Q3 2025 Philip Morris International Inc Earnings Call

Operator: Good day, and thank you for standing by. Welcome to the Philip Morris International Inc. 2025 Third Quarter Results Conference Call. 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 *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. We do ask that you please limit yourselves to two questions per analyst, and we will take any additional questions if time allows. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, James Bushnell, Vice President of Investor Relations. Please go ahead.

James Bushnell: Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2025 third quarter results. The press release is available on our website at pmi.com. 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 for non-GAAP financial measures cited in this presentation, are available in Exhibit 99.2 to the Forms 8-K dated October 21, 2025, and on our Investor Relations website. 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. Over to you, Emmanuel.

The press release is available on our website at pmi.com.

A glossary of terms, including the definition for smoke-free products, as well as adjustments, other calculations. And reconciliations to the most directly comparable us, gaap measures for non-gaap financial measures cited in this presentation are available in exhibit, 99.2 to the forms 8K, dated October 21st 2025, and on our investor relations website.

Today's remarks contain forward-looking statements and projections of future results.

Our 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.

Emmanuel Babeau: Thank you, James, and welcome everyone. Following an excellent first half, we delivered very strong results in Q3. We are especially pleased with the performance of our global smoke-free business, with outstanding volume growth for all three of our flagship brands, IQOS, ZYN, and VEEV, which together outgrew the global smoke-free industry by a clear margin on year-to-date IMS. Continued double-digit smoke-free top-line momentum and further scale and cost benefits enabled us to achieve more than $3 billion in quarterly smoke-free gross profit for the first time, and an adjusted group operating income margin of over 43%, the highest in almost four years. This drove plus 17% growth in adjusted diluted EPS to a record $2.24. These impressive results were also delivered in a quarter with elevated commercial spending as we invest in the future growth of our brands.

I'm joined today by Emmanuel Babeau, Chief Financial Officer. Over to you, Emmanuel.

Thank you, James, and welcome, everyone.

Following an excellent first Alf. We delivered very strong results in Q3

We are especially pleased with the performance of our Global smokefree business with outstanding volume growth for all 3, of our Flagship Brands icos, Zen, and Viv which together outgrew. The global smokefree industry by a clear margin on year to date IMS.

Continued double digit smoke-free Topline momentum and further scale and cost benefits enable us to achieve more than 3 billion dollar in quarterly, smoke-free gross profit for the first time.

And an adjusted group operating income margin of over 43%. The highest in almost 4 years.

This drove plus 17% growth in adjusted deleted earning per share to a record 224.

Emmanuel Babeau: Our growth investments include geographic expansion, and our smoke-free products are now commercialized in 100 markets, including the launch of IQOS in Taiwan this month. We are increasingly deploying our multi-category strategy to enhance growth, with all smoke-free brands now commercialized together in 25 markets. IQOS delivered excellent performance, including a very strong gross margin contribution, with Q3 HTU adjusted in-market sales growth of plus 9% against a high prior year comparison, and plus 15.5% heated tobacco unit shipment growth. This reflects continued strong momentum in Europe, Japan, and global markets. The relaunch of these commercial activities supported a significant Q3 acceleration in U.S. off-take growth to plus 39% as estimated by Nielsen. Enhanced marketing and promotional intensity supported increased trial among legal-age nicotine users, with a promising level of repurchase intent. Driven by this strong performance in the fast-growing nicotine pouch category, U.S.

With elevated commercial standing as we invest in the future, growth of Our Brands.

Our growth Investments include Geographic expansion. And our smoke-free products are no commercialized in Android markets including the launch of icos in Taiwan this month.

We are increasingly deploying our multi category strategy to enhance growth with all smoke-free Brands now commercialized together in 25 minutes.

I cause delivered excellent performance including a very strong growth margin contribution with Q3 htu adjusted in market sales growth of plus 9% against a high prior year comparison. And plus 15.5% it a tobacco unit shipment growth

This reflects continued strong momentum in Europe, Japan and Global markets.

The relaunch of these commercial activities supported the significant Q3 acceleration in the U.S. growth to plus 39%, as estimated by Nielsen.

Announced marketing and promotional intensity supported increased trial among legal Edge. Nicotine users.

With promising level of repurchase intent.

Emmanuel Babeau: shipment grew by plus 37% to 205 million cans ahead of expectation. International can volumes increased by plus 27%, all by over plus 100% excluding the country. In e-vapor, strong VEEV momentum saw total shipment more than doubling on a year-to-date basis. VEEV is now the number one closed pod brand in eight markets, with notably strong performances in Germany, Romania, and Greece. Combustibles delivered a good Q3 with better than expected volumes in both Turkey and Egypt, combining with further strong pricing to deliver a robust top and bottom line performance. Our Q3 performance reflects our position as the global category leader, with the ability to drive strong growth and prioritize resources to invest significantly in our leading brands.

Driven by this strong performance, in the fast, growing nicotine, porch category us, shipments grew by plus, 37% to 205 million, cans ahead of expectation.

International can volumes increased by plus 27% or by over plus, 100% excluding country.

In E-Vapor, strong V momentum. So, total shipment more than doubling on a year-to-date basis.

These is now the number 1 close Port brand in 8 Market with notably strong performances in Germany, Romania and Greece.

Combustibles delivered, a good Q3 with better than expected volumes in both turkey and Egypt combining with further, strong pricing to deliver a robust top and bottom line performance.

Emmanuel Babeau: The increasing overall profitability of our smoke-free business, coupled with cost efficiency measures and combustible resilience, places us well on track for another year of double-digit adjusted operating income and earnings per share growth in currency-neutral terms, and even stronger dollar growth at prevailing exchange rates. Turning to the headline financials for Q3, positive shipment volumes, strong smoke-free category mix, and pricing resulted in organic top-line growth of +5.9%, or approximately +7.3%, excluding the Indonesia technical impact explained earlier this year, within the high end of our +6% to +8% mid-term growth algorithm. Adjusted operating income grew by +7.5% organically and +12.4% in dollar terms to $4.7 billion, with increasing profitability across smoke-free and combustibles, enabling good adjusted operating income margin expansion of +120 basis points.

Our Q3 performance reflect our position as the global category, leader, with the ability to drive strong growth, and prioritize resources to invest significantly in our leading brands.

The increasing overall profitability of our smoke-free business.

Coupled with cost efficiency measures and combustible resilience.

Places us, well on track for another year of double digit, adjusted operating income, and earning per share growth in currency neutral terms and even stronger dollar growth at prevailing exchange rates.

Turning to the headline Financial for Q3.

Positive shipment.

Volumes strong smoke free category.

Pricing.

Resulted in organic Topline growth of Plus 5.9% or approximately plus 7.3% excluding the Indonesia technical impact explained earlier this year.

Within the high end of our plus 6% to plus 8% midterm growth algorithm.

Emmanuel Babeau: Adjusted diluted EPS of $2.24 reflects adjusted net income of $3.5 billion and growth of +17.3%, including a currency tailwind of $0.08, which includes around $0.03 of favorable transactional impact in the quarter. This better than expected delivery reflects the strength of our financial model, with both IQOS and ZYN performing at the high end of our expectation, further supported by the resilience of combustibles and a more favorable tax rate. Our progress on a year-to-date basis was outstanding, with comparable growth above our mid-term targets on all metrics. Organic net revenue growth of +7.5%, or around +9%, excluding the Indonesia technical impact, was driven by the same factors as the quarter. Adjusted operating income grew by +12.5% organically and close to +14% in dollar terms to $12.7 billion, enabling EPS growth of +16%, both including and excluding currency impact.

