we can reach, if we want, the size, the mass, and where we have the impact to make our vaping business successful and profitable. Great. Thank you, sir.

Year started well in term of volumes we have the.

Speaker Change: Outlook of moving into positive bottom line for these in the second part of the year, which would be very good news and we are prioritizing markets, where we have the.

Critical mass where the I.

Speaker Change: I would say that the nature of the VIP market is interesting and we are developing today are very nicely I would say in markets, such as Italy, Czech Republic, France, UK developing in Canada. These are markets where.

We can reach if you want.

Speaker Change: Size is a mass and where we are in fact to make our business successful and profitable.

Emmanuel Babeau: Great, thank you, sir. Very helpful. Thank you, Owen.

Speaker Change: Great. Thank you very helpful.

Speaker Change: Thank you Owen.

Unknown Executive: One moment for our next question. Our next question comes from Fahim Beg, with UBS. Your line is open.

Speaker Change: Thank you.

Speaker Change: For our next question.

Speaker Change: Our next question comes from Tom <unk> with UBS. Your line is open.

Mirza Faham Ali Baig: Morning Emmanuel, thank you for the questions. I have a couple as well, both on heated tobacco. Firstly, could I get your view on any implications that you see from the recent EU court ruling on the supplementary excise tax in Germany for any other European countries? And when are you expecting a decision from the finance court in Dusseldorf? And the second question, please, is again on heated tobacco. Clearly, pricing has stepped up over the last couple of quarters. How are you thinking about the balance between price and volume growth, and could pricing be higher than the original guidance of low single digits?

Tom: Good morning, Emmanuel Thank you.

Speaker Change: <unk>.

Tom: I have a couple as well.

Both on heated tobacco.

Tom: Firstly could I get your view on any implications that you see from the recent EU court ruling on the supplementary excise tax in Germany.

Tom: To any other of the European countries.

Tom: And when are you expecting a decision from from the Finance Court and Dusseldorf.

Speaker Change: And the second question please.

Speaker Change: Then on heated tobacco.

Speaker Change: Clearly pricing has stepped up over the last.

Speaker Change: A couple of quarters, how are you how are you.

Speaker Change: You're thinking about balance.

Speaker Change: <unk> price and volume growth.

Speaker Change: And could pricing be higher than the original guidance of low single digits.

Emmanuel Babeau: Thank you for the question. So first of all, on the German situation, it's I mean, yes, they've been asking for an opinion on it from the European Court of Justice. But it's a purely German question whether the way they've been implementing their extra tax was according to EU law or not, so that there are no consequences for other countries.

Speaker Change: Well. Thank you for the question so first of all on the German institution.

Speaker Change: They've been asking for the view on the from the European Court of Justice, but it's a purely German question, whether the way they've been implementing.

Speaker Change: Their extra tax was.

Speaker Change: According to EU law on those so there is no consequences for other countries it's really.

Mirza Faham Ali Baig: It's really a German question due to how they implemented this increase in the tax. So that's what it is. On the final decision, because as of this day, that would be the decision from the German court. I have to say, I don't know when we will know more; I guess in the coming months, obviously. But I'm not going to be able to be more specific on the timing of the decision, of course, to make that decision.

Speaker Change: German question due to all of the implemented this increasing the tax so.

Speaker Change: That's what it is on the final decision because as of the day that would be the decision from the German court.

Speaker Change: I have to say I don't know.

Speaker Change: When we will know more I guess in the coming months obviously.

Speaker Change: But I'm not going to be able to be more specific on the timing of the different of course to make the decision.

Emmanuel Babeau: There are a number of steps that still need to be taken before they get there, so that will be for the coming months. I think given where we are today, I'm not able to tell you when they will make the decision.

Speaker Change: There are a number of steps to be taken.

Speaker Change: Before they get there so that could be for the coming months I think given where we are today I'm not able to tell you when they will.

Speaker Change: The decision.

Mirza Faham Ali Baig: Regarding your second question on price versus volume, so we said, and I'm going to stick to that. Yeah, we believe that we can increase the price more, you know, low single digits or not at the level of combustible on is-not-burn. Again, I think we are very clear on the very positive impact coming from the growth in volume from our is-not-burn business, and they're coming with a much higher per stick revenue. They're coming now with a higher growth margin rate; even at the level of just the consumables, it's significantly higher than for combustibles as an average for the group.

Speaker Change: Regarding your second question on price versus volume, So, we said and I am going to stick to that.

Speaker Change: Yes, we believe that we can increase price.

Speaker Change: More in the low single digits and not at the level of compostable on even a burn.