Adjusted, or I grew by plus 7.5% organically and plus 12.4% in dollar terms to $4.7 billion, with increasing profitability across smokefree and combustibles enabling good adjusted OI margin expansion of plus 120 basis points.

Adjusted diluted EPS of $2.24 reflects adjusted net income of $3.5 billion and growth of 17.3%, including a currency tailwind of $0.08, which includes around $0.03 of favorable transactional impact in the quarter.

This better than expected delivery. Reflects the strength of our financial model with both icos and Zen performing at the end of our expectation further supported by the resilience of combustible and a more favorable tax rate.

Our progress on the year to date basis was outstanding with comparable. Growth, above our mid-term Targets on all metrics.

Organik net revenue, growth of plus 7.5% or around plus 9%, excluding the Indonesia technical impact was driven by the same factor as the quarter.

Emmanuel Babeau: Our year-to-date adjusted effective tax rate was 1% lower than our forecast of around 22% rate for the year, with a higher rate expected in Q4. Turning to shipment volumes, where we again delivered positive growth of +0.7% in Q3, or +1.8% on a year-to-date basis. Q3 smoke-free volume growth of +16.6% was underpinned by the strong fundamentals of IQOS, where HTU shipments grew +15.5% to 41 billion units, above our prior expectation, even when excluding a shipment timing benefit of around 1 billion units. On a year-to-date basis, HTU shipment grew +12%. The excellent volume trajectory of both ZYN and VEEV was again accurate to smoke-free product growth in both Q3 and year-to-date, notably including U.S. ZYN. Cigarette volumes declined by 3.2% in Q3, close to the more favorable end of our 3% to 4% forecast decline for H2, and reflecting better than expected dynamics in Turkey and Egypt.

Adjusted operating income grew by 12.5% organically and close to 14%. In dollar terms, it reached $12.7 billion, enabling EPS growth of 16%, both including and excluding currency impact.

22% rate for the year with a higher rate, expected in Q4.

Turning to shipment volumes where we again delivered positive growth of Plus 0.7% in Q3, or Plus 1.8% on the year to date basis.

Q3 smoke, 3 volume growth of plus 16.6% was underpinned by the strong fundamentals of IQOS, where HTU shipments grew plus 15.5% to 41 billion units.

Above our prior expectation. Even when excluding a shipment timing benefit of around, 1 billion unit,

On the year to date basis. Htu shipment group plus 12%.

The excellent volume trajectory of both Zen and Z was again accretive to smoke, contributing to growth in both to 3 and year to date notably, including us Zen.

Cigarette volumes decline by 3.2% in Q3 close to the more favorable end of our 3 to 4% forecast, decline for H2, and reflecting better than expected Dynamics in turkey and Egypt.

Emmanuel Babeau: Turning to Q3 net revenues in more detail, growth of +7.3%, excluding the technical Indonesia impact, reflects the strong smoke-free performance described alongside robust pricing. Total pricing contributed +3.1 points, with combustible pricing of over +8% and a positive IQOS HTU variance, partly offset by the impact of ZYN relaunch promotion in the U.S. The positive mix impact from smoke-free growth drove a further +4.7 points. Combustible geographic mix and other factors had an unfavorable impact of 1.2 points. Currency and scope effect had a positive impact of +3.5 points. The same dynamic drove strong year-to-date top-line growth, as our three pillars of growth, volumes, pricing, and mix, continue to deliver sustainably. Looking at the Q3 performance by category, both smoke-free and combustibles delivered strong gross margin expansion. Q3 smoke-free net revenues grew organically by +13.9% and gross profit by +14.8%, including the short-term impact of 18 U.S. promotions.

Turning to Q3 net revenues in more detail growth of plus, 7.3% excluding the technical Indonesian impact reflect the strong smoke-free performance describes alongside robust pricing.

Total pricing contributed plus 3.1 points with compatible pricing of over plus 8% and a positive icos. Htu variants partly offset by the impact of Zen relaunch promotion, in the US.

The positive mix impact from smokefree growth, drove a further, plus 4.7 points.

Combustible Geographic, mix and other factors at an unfavorable impact of 1.2 points, currency and scope effect at a positive impact of plus 3.5 points.

The same Dynamic drove strong year to date Topline growth as our 3 pillars of growth, volumes pricing and mix continue to deliver sustainably.

Looking at the Q3 performance by category, both smoke-free and combustibles delivered, strong gross margin expansion.

Emmanuel Babeau: Gross margin expanded by +60 basis points to 70% in Q3, exceeding combustible by 3.5 points at the current category and geographic mix. This performance was powered by IQOS, with a combination of strong volumes, pricing scale, and cost efficiency outweighing the dilutive impact of higher device sales in the quarter. While combustible volumes declined by 3%, the business delivered another strong quarter with organic net revenue growth of +1%, or around +3%, excluding the technical impact in Indonesia, and gross profit growing strongly by +4.8%. This performance epitomizes the continued resilience of our combustible business model, with a combination of low single-digit volume decline, robust pricing, and efficiency driving top-line and gross profit growth over time. We are well on track to deliver our target of combustible gross margin expansion organically and in dollar terms for the year.

Q3 smoke 3. Net revenues, grew organically by plus 13.9% and gross profit by plus 14.8%, including the short-term impact of 800, us promotions.

gross margin expanded by plus 60 basis point to 70% in Q3 exceeding combustible by 3.5 points at the current category and Geographic mix

This performance was powered by ICOs, with a combination of strong volumes, pricing scale, and cost efficiency. However, it was impacted by the dilutive effect of higher devices in the quarter.

While combustible volumes declined by 3%, the business delivered, another strong quarter with Organic net revenue, growth of plus 1% or around plus 3%. Excluding the technical impact in Indonesia and gross profit growing strongly by Plus 4.8%.

This performance epitomize, the continued resilience of our combustible business model with a combination of low single digit, volume decline, robust pricing and efficiency, driving Topline and growth profit growth over time.

Emmanuel Babeau: The combination of sustained smoke-free momentum and combustible resilience drove +170 basis points of gross margin expansion overall to reach 67.9%, a record quarterly level since the pandemic recovery of 2021. Our year-to-date performance was outstanding, with the accretive impact of smoke-free growth clearly evident. Smoke-free gross margin expanded by +360 basis points, with IQOS again a significant contributor in addition to ZYN's superior U.S. margin and a growing contribution from VEEV. Combined with a strong combustible performance, we delivered +260 basis points of gross margin expansion for total PMI. Moving down the P&L to OI margin, we delivered +60 basis points of organic expansion in Q3, or +120 basis points in dollar terms to reach an excellent 43.1%. This reflects the +170 basis point gross margin expansion I just covered, partly offset by elevated SG&A cost as flagged last quarter.

we are well on track to deliver our Target of conversable, gross, margin, expansion, organically, and in dollar terms for the year,

The combination of sustained smoke-free momentum and combustible resilience drove an increase of 170 basis points in gross margin expansion, overall reaching 67.9%, a record quarterly level since the pandemic recovery in 2021.

Our year to date performance was outstanding with the accretive impact of small free growth. Clearly evident.