Speaker Change: Again, I think we are very clear on the very positive impact coming from the growth in volume.

From our <unk> business the coming weeks.

Speaker Change: Our your first revenue, they're coming now with the higher.

Speaker Change: Gross margin rate even at the level of just the considerable it's significantly higher than four convertible as an average for the group. So that means that's really growing volumes is the name of the game for us that's where it makes sense now on top of it I mean given the.

Mirza Faham Ali Baig: So that means that really growing volumes is the name of the game for us. That's where it makes sense. Now, on top of it, given the very strong franchise of FICO and the attractiveness of the brand, we are able to increase price without putting in danger the volume. But that's really the way you should be looking at it. For us today, it's very much a play on maximizing volume.

Speaker Change: Very strong franchise of Iqos and.

The attractiveness.

Speaker Change: Attractiveness.

Speaker Change: Of the brand, we are able to increase price without putting indenture the volume, but that's really the way you should be looking at it.

Speaker Change: For us today is very much a play on maximizing the volumes.

Emmanuel Babeau: Thank you. One moment for our next question. Our next question comes from Gaurav Jain, with Barclays. Your line's now open. Hi, good morning.

Speaker Change: Thanks Emmanuel Thank you.

Speaker Change: Thank you one moment for our next question.

Speaker Change: Our next question comes from <unk>.

Speaker Change: <unk> Jain.

Gaurav Jain: Hi, good morning, Emmanuel. Good morning, Gaurav.

Barclays: With Barclays. Your line is now open.

Gaurav Jain: Thank you for taking my question. So, two questions from me. So one is, you know, just conceptually, so let's take a city like Tokyo, where the heated tobacco category share is now 50% plus. So one can argue that by increasing the premium cigarette prices, which haven't increased in two years, you can accelerate the downtrading to high cost. This will accelerate ICOS volume growth. This will also accelerate your dollar EPS growth outside of Japan. So why wouldn't you do something like this in cities and countries where heated tobacco and ICOS are the dominant form factors?

Jain: Hi, good morning Manuel.

Thank you for taking my question. So two questions from me so Ron as you know just conceptually so let's take a city like Tokyo.

Jain: The heated tobacco category share is now 50% plus so one can argue that by increasing the premium cigarette prices, which haven't been clean now enjoy yes, you can accelerate the downgrading to iqos.

Jain: The <unk> threat Iqos volume growth. This will also accelerate your dollar EPS growth out of Japan.

Jain: Why wouldn't you do something like this in cities and countries.

Emmanuel Babeau: Thank you for your question, Gaurav. You know, I'm always very cautious, of course, as you can imagine, when commenting on any kind of price strategy. So don't expect me to enter into any kind of detail.

Jain: For background cost becomes the dominant form factor.

Speaker Change: Thank you for your question of our outlook.

Speaker Change: I'm always very cautious of course as you can imagine on commenting any kind of price strategies. So don't expect me to enter into any kind of detail, but conceptually.

Gaurav Jain: But conceptually, it is clear that as we build leadership in the category, as there is a growing adhesion from the nicotine user to it not burn, there is a capacity for ongoing premiumization and more price increases, without any doubt. But as I said, and as I explained with the previous question, we believe that today it's still very much about maximizing volumes. And that's what for us is important, of course, coming with a great gross profit per stick and great contribution.

Speaker Change: It is clear that.

Speaker Change: As we build our leadership in the category. There is a growing addition from the nicotine users to equilibrium. There is a capacity for ongoing print a musician and more price increase without any doubt.

Speaker Change: But as I said and as I explain.

It was the previous question, we believe that today since it is very much about maximizing the volumes.

Speaker Change: And Thats what for US is important of course coming with great gross profit per seat and great contribution.

Gaurav Jain: So I'm certainly not closing the door to higher prices in the future, but I think I've been clear on what our priorities are. Having said that, as you know, in Japan, we need to have an agreement from the authority to increase the price. So I think it's something that is also sometimes regulated. So it doesn't mean that we have all the latitude that we would like to enjoy on the topic. So that's on the long term.

Speaker Change: So I am certainly not closing the door to more price in the future.

Speaker Change: But I think I've been clear on what our priorities are having said that as you know in Japan, we need to have.

Speaker Change: An agreement from the authority to.

Speaker Change: To increase the price so I think it's.

Speaker Change: It's something that is also sometimes regulated so it doesn't mean that we have all the.