Smoke free gross margin expanded by plus 360 basis points with icos again, a significant contributor. In addition to the superior us margin and a growing contribution from these

Combined with a strong combustible performance. We deliver plus 260 basis points of gross, margin expansion for total PMI

Q3 or plus 120 basis points in dollar term to reach an excellent 43.1.

Emmanuel Babeau: This includes a substantial planned commercial investment in international markets beyond the expansion and brand equity of IQOS, ZYN, and VEEV. It also includes stepped-up marketing and brand investment behind ZYN in the U.S., following the return to full availability and further investment in our U.S. capabilities to support the future growth of ZYN and IQOS. We anticipate SG&A cost will increase slightly more than underlying net revenue for the year, excluding currency, reflecting this strong reinvestment. Ongoing cost efficiency in both cost of goods sold and SG&A partially offset increased investment, and we remain well on track to deliver our planned $2 billion cost-saving objective over 2024-2026. Focusing now on our global smoke-free business, our portfolio is outpacing the industry in the 100 markets where we are present, with over +12% estimated IMS volume growth year-to-date compared to less than 10% for the industry.

This reflect the plus 170 basis point gross margin expansion. I just covered partly offset by elevated sgna cost as flagged last quarter.

This includes a substantial plan for commercial investment in international markets, beyond the expansion and brand equity of ICOs, Zen, and Viv.

It also includes step-up marketing and brand investment behind Zen in the US.

Following the return to full availability and further investment in our us capabilities to support the future growth of Zen and iOS.

We anticipate SG&A costs will increase slightly more than underlying net revenue for the year, excluding currency, reflecting this strong reinvestment.

Ongoing cost efficiency in both cost of goods, sold and sgna partially offset increased Investments. And we remain well on track to deliver our plan 2 billion dollar cost saving objective over 2024 2026.

Focusing now on our Global smokefree business.

Emmanuel Babeau: We estimate our volume share of smoke-free products in this market is around 60%, and our year-to-date share of category growth is more than 10 points higher than this. With our portfolio of leading premium brands, our share of smoke-free in value terms is notably higher than this 60%. Our multi-category portfolio is a key strength as we leverage the equity and reach of IQOS to convert more legal-age nicotine users. IQOS generated more than $11 billion in net revenue last year, and its 75%+ share of the growing global heated tobacco category remains stable despite intensifying competition. ZYN, while still small in comparison, is growing notably faster than the category as we benefit from a strong leadership position in the U.S. and rapid progress in international markets, supported by a differentiated and long-term-oriented portfolio.

Our portfolio is outpacing the industry in the 100 market where we are present, with over 12% estimated IMS volume growth to date, compared to less than 10% for the industry.

We estimate our volume share of smoke products in this market is around 60%.

And our year-to-date share of category growth is more than 10 points higher than this.

With our portfolio of leading premium Brands our share of smoke free. In value term is notably higher than this 60%,

Our multi category portfolio is the key strengths. As we leverage the equity and reach of icos to convert more legal, age nicotine user.

Icos generated more than 11 billion dollar in net revenue, last year.

And it's 75% plus share of the growing Global Tobacco category remains stable despite intensifying competition.

Emmanuel Babeau: The same is true in e-vapor, where brand loyalty and repeat purchase for VEEV is accelerating growth. IQOS delivered a strong Q3 with +9% adjusted IMS growth against a strong prior year comparison, resulting in +10% growth year-to-date. As flagged last quarter, we expect double-digit growth in H2 and +10% to +12% growth in adjusted IMS for the year, including an acceleration in the fourth quarter. This is supported by continuous innovation on devices and consumables, including a high focus on brand engagement, with an example being the rollout of the limited edition Celeti device in Japan, followed by other markets as part of our Curious X campaign. Turning to ZYN, can shipment grew by +36% on a global basis, with a presence now in 47 markets.

Zen was still small. In comparison, it is growing notably faster than the category as we benefit from a strong leadership position in the U.S. and rapid progress in international markets, supported by a differentiated and long-term oriented portfolio.

The same is true in E Vapor where brand loyalty and repeat purchase for Viv is accelerating growth.

Icos delivered, a strong Q3 with plus 9% adjusted. IMS. Growth against a strong prior comparison resulting in plus 10% growth year to date.

As flagged last quarter, we expect double digit growth in H2 and plus 10, to plus 12% growth in adjusted. IMS for the year, including an acceleration in the fourth quarter.

This is supported by continuous innovation on devices and consumables, including a high focus on brand engagement with an example being the rollout of the limited edition selected device in Japan, followed by other markets as part of our Curious X campaign.

Turning to Zen, Chipman grew by plus 36% on a global basis.

Emmanuel Babeau: This includes the Q3 launch in Spain, as well as the rollout of a small-scale pilot in Japan, with ZYN by IQOS building on the strong brand equity and commercial presence of the world's leading smoke-free brand. In the U.S., can shipment grew by +37%, with a strong acceleration in off-tech, which I will come back to. Outside the U.S., can shipment grew +27%, or over +100%, excluding the Nordics, with rapid growth from the U.K., Pakistan, Poland, and South Africa. We continue to enrich our ZYN product offering, including the progressive rollout of lower strength variant as part of our dry lead portfolio, where we observe a substantial increase in repeat purchase for legal-age smokers new to the overall category versus higher strength product. Moving to e-vapor, VEEV's strong momentum continued, with the brand now holding the number one closed pod position in eight markets.

With the presence. Now in 47 Market, this include the Q3 launch in Spain as well as the roll out of small. Scale Pilot in Japan. Within by icos billing on the strong brand equity and Commercial presence of the world's leading smoke-free brand.

In the US can shipment grew by plus 37% with a strong acceleration in of tech which I will come back to outside the US can shipment group, plus 27% or of over plus, 100% excluding the nordics with rapid growth from the UK, Pakistan, Poland, and South Africa.

We continue to enrich, our Zen product offering.

Emmanuel Babeau: We delivered excellent Q3 volume growth of +91%, despite unfavorable regulatory development in Poland. Strong year-to-date volume momentum, including an improved pods-to-kit ratio driven by repeat purchase, drove increasing operating leverage and scale benefit, enhancing profitability. Reviewing now by geography, Europe is the most developed multi-category region, with markets such as Italy, Greece, Spain, and Romania posting excellent growth within all three smoke-free categories. IQOS continued its strong growth trajectory in Q3, with adjusted IMS up +7.3% against a tougher comparison, notably driven by Italy and supported by innovation on new TERRA variants and LIVIA capsules. PMI HTU shares of the combined cigarette and HTU industry increased by +1.2 points to 10.7%, with key cities such as Munich, Rome, and Madrid all posting very strong growth. We expect a nice acceleration in adjusted IMS growth in Q4.

Now holding the number 1 close port position in 8 markets.

We delivered excellent Q3 volume growth of plus 91%, despite unfavorable regulatory developments in Poland.

Strong, year-to-date volume momentum, including an improved ports. To keep ratio driven by repeat purchase drove, increasing, operating, leverage and scale benefit enhancing profitability.

Reviewing. Now, by geography, Europe is the most developed multicultural region, with markets such as Italy, Greece, Spain, and Romania posting excellent growth within all three smoke-free categories.

Icos continued. Its strong growth trajectory in Q3 with adjusted IMS up plus 7.3% against a tougher comparison. Not only driven by Italy and supported by Innovation on newer variants and Livia capsules.