Gaurav Jain: It is clear that today, and we've been discussing that already, you have the ICOs consumables that are positioned, you know, even at some, you know, discount versus Marlboro. That gives an idea of the kind of increase that we'll be able to reach in the future, probably without too many, I would say, issues over time. Once again, it doesn't happen in one go. But, as I explained, for the time being, maximizing volume is the name of the game, and it's coming with, I think, what Q1 is illustrating in a very bright manner, a very, very powerful mixed impact on our financial performance.

Speaker Change: The latitude that we would like to enjoy on the on the topic. So that's on the long term. It is clear that today as we've been discussing that already.

Speaker Change: <unk>.

The iqos consumables that our position even at some.

Speaker Change: Discount versus mobile that Gisela.

Speaker Change: Of the kind of increase that we'll be able to reach in the future probably without too.

Speaker Change: Too much.

Speaker Change: I would say.

Speaker Change: Issues overtime once again it doesn't happen in one go but as I explained for the time being maximizing volume is the name of the game and is coming with.

Speaker Change: I think what the coupon is illustrating and a very bright manner, a very very powerful mix impact on our financial performance.

Emmanuel Babeau: Sure. And my second question is on Russia. So, you know, ICOS volumes in Russia grew, which is surprising, given that you do not invest in ICOS there anymore. So how should we, first of all, can you just remind us the contribution of Russia to your EPS? And how should we think of Russian ICOS shipments for this year?

Speaker Change: Sure and my second question is on Russia, So crush volumes in Russia grew which is surprising.

Speaker Change: Given that you do not invest.

Speaker Change: Cause that anymore. So how should we so first of all can you just remind us the contribution of Russia on your EPS and how should with tank car tank of Russia shipments for this year.

Gaurav Jain: Look, in Russia, you have to be a bit cautious about the shipment that you see, and that does not necessarily fully reflect the consumer of that state. You can have some movement from the surrounding countries. So I think we have to be cautious.

Speaker Change: Luke on Russia, you have to be a bit cautious on the shipment that.

Speaker Change: <unk>.

Speaker Change: And.

Speaker Change: That doesn't that does.

Speaker Change: Not necessarily fully reflect the consumer offtake you can have some movement from the surrounding countries. So I think we have to be to be cautious. So Russia is a market that has not been if I look at the past the neutral that one quarter is enabling us to conclude anything.

Emmanuel Babeau: So Russia is a market that has not been, if I look at the past, I'm not sure that one quarter is enabling us to conclude anything. Since the beginning of the war in Ukraine, Russia has been a market that has not shown, unfortunately, any kind of meaningful growth. Today, we have no reason to believe that suddenly Russia is going to become a gross market because nothing has changed fundamentally.

Speaker Change: Since the beginning of the war in Ukraine, Russia has been a market that is.

Speaker Change: I'm not sure Unfortunately, any kind of meaningful growth today, we have no reason to believe that the new Russia is going to become a growth market because nothing has changed.

Gaurav Jain: And that's a country that has been impacted, of course, by currency depreciation that has been impacting the weight of the APS. So I think that we were referring to 7% to 8%. I think we'll have to revise it, and I don't have the number top of mind for 2040 on the outlook, but it was around 9%, 10%. And I think that with the currency, it has been losing a bit of weight in the overall performance of the company.

Speaker Change: Fundamentally.

Speaker Change: And that's a country that has been impacted of course by currency depreciation that has been impacting the weight in the <unk>. So I think that the.

Speaker Change: Were referring.

Speaker Change: Referring to 7% to 8%.

Speaker Change: I think we will have to revise and.

Speaker Change: And I don't have the number top of mind for 2014 on the outlook, but that was the kind of it was around nine to 10 and I think with the currency it has been.

Speaker Change: Losing a bit of.

Speaker Change: Of weight in the overall.

Emmanuel Babeau: Thank you so much.

Gaurav Jain: Sure. Thank you so much, Emmanuel. Thank you.

Speaker Change: Performance of the company.

Speaker Change: Sure. Thank you so much O&M.

Unknown Executive: Thank you. Our final question comes from Callum Elliott with Barclays. Your line is now open.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: Our final question comes from Callum Elliot with Barclays. Your line is now open.

Callum Elliott: Yes, that's it. Thanks, Gaurav.

Speaker Change: Bernstein.

Callum Elliott: So my question is following up on Bonnie's question on dollar growth. And in 2013, I think your dollar EPS, Emmanuel, was $5.40 per share. So you've compounded dollar EPS growth at about one and a half percent over the subsequent 10-11 years. It's best-in-class organic growth and probably worst-in-class growth. The whole of the creation of this ICOS business has been quite remarkable.

Callum Elliott: Yes, that's it thanks Gareth.

Callum Elliott: [laughter].

Callum Elliott: So my question is just following up on Bonnie's question on dollar growth.

Callum Elliott: Okay.

Callum Elliott: 2013, and I think your dollar EPS Emmanuel was $5 40 per chassis, you've compounded EPS growth at about 1.5%.

Callum Elliott: Subsequent 10 11 years.

Callum Elliott: Best in class organic growth and probably worst in class.

Callum Elliott: The EPS growth over that 10 year period, which is really striking given that 10 years captures the whole of the creation of this iqos business.

Emmanuel Babeau: So my question is, you obviously outlined a number of initiatives in answer to Bonnie's question of how you, hope to see you next time, tried dollar growth, but maybe you could, double back on those explanations, which of those are actually new and haven't been present over that sort of past 10 year period that could have been helping you over the past 10 years? Because it struck me in those explanations that it sounded like things like pricing, etc.

Has been quite remarkable. So my question is you obviously outlined a number of initiatives and also to <unk> question of how are you.

Callum Elliott: To.

Callum Elliott: Drive dollar growth.

Callum Elliott: Maybe you could sort of double back on those explanations, which of those are actually new.

Callum Elliott: Haven't been present over that sort of past 10 year period that could have been helping over that past 10 years, because it struck me and those explanations right. It sounded like things like pricing et cetera, those are all being around for the past 10 years.

Emmanuel Babeau: Those have all been around for the past 10 years, and they haven't helped you offset the effects. And so is there anything you can tell us that's new that should give investors confidence that, if FX headwinds persist, they are able to drive dollar growth for your business?

Callum Elliott: Happy to help you offset the FX and.

Callum Elliott: So is there anything you can tell us that's new that should give investors confidence that if FX headwinds persist you are able to drive solid growth for your business.

Callum Elliott: Thank you for your question. Well, first of all, I guess you are assuming that the forex Edwin will persist in the coming years, which I think nobody can really say. You know, we know that currency can be affected by a cycle. And that is true that the last 10 years have been about a strengthening of the dollar. But we've been knowing other cycles where the dollar was more weakening versus at least, you know, other hard currencies. So nobody knows what's going to happen.

Speaker Change: Thank you for your question.

Speaker Change: Well first of all I guess youre assuming that the.

Speaker Change: The Forex headwind will persist in the coming years, which I think nobody can really say.

Speaker Change: We know that currency can be facing cycle and that is true.

The last 10 years has been about a strengthening of the dollar we have been doing other cycle, where the delta was more weakening vessels at Houston or other half currency. So nobody knows what's going to happen I think what we are saying.

Emmanuel Babeau: I think what we are saying, and thank you for giving me the opportunity to maybe repeat and clarify, is that we are today in a position to put together very strong growth before Forex. And I think you are seeing with the guidance for 2024 that we are obviously still coming in with a very dynamic top line, very much accelerating operating income growth. We are targeting a double digit before currency impact in 2024.

Speaker Change: Thank you for giving me as it relates to maybe repeat and clarify that we are today in a position.

Speaker Change: To put together very strong growth before Forex and I think you are seeing with <unk>.

Speaker Change: The guidance for 'twenty for that we are obviously coming still with the very dynamic top line very much accelerating operating income growth we are targeting.

Emmanuel Babeau: And on top of that, we are going to price, and in an environment that today we see positive for pricing, certainly with the fact that pricing on combustibles is something that we can use now very tactically. We know that CC is not our future, so we can certainly use pricing very tactically in order to boost performance. We are coming with some price increases at the level of HQ. We have some price increases on ZIN as well.

Speaker Change: Double digit before currency impact now in 2024 and on top of that we are going to price.

Speaker Change: And in an environment that today, we see positive for pricing certainly with the fact that pricing.

Speaker Change: On convertible is.

Speaker Change: Something that we can use now very tactically, we know that <unk> is not our future. So we can certainly use pricing very tactically in order to boost performance. We also are coming with some price increase I believe all of <unk>. We have some price increase on <unk>. So we are globally, a pricing environment that.

Callum Elliott: So we have a global pricing environment that looks attractive to us in the future. And then when it comes to our costs, it is true that we've been investing a lot in the past years, and we've been reporting on all the action that we have taken on investment across the board, you know, in terms of innovation, in terms of science, in terms of R&D, in terms of manufacturing. Now is the time where, of course, we are reaching critical mass on smoke-free products.

Speaker Change: Looks attractive to us in the future and then when it comes to our cost. It is true that we've been investing a lot in the past years and we've been reporting on all the action that we were adding on investments across the board in terms of innovation Derma Sciences in terms of R&D.