PMI's HTU shares of the combined cigarette and HTU industry increased by 1.2 points to 10.7%.

With key cities such as Munich, Rome, and Madrid all posting very strong growth.

We expect a nice acceleration in adjusted AMS growth in Q4.

Emmanuel Babeau: After numerous launches and expansions across the region in the last one to two years, ZYN's excellent early traction continued with share gains across markets, including Poland, Switzerland, Greece, and the UK. Within e-vapor, the consumer shift to closed pod continued to underpin growth. VEEV volumes doubled, with the brand now holding the number one pods position in seven European markets. In Japan, IQOS continues to grow very robustly, with Q3 adjusted IMS growth of +6%, again against a strong +14% in Q3 last year, and +7.6% on a year-to-date basis. This primarily reflects the category growth rate, with 12-month segment shares stable at around 70%, notwithstanding a very significant step up in competitive commercial investment and intensity, and as in a similar period in the past, some increased trial of discounted competitor product.

After numerous launches and expansions across the region in the last 1 to 2 years.

Ziens, excellent, early. Traction continued with share gains across the market, including Poland, Switzerland, Greece, and the UK.

Within e, Vapor the consumer shift to close part, continue to underpin growth.

The volumes doubled with the brand now holding the number 1 pot position, in 7 European market.

In Japan.

Icos continues to grow very robustly with Q3 adjusted IMS. Growth of plus 6% again against a strong plus 14% in Q3 last year and plus 7.6% on the year to date basis.

Emmanuel Babeau: As mentioned last quarter, IQOS delivered truly exceptional growth in 2023 and 2024, especially considering the size of the category, is approaching half of total nicotine off-take volume nationally, and more than half in 14 of the top 20 cities. The growth that our business has delivered so far in 2025 is essentially in line with the trend in the years prior. Q3 adjusted IQOS HTU share increased 1.8 points year on year to reach 31.7%, as we continue to innovate on IQOS and plant the first seeds of multi-category deployment with the introduction of ZYN in select channels and locations. Turning now to the U.S., which made up around 7% of our global net revenues and 9% of our adjusted operating income year to date. Q3 ZYN volume performance was remarkable, with an acceleration to +39% off-take growth, according to Nielsen, the fastest growth in the last five quarters.

This primarily reflects the category growth rate, who is 12 months segment, share stable at around 70%, notwithstanding a very significant Step Up in competitive commercial investment and intensity. And as in similar period in the past some increased trial of discounted, competitor product,

as mentioned last quarter, iOS delivered, truly exceptional growth in 2023 and 2024

Specifically, considering the size of the category is approaching Alpha, total nicotine in tech, volume nationally, and more than half in 14 of the top 20 cities.

The growth that our business has delivered. So far in 25 is essentially in line with the trend in the Years prior

Q3 adjusted icos htu, share increased 1.8 points year on year to reach 31.7% as we continue to innovate on iOS and plant the first seeds of multi category deployment with introduction of Zen in select channels and locations.

Turning now to the US which made up around 7% of our global net revenues, and 9% of our adjusted operating income year to today.

Emmanuel Babeau: As the fastest growing category in the world's highest value nicotine market, excluding China, we are naturally investing in ZYN and the category's future growth, where the brand continued to hold over 60% share of volume and two-thirds of value. After posting +31% off-take growth across July and August, according to Nielsen, our Q3 growth was amplified in September to +58% by the re-acceleration of marketing and promotional support after several quarters of supply constraint. With the growth of ZYN now close to that of the industry, ZYN captured the majority of Q3 category growth in both volume and value terms, despite a markedly lower average price for the quarter. Indeed, ZYN was the fastest growing brand by dollar retail value across all categories in the U.S. convenient channel on both a Q3 and year-to-date basis, as measured by Nielsen, with PMI U.S.

Q3 zinc. Volume performance was remarkable with an acceleration to plus 39% of tech growth. According to Nielsen, the fastest growth in the last 5 quarters,

As the fastest growing category in the world's highest value. Nicotine Market, excluding China, we are naturally investing in Zen and the categories future growth where the brands continue to hold over 60% share of volume and 23 of value.

after posting plus 31% of tech growth across July and August, according to Nielsen,

our Q3 growth was Amplified in September to plus 58% by the re acceleration of marketing and promotional support after several quarters of supplied constraint,

Emmanuel Babeau: also the same on a manufacturer level as shown here. This emphasizes the strengths and power of the ZYN franchise, with both our retail partners and legal-age nicotine users providing an excellent platform from which to drive further growth. As mentioned, we recently implemented a strong step up in overall marketing and brand building activities to support ZYN's presence at point of sale, brand visibility, brand equity, and relative price positioning. In Q3, this added a notable skew to promotions. In the supply constraint first half of 2025, only around 20% of ZYN volumes were sold on promotion, according to Nielsen, with competitors closer to 50%. With our return to full commercial activity, we expect to maintain a higher level of promotion than H1, as we continue to adapt our marketing mix to provide the appropriate level of support for the brand and the growth of the category.

Anything with PMI us. Also the same on a manufacturer level as shown here.

This emphasized the strength and power of the enfranchised, with both our retail partners and legal age nicotine users providing an excellent platform from which to drive further growth.

As mentioned, we recently implemented a strong step-up in overall marketing and brand-building activities to support these presents at point of sale, brand visibility, brand equity, and relative price positioning.

In Q3 this year, we added a notable skew to promotions.

in the supply conference first, half of 2025 only around 20% of these volumes were sold on promotion according to Nielsen with competitors closer to 50%,

Emmanuel Babeau: We naturally intend to maintain a clear premium positioning for ZYN as the leading premium brand. We also look forward to reporting back on future commercial initiatives, with one example being limited edition variants based on our authorized product range. As part of our re-intensified activities, we also decided to launch a special September promotion to mark ZYN's return to full availability. This offered a free ZYN can for legal-age consumers purchasing other nicotine products in select locations and was designed to target legal-age smokers and other nicotine users to increase awareness and trial. This is in line with ZYN's mission to grow the nicotine pouch category over the coming years, and we are very happy with the result. The vast majority of those accessing the offer were smokers or vapers with improved brand perception and a promising level of repurchase intent.

With our return to full commercial activity, we expect to maintain a higher level of promotion than each 1, as we continue to adapt, our marketing mix to provide the appropriate level of support for the brand and the growth of the category.

We naturally intend to maintain a clear premium positioning for Zen as the leading premium brand. We also look forward to reporting back on future commercial initiatives, with one example being limited edition variants based on our authorized product range.

As a part of our re-intensified availability,

This offered a free zinc can for Legal Edge. Consumers purchasing other nicotine products in select locations were designed to target legal smokers and other nicotine users to increase awareness and trial.

This is in line within the mission to grow the nicotine porch category over the coming years. And we are very happy with the results.

Emmanuel Babeau: This offer accounted for a single-digit percentage of our Q3 shipment. Essentially, all the promotional costs of activating the special free can offer, including retailer incentives, were booked in net revenues in the quarter. This largely explains the lower America top line when volumes were growing. With the accumulation of relaunch activities, this was an exceptional quarter of investment, with around $100 million of Q3 specific investment and reduced revenues linked to restarting our commercial engine. The U.S. nicotine pouch category has been growing at more than 40% over the last 18 months, and today represents a high single-digit percentage of the nicotine market by volume. We believe it has the capacity to become one of the largest categories in the U.S. over the coming years, where we estimate cigarettes are more than 40% of the market and e-vapor in the region of 30%.

The vast majority of those accessing the offer were smokers or Vapors with improved brand perception, and promising level of repurchase intent.

This offer accounted for a single digit percentage of our Q3 shipment.

Essentially, all the promotional cost of activating, the special free can offer including retail incentives were booked in net revenues in the quarter.

this largely explains the lower America's Top Line when volumes were growing,

With the accumulation of relaunch activities. This was an exceptional quarter of investment with around 100 million dollar of Q3 specific investment and reduce revenues linked to restarting. Our commercial engine

The US, nicotine Port category has been growing at more than 40% over the last 18 months, and today represents a high single digit percentage of the nicotine Market by volume.

We believe it has the capacity to become one of the largest categories in the U.S. over the coming years.

Where we estimate cigarettes are more than 40% of the market.

Emmanuel Babeau: ZYN is America's number one smoke-free brand by value, with a franchise which is second to none. We are investing to support ZYN's momentum both within and outside the U.S. We also hope for a positive outcome from the FDA's recently announced plan to streamline the review process for nicotine pouches, which should help clarify and level the playing field. As a reminder, the FDA has only authorized 20 nicotine pouch products to date, all of which are under the ZYN brand, and we expect the TPSAC hearing from ZYN MRTP application in the first quarter of 2026. Altogether, we expect ZYN will continue to be an important growth driver of PMI net revenue and operating income. While the absence of a full commercial program in the first half of this year drove an exceptional level of U.S. profitability, we expect ZYN to continue delivering best-in-class margins within PMI.

And E vapor in the region of 30%.

Zen is America's number 1, smoke-free brand by value with the franchise, which is second to none.

We are investing to support this momentum, both within and outside the U.S.

We also hope for a positive outcome from the FDA's recently announced plan to streamline the review process for nicotine pouches.

Which should help clarify and level the playing field.

As a reminder, the FDA has only authorized 20 nicotine porch product. Today, all of which are under the Zen brand. And we expect the tip, Sac earring, from Zen MRP application, in the first quarter of 2026.

Altogether. We expect Zen will continue to be an important growth driver of PMI, net revenue and operating income.

While the absence of a full commercial program in the first half of this year drove an exceptional level of U.S. profitability.

Emmanuel Babeau: On a more short-term basis, we continue to expect H2 shipment volume growth, broadly in line with off-take growth before channel inventory movement. We anticipate a 20 to 30 million can inventory reduction in the coming months, this impact being effectively delayed from Q3, given strong September promotional activity. We also continue to await the FDA authorization of IQOS ILUMA, which represents by far the most successful product globally in switching cigarette users completely away from smoking. In the meantime, we are continuing with IQOS 3 pilots, including the latest location of Jackson, Mississippi, as we also await the renewal of our IQOS 3 MRTP following the TPSAC meeting earlier this month. Outside of the U.S., Japan, and Europe, all three of our smoke-free categories are delivering dynamic growth, with Q3 shipments up +23% to over 12 billion units.

We expect Zen to continue, delivering best-in-class margins, within PMI.

On a more short-term basis, we continue to expect H2 shipment volume growth broadly in line with pre-channel inventory movement.

Months, this impact being effectively delayed from Q3 given strong September promotional activity.

We also continue to await the FDA authorization of FICO's Illuma, which represents by far the most successful product globally in switching smokers completely away from smoking.

In the meantime, We are continuing with io3 Pilots including the latest location of Jackson Mississippi. As we also await the renewal of our io3. Mrtp following the tips SAC meeting earlier this month.

Emmanuel Babeau: This includes continued strong IQOS performance in South Korea, rapid ZYN growth in Pakistan and South Africa, and very dynamic multi-category growth in global travel retail and Indonesia. We include further IQOS HTU off-take shares in the appendix. Moving to combustibles, our cigarette portfolio continued to demonstrate its resilience, with a strong performance from Marlboro gaining +0.4 points to reach a historic high share of 10.9%. International category share declined in the quarter, largely driven by Turkey, following supply chain disruption earlier in the year. However, our share is recovering well sequentially and was essentially stable year to date. Q3 pricing of +8.3% came in better than expected, with contribution from all regions and notably from Indonesia, Australia, Turkey, and Germany. While this was partially offset by unfavorable geographic mix, we now forecast full-year pricing a little above +7%, with a slowdown in Q3 as expected due to timing factors.

Outside of the U.S., Japan, and Europe, all three of our small free categories are delivering dynamic growth, with Q3 shipments up plus 23% to over 12 billion units.

This includes continued strong ICOs performance in South Carroll, South Korea.

Rapids in growth in Pakistan and South Africa, and very Dynamic Multicultural growth in Global Travel, retail and Indonesia.

We include further ICOs. Key city of tech shares in the appendix.

Moving to combustibles our CGI. Portfolio continued to demonstrate its resilience with a strong performance from Malborough gaining plus 0.4 points to reach a historic High share of 10.9%.

International category, share decline in the quarter. Largely driven by turkey following supply chain disruption earlier in the year.

However, our share is recovering, well, sequentially. And was essentially stable year to date.

Q3 pricing of plus 8.3% came in better than expected with contribution from All Region and notably from Indonesia Australia, turkey and Germany.

Emmanuel Babeau: Most importantly, and as covered earlier, our combustible business continues to deliver a very robust contribution, with close to +5% year-to-date gross profit growth. This is fully in line with our objective of maximizing value over time and supporting the growth of our smoke-free business. This brings me to our outlook for the full year. We are on track for a very strong performance with another year of double-digit growth in adjusted operating income and adjusted diluted EPS. This starts with shipments, where we continue to target total PMI growth of around +1%. Our fifth consecutive year of volume growth, including a cigarette decline of around 2%, and smoke-free volume growth of +12% to +14%.

While this was partially upset by an unfavorable geographic mix, we now forecast full-year pricing a little above plus 7%, with a slowdown in Q3 as expected due to timing factors.

Most importantly, and as covered earlier, our combustible business continues to deliver a very robust contribution.

With close to plus 5% year to date growth profit, growth.

This is fully in line with our objective of maximizing the value of time and supporting the growth of our smoke-free business.

This brings me to our outlook for the full year. We are on track for a very strong performance, with another year of double-digit growth in adjusted operating income and adjusted diluted earnings per share.

Emmanuel Babeau: Smoke-free shipment growth is more likely to be in the lower half of this range, factoring in the potential inventory adjustment for ZYN I described, and expected IQOS HTU shipments of close to 38 billion units in Q4. This Q4 HTU forecast includes modestly lower channel inventory and a reversal of around 2 billion units due to timing impact, with HTU shipment growth thus broadly in line with our plus 10% to plus 12% adjusted IMS growth forecast for 2025 overall. We continue to forecast organic net revenue growth of plus 6% to plus 8%, driven by positive volumes, smoke-free mix, and pricing. Consistent with smoke-free volumes and given the top-line impact of U.S. investment, the lower half of this range is also more likely. Excluding the technical impact of Indonesia, our forecast growth would be at or above the high end of our three-year growth algorithm.

This starts with shipments where we continue to Target total PMI growth offer on plus 1%. Our fifth consecutive year of volume growth, including a cigarette decline of around 2% and smoke, free volume growth of plus 12, to plus 14%.