Speaker Change: In terms of manufacturing now is the time where of course, we are reaching critical mass on smoke free product.

Callum Elliott: There are a number of things that we are doing that we can do more efficiently, a number of things that we've been learning and that we're going to implement in the continuation of our journey. So all that, we believe, is also giving us some very good ammunition and capacity to generate efficiency at a very high level in the future. So that's it. All the, and they are quite important, quite numerous, all the levers that we own to deliver performance in dollar terms in the future.

Speaker Change: A number of.

Speaker Change: Things that we are doing that we can do more efficiently.

Speaker Change: A number of things that we've been learning in that we're going to implement in the continuation of our journey. So all of that we believe is also giving us some very good ammunition and capacity to generate efficiency.

Speaker Change: At a very high level in the future. So that's.

Speaker Change: All the <unk> are quite important quite numerous all the levers that we own to deliver performance in the lockdowns in the future.

Emmanuel Babeau: Thanks Emmanuel, that's helpful. Maybe I can just ask a follow-up question. Sure.

Callum Elliott: So we have a number of US consumer staples companies reporting this morning, and many of them face similar FX headwinds, incremental FX headwinds over the past. It's striking to me that among some of those companies, even a commoditized US toilet paper company has done a better job this quarter of offsetting these incremental emerging market FX headwinds by sort of rapidly responding with incremental price increases to offset those headwinds. So I guess my question here is, you know, is there something structural in your business that's making it less agile in responding to these changes in FX relative to some of your other consumer staples peers outside of the tobacco space? Well, can I can answer you that question?

Speaker Change: Thanks, So much that's helpful. Maybe I could just ask a follow up.

Speaker Change: Sure. So we have a number of U S consumer staples companies reporting this morning, many of them face similar FX headwinds sort of incremental FX headwinds over the past.

Speaker Change: Two or three months.

Speaker Change: S PMI does striking to me that.

Speaker Change: Some of those companies, even a commoditized use toilet paper company has done a better job this quarter offsetting these incremental emerging market FX headwinds.

Speaker Change: Sort of rapidly responding with incremental price increases to offset those headwinds.

Speaker Change: So I guess my question here.

Speaker Change: Is there something structural in your business Thats, making it less agile in responding to these changes in FX relative to some of your other consumer staples peers outside of the tobacco space.

Emmanuel Babeau: Can I answer you that your question is highly speculative because you asked me to compare it with other businesses that are obviously very different in, I guess, the way they invest, their outlook, and what they have to do. We are building here a business that has tremendous growth potential, so we're not going to, of course, limit all the initiatives, all the investment that we must do in order to keep growing the business and extract the full potential that we have with our smoke-free portfolio.

Speaker Change: Well can I answer you that Youre question is highly speculative because you ask me to compare with other businesses that are obviously very different.

Speaker Change: I guess the way they invest their outlook would they have to do we are building a business that as a tremendous growth potential. So we're not going to of course.

Speaker Change: Limits.

Speaker Change: All the initiatives all the investment that we must do.

Speaker Change: Order too.

Speaker Change: Keep growing the business and extract the full potential that we have with our.

Emmanuel Babeau: Maybe that's a difference versus the paper business you were mentioning. I frankly have no clue because I don't know what you are referring to and the specific situation, but I think it's difficult to compare businesses that are facing different potentials, and different trajectories. That would be my answer.

Speaker Change: The smoke free portfolio.

Speaker Change: Maybe that's a different versus the paper business you were mentioning I frankly have no clue because I don't know what you are referring to and the specific situations, but I think it's difficult to compare businesses that are facing different potential different trajectories that would be my answer.

Speaker Change: Okay. Thank you.

Unknown Executive: This concludes the question and answer session. I would now like to turn it back to management for closing remarks.

Speaker Change: Q.

Speaker Change: Thank you.

Speaker Change: This concludes the question and answer session.

Emmanuel Babeau: Thank you for joining us. That concludes our call today. If you have any follow-up questions, please contact the Investor Relations team. Thank you again, and have a nice day. Bye-bye.

Speaker Change: I would now like to turn it back to management for closing remarks.

Speaker Change: Thank you for joining us that concludes our call today. If you have any follow up questions. Please contact the Investor Relations team. Thank you again and have a nice day bye bye and speak to you soon.

Unknown Executive: Bye-bye, I will speak to you soon.

Unknown Executive: This concludes today's conference call. Thank you for participating. You may now disconnect.

Speaker Change: This concludes today's conference call. Thank.

Speaker Change: Thank you for participating you may now disconnect.

Speaker Change: Yes.

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Speaker Change: Yes.

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