Smoke-free shipment growth is more likely to be in the lower half of this range factoring in the potential inventory, adjustment for the, I described and expected icos htu, shipments of close to 38 billion units in Q4.

This Q4 HTU forecast includes modestly lower channel inventory and a reversal of around $2 billion units, due to timing impacts with HTU shipment growth. Thus, broadly in line with our plus 10, 102 plus 12 adjusted IMS growth forecast for 2025 overall.

We continue to forecast organic net revenue growth of plus 6% to plus 8%, driven by positive volumes, smoke, remix, and pricing.

consistent with the smokefree volumes and given the Topline impact of us investment, the lower half of this range is also more likely

Emmanuel Babeau: We expect another year of double-digit organic operating income progression, where we now forecast plus 10% to plus 11.5% growth for the year, including the same factor as net revenues. We expect this growth to drive strong adjusted OI margin expansion to land firmly back above 40%. This above algorithm growth in a year of strong investment clearly demonstrates the dynamism of our global growth model. We are raising our adjusted diluted EPS forecast to the mid to upper end of our previous currency-neutral growth range at plus 12% to plus 13.5%, which translates into plus 13.5% to plus 15.1% in dollar terms. This includes an estimated $0.10 currency tailwind, and we would expect a similar size tailwind for 2026, all at prevailing exchange rates.

Excluding the technical impact of Indonesia. Our forecast growth would be at or above the high end of our 3 year growth algorithm.

We expect another year of double-digit organic operating income progression, where we now forecast plus 10% to plus 11.5% growth for the year, including the same factor as net revenues.

We expect this growth to drive strong adjusted margin expansion, firmly back above 40%.

This above algorithm growth in a year of strong investment clearly demonstrates the dynamism of our global growth model.

We are raising our adjusted diluted earnings per share forecast to meet the upper end of our previous currency-neutral growth range at plus 12% to plus 13.5%, which translates into plus 13.5% to plus 15.1% in dollar terms.

This includes.

Emmanuel Babeau: The 2025 forecast includes an adjusted effective tax rate of around 22% for the year, based on the latest assessment of tax dynamics and market mix. In Q4, we expect a continued strong performance from our smoke-free business, including an acceleration in IQOS adjusted in-market sales growth. In terms of financial performance, as expected, we anticipate a slower quarter given the dynamic I covered on shipment of IQOS and potentially ZYN, the timing of pricing, and declining volume in combustible, and a higher tax rate. Taking these factors, continued brand investment, and comparison effect into account, we forecast a slower quarter of top-line growth, single-digit organic OI growth, and up to 6% currency-neutral adjusted diluted EPS growth. In addition, we are upgrading our full-year operating cash flow forecast to more than $11.5 billion at prevailing exchange rates and subject to year-end working capital requirements.

An estimated 10% currency tailwind and we would expect a similar size Tailwind for 2026 all at prevailing exchange rates.

The 2025 forecast includes an adjusted tax rate of around 22% for the year based on the latest assessment of tax Dynamic and Market mix.

In Q4, we expect a continued strong performance from our smoke through business.

Including an acceleration in iico, suggested in markets as growth. In terms of financial performance. As expected, we anticipate the slower quarter given the dynamic, I covered on shipment of FICO, and potentially Zen the timing of pricing and declining volume in combustible and higher tax rate.

Taking these factors.

Continued brand investment and comparison effects taken into account, we forecast a slower quarter of topline growth, single-digit organic operating income growth, and up to 6% currency-neutral adjusted diluted EPS growth.

Emmanuel Babeau: This reflects strong full-year profit delivery and cash conversion, and now includes a Q3 dividend payment from our consolidated Canadian affiliate. In terms of our balance sheet, we continue to target further deleveraging in 2025, with euro dollar currency movement, of course, having a potential influence on our ultimate year-end leverage ratio, given our euro debt position. Importantly, we remain on track for our target ratio of around two times net debt to EBITDA by the end of 2026. Given our stronger year-to-date and expected full-year performance, we are well on track to exceed our 2024-2026 CAGR targets, which already represent a best-in-class growth profile within consumer packaged goods. With such strong progress already delivered and an exciting growth outlook over the coming years, we look forward with confidence to 2026 and beyond.

In addition, we are upgrading our full year. Operating cash flow forecasts to more than 11.5 billion at prevailing exchange rate and subject to year end working capital requirement.

This reflects strong, fully your profit delivery and cash conversion. And now includes a Q3 dividend payment from our de Consolidated Canadian affiliate.

In term of our balance sheet, we continue to Target further deleveraging in 2025, with euro dollar, currency movement, of course, having a potential influence on our ultimate year and leverage ratio given our Euro debt position.

Importantly, we remain on track for our Target ratio of around 2 time. Net debt to a BDA by the end of 2026.

Given our stronger year to date and expected full year performance. We are well on track to exceed our 2024 2026 kegger targets which already represent a best-in-class growth profile within consumer. Packaged Goods with such strong progress. Already delivered and an exciting growth Outlook over the coming years.

We look forward with confidence to 2026 and beyond.

Emmanuel Babeau: In summary, our year-to-date performance reflects the strengths and momentum of our global smoke-free business, combined with the resilience of combustibles. Our smoke-free business is increasingly profitable, with IQOS and ZYN leading the way. We remain excited about our future growth potential as we continue to deploy our multi-category strategy and invest in our category-leading premium brands. Our financial model is built on strengths across all categories, complemented by proactive measures on pricing and cost efficiencies. This drives our confidence in strong and sustainable adjusted diluted EPS growth in both currency-neutral and dollar terms. Our focused capital allocation strategy allows us to not only reinvest at the optimal level to support and elevate our smoke-free portfolio, but also to reward our shareholders.

In summary.

Our year-to-date performance reflects the strength and momentum of our global smokefree business, combined with the resilience of combustibles.

Our smoke-free business is increasingly profitable, with ICOS and Zen leading the way.

We remain excited about our future growth potential as we continue to deploy our multicultural strategy and invest in our category-leading premium brands.

Our financial model is built on strengths across all categories. Complemented by proactive measures on pricing and cost efficiencies, this drives our confidence in strong and sustainable adjusted diluted EPS growth in both currency-neutral and dollar terms.

Emmanuel Babeau: In September, we raised our dividend for the 18th consecutive year to $5.88 per share, with growth of +8.9%, the largest increase since 2013, reflecting our strong year-to-date performance and confidence in our outlook. We look forward to further rewarding our shareholders as our transformation continues. Thank you, and we are now very happy to answer your questions.

Our Focus Capital allocation strategy allows us to not only reinvest at the optimal level to support and Elevate our smoke report for you. But also to reward our shareholders.

in September, we raised our dividend for the 18th consecutive year to 5 Dollar 88 per share with growth of plus 8.9%, the largest increase, since 2013, reflecting our strong year to date performance, and confidence in our

Operator: 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 11 again. We again kindly ask that you please limit yourselves to two questions per analyst in the interest of time, and we will take any additional questions if time allows. Please stand by while we compile the Q&A roster. Our first question comes from Eric Serotta with Morgan Stanley. Your line is open.

Outlook.

We look forward to further rewarding our shareholders as our transformation continues.

Thank you. We are now very happy to answer your questions.

As a reminder, to ask a question, please press *1, 1 on your telephone, and wait for your name to be announced.

To withdraw your question, please press star 1 1 again.

We kindly ask that you please limit yourselves to 2 questions per analyst in the interest of time. We will take any additional questions if time allows. Please stand by while we compile the Q&A roster.

Question comes from Eric Soda with Morgan Stanley. Your line is open.

[Analyst 1]: Great. Thanks for the question. I'm hoping to start off with ZYN. I believe previously you said the goal there was to, in the short term, grow in line with the category. I presume that's in volume terms. Could you clarify that? Basically, with sort of the extraordinary promos of September having eased a bit in October, we've seen the scanner data at least weaken in October. Not all that surprising, but maybe a little bit surprising in magnitude. I guess how are things tracking in October versus plan? On the IQOS business, could you provide some additional color on the mismatch between HTU shipments and IMS? I know there was a pretty tough comp on the IMS side of close to 15%. Any additional color there would be helpful into what's driving the overshipment in the quarter.

Great. Thanks for the question. Um hoping to start off with uh Zen. Um, I I believe previously you said the goal, there was to in the short term grow in line with the category. Um, I presume that's in volume terms, could you clarify that? And um, basically with, you know, sort of the extraordinary promos of September having eased a bit in October, we've seen the scanner data at least, uh, weak in in October. Not all that surprising. But maybe a little bit surprising in magnitude. So, you know, I guess how are things tracking in October? Uh,

Versus plan. Uh and then, you know, on the iOS business could you provide some additional color on the mismatch between htu shipments and IMs. I know there was a pretty tough comp on the IMs side of close to 15% um but any additional color there uh would be helpful and to what's driving the over shipment.

Emmanuel Babeau: Thank you, Eric. Good morning, and thank you for your two questions. I'm going to start with ZYN, and thank you maybe for allowing me to precise or repeat some of what I've been saying. Yes, of course, ZYN is the arch leader of nicotine pouches in the U.S., more than 60% market share in volume, two-thirds in value. It is our role, it is our mission to grow the category, to develop the category, to create the awareness of the category. Of course, as a leader, we will benefit from that. As I flagged in my remarks, we see a tremendous potential for the category, which over the last quarters has been growing between 30% and 40%. The dynamism is still there.

In the quarter.

Emmanuel Babeau: Indeed, with our special promotion, and I'm going to come back to this special promotion in a second, we've been further accelerating, I would say, the growth of the category. The dynamism of the category is absolutely tremendous. Of course, we are very happy, as we said, we capture the majority of this growth, both in terms of volume and in terms of value. I think what we've seen during this Q3, and that's the way I would summarize things, is on one side, a normalization that I'm going to explain, and on the other side, let's be clear, I think we wanted to have a kind of blast effect because we were back with full availability. You know, when the leader is back in full force, you just want to let it know. That was a special promotion on the free can.

Thank you Eric. Good morning and thank you for your, your 2 questions. So I'm going to start with within and um and thank you maybe for allowing me to precise or repeat some of what I've been saying. Yes, of course, in is the arch leader of nicotine pouch in the US more than 60% market, share in volume, 23 in value. It is our role. It is our mission to grow the category, to develop the category, to create the awareness of the category. And of course, as the leader, uh, we will benefit from that. And as I, uh, flagged in my remarks, we see a tremendous potential for the category, which over the last, uh, uh, quarters have been growing between 30 and 40% and the dynamism is still there. So, indeed with our special promotion and I'm going to come back to this special promotion in a second. Uh, we've been further accelerating, I would say the growth of the category, but the dynamism of the category is absolutely tremendous and

Of course, we are very happy as a as we said, we we capture the majority of these growth both in term of of volume and in term of of value, I think what we've seen during this Q3. And that's the way I would summarize things is on 1 side. A normalization that I'm going to explain. And on the other side, let's be clear. I think we wanted to have a kind of blast effect because we were back with full availability and, you know, when the leader is back,

Emmanuel Babeau: First of all, let me comment on back to normal. I think people probably did not fully get it, but during a year of limitation in terms of availability for ZYN, we've been, I would say, flying at a level of profitability that was abnormal because the level of promotion was very low. We flagged the fact that in H1, the level of promotion was around 20% on price, when the rest of the category and the standard of the category is more around 50%. It doesn't mean that we're going to go to 50%, but it's just to show the difference. If I look at actually Q3 2024, we were with a single-digit percentage of promotion, so almost no promotion. What has been happening in Q3 is just now that we are back to full availability, we want, of course, to capture our fair share of the growth.

Emmanuel Babeau: We are a premium brand, we're still a premium brand. As I think Jacek flagged a few weeks ago, there was a big level of difference because of this low level of promotional activity and the very, I would say, aggressive discount activity from competition. It was important for us to go to a more normal level of promotional activity, certainly not to close the gap, but just to reduce the gap to a more acceptable level in terms of premium. ZYN remains and will remain a premium brand. This is what I call normalization that happened in Q3. We are going to a normal promotional activity, which is one, not the only, but one of the elements of the mix in order to develop ZYN in the future. Next to that, there was this blast effect I've been mentioning, which is we're back, we're back big time.

Full force. You just want to let it know and that was the special promotion on, on the free can. But first of all, uh, let me comment on on back to normal. I, I think people probably did not fully get it, but during a year of limitation in term of availability for Zen. Uh, we've been, uh, I would say flying at a level of profitability that was abnormal, uh, because the level of promotion was very low. We flagged, the fact that in H1 level of promotion, was around 20% on price, when, uh, the rest of the category and the standard of the category is more around 50%. It doesn't mean that we're going to go to 50%, but it's just to show the difference. But if I look at actually Q3 24, we were with a single digit percentage of promotion, so, almost no promotion. And what has been happening in Q3 is just now that we are back to full availability. Uh, we want, of course, to capture our first

share of the growth. We are a premium brand. We're still a premium brand, but as I think flagged, um, a few weeks ago, there was a big level of difference because of this low level.

Emmanuel Babeau: It's true that we see a mission in ensuring that the category is known, understood, create the awareness, which is still low, you know, in many instances. I think, you know, we can say that around 80% of this free can promotion went to smokers and vapers. We know that the future growth will come notably from converting these smokers, these vapers to nicotine pouch. We were happy to do that, and we are very, very pleased with the feedback we are getting from this promotion. We acknowledge that this is coming at a cost, and I've been flagging in my remarks the fact that restarting this promotion and all this, you know, I would say restart of the machine of pushing ZYN at the right level has been costing around $100 million of reduction in sales. I would say this one, of course, is more exceptional by nature.

And um and I think, you know, we can say that around 80% of this uh free can promotion went to smokers and Vapors and we know that the future growth will come notably from converting these smokers these Vapors to to nicotine porch and we were happy to do that and we are very very pleased with with feedback we are getting from this promotion. Now we acknowledge that this is coming at at the cost and has been flagging in my remarks. The fact that

Emmanuel Babeau: I think really two elements. One, we are now, you know, in a normal situation when in the past quarters we were not in a normal situation in terms of net price positioning, and this kind of one-off special, not necessarily repeatable promotion that happened in Q3. That's for explaining what happened in Q3. You were asking, okay, what has been happening in terms of consumer off-take? Frankly, the first two weeks, I think, have been above 30% or a bit below 30% in terms of consumer off-take. We stay with a very strong growth. Actually, if you look at Q3 without the special free can promotion, we were at 30% plus growth. It seems that we are starting the last quarter on the same strong note as the third quarter in terms of evolution of consumer off-take.

Restarting this promotion. Um, uh and all this, you know, I would say restart of of, of the machine of of pushing Zen at the right. Level has been costing around 100 million of reduction in sales, and I would say this 1, of course, is more exceptional by Nature. So I I think really 2 2 elements 1. We are now, you know, in a normal situation. When in the past quarters, we were not in a normal situation in term of net price positioning, and this kind of 1 of special, uh, not necessarily repeatable, uh, promotion, um, that happened in Q3 so that that's for, uh, explaining what happened in Q3. Now, you were you were asking, okay, what has been happening in term of consumer of tech?

Emmanuel Babeau: Your second question was on IQOS and the difference between shipment and IMS. Yes, at the end of September, we are north of 12%, in fact, in terms of HTU shipment growth, so IQOS consumable shipment growth, when we are much closer to 10% in terms of IMS growth. We expect an acceleration of IMS growth in Q4. Nevertheless, in Q4, we are also expecting to align clearly shipment and IMS. Even, you know, I'm not excluding the possibility to have, as you know, we manage inventory level here and there, to have shipment a bit below IMS for the year. That is what is going to happen in Q4. Of course, that is having an impact on the financial performance on Q4.

So, frankly, the first 2 weeks, I think have been uh, above 30% or a bit below 30%, in term of consumer of tech. We stay with a very strong growth and actually if you look at at Q3 without uh uh, the um, special, uh, free can promotion, we were at 3%. So sorry, 30% plus growth. So, it seems that we are starting the last quarter, uh, on the same strong, note as the third quarter in term of evolution, of consumer of take

Your second question was on iOS, um, and the

difference between

Emmanuel Babeau: We are very pleased with the IQOS performance in terms of IMS, which is really the long-term driver, and many markets where the brand is doing superbly well. Thank you.

at the end of September, we are north of 12%. In fact, in term of htu, uh, shipment growth. So iOS consumable shipment growth, when we are a much closer to 10% in term of IMS growth. So we expect an acceleration of IMS growth in Q4, but nevertheless, uh, in Q4, we are also expecting to align, uh, uh, clearly shipment and IMS. And even, you know, I'm not excluding the possibility to have, uh, as you know, we manage inventory level here and there, uh, to have shipment a bit below IMS for the year. So that's what is going to happen in Q4. And of course, that is having an impact on the financial performance on Q4. But we are very pleased with the high cost performance in term of IMS. Which is really the long-term driver and many Market where the brand is is doing superbly. Well,

Thank you.

Thank you.

[Analyst 1]: Thank you.

Operator: Thank you. Our next question comes from Matthew Smith with Stifel. Your line is open.

[Analyst 2]: Hi, Emmanuel. Thank you for taking my question.

Thank you. Our next question comes from Matt Smith with stifel. Your line is open.

Operator: Good morning, Matt.

[Analyst 2]: Good morning. I wanted to follow up on your commentary regarding the U.S. ZYN business and better understand the comments in the release about expecting ZYN to maintain a best-in-class or best-in-group margin structure relative to the performance we saw here in the third quarter. When you think about the $100 million of investment that took place in the quarter, is that a sustained level of investment, or I should say a normalized level of investment that you face a tough comparison against until this time next year, or are there other considerations we should take into account? Thank you.

Emmanuel Babeau: Sure, Matt. Let me clarify again. The $100 million is a one-off. This is all the cost of this special promotion on one side and relaunching the machine. This is a one-off and non-repeatable. That's one element. The other element, as I said, is the fact that with a new level of promotion activity, that's going to be a normal one. I'm not saying we're going to go to the rest of the category and the competition that is extremely aggressive, but we will have a significantly higher level of promotional activity versus, as I said, 20% in H1 and single-digit in Q3 2024. This is what you should expect in the future. Taking that into account, I'm happy to repeat that we expect ZYN, in this new normal, or in this normal, I would say, situation, to remain very nicely the best-in-class margin in the group.

Hey Manuel, thank you for taking the question. Good morning, good morning. Good morning to follow up on your commentary regarding the US is in business and better. Understand the comments in the release about expecting Zen to maintain uh best-in-class or best in group margin structure, relative to the performance. We saw here in the third quarter, when you think about the hundred million dollars of investment that took place in the quarter, is that a sustained level of investment or or I should say a normalized level of investment that you face a tough comparison against until this time next year or are there. Other considerations who should take into account? Thank you.

Sure. Matt know, let me clarify again, the 1 100 million is 1 of. Okay, so this is all the cost of this special promotion on 1 side and relaunching, the Machine. Uh, so this is, this is 1 off and non- repeatable, so that's 1 element. And then the other element, uh, as I said, you know, is the fact that with a new level of promotion activity, that's going to be a normal 1 again. I'm not saying we're going to go to the, uh, rest of uh, of of the, of the category and the competition that is extremely aggressive, but we will have a significantly higher level

[Analyst 2]: Thank you for that clarification. You talked about the single-digit operating profit growth on an underlying basis in the fourth quarter. Can you provide a little bit more detail behind the drivers behind that? How much of it is related to inventory-related timing for IQOS and ZYN versus investment levels remaining high in the U.S. or other considerations? Thank you. I'll pass it on.

Of promotional activity versus, as I said, 20% in H1 and single digits in Q3 2024. And this is what, you know, you should expect in the future. But taking that into account, I'm happy to repeat that we expect Xin, you know, in this new normal, on this normal, I would say, um, situation to remain, uh, very nicely, the best-in-class margin in the group.

How much of it is related to inventory-related timing for ICOs and Zen versus investment levels remaining high in the U.S. or other considerations? Thank you, and I'll pass it on.

Emmanuel Babeau: Sure, Matt. I mean, the message, if I was to simplify it, is the momentum for the business is going to continue in Q4. In terms of smoke-free portfolio, we expect even IQOS to accelerate. We expect ZYN to continue to grow very fast. Of course, we expect a good performance in the U.S., but it goes beyond the U.S. We also expect VEEV to continue to grow very nicely. In terms of underlying consumer off-take growth, everything is the same. All the elements in terms of margin are exactly the same, and there is nothing changed.

Sure. I mean the message if I was to simplify it is

Emmanuel Babeau: This is really what is going to impact the number, and the reason why Q4 is going to be lower than the first nine months that, of course, are impressive in terms of growth, I would say, at all levels in terms of operating income and adjusted EPS growth, is really this move on inventory. Nothing is changed in the momentum. When it comes to combustible, and you know, it's still 50% plus of the group, we expect to be, again, between 3% to 4% decline in volume. Nothing has changed in our vision of H2. What is going to be a bit less favorable is price increase, because indeed we expect, due to phasing of pricing and so on, a lower Q4. That is going to impact the quarter.

The momentum for the business is going to continue in Q4. So in term of smooth, free portfolio, we expect even iOS to accelerate. We expect Xin to continue to grow very fast. Uh, of course, we expect a good performance in the US but it goes beyond the us. And we also expect this to continue to grow very nicely. So, in term of underlying consumer of tech growth, everything is the same. All the elements in term of margin are exactly the same. Um, and and that that there is nothing change. So this is really what is going to impact the number. And the reason why Q4 is going to be lower than the first 9 months, that of course, are impressive in term of growth. I would say at at all level in term of operating income. And and um, adjusted EPS growth is really this, uh, move on, uh, inventory. Nothing is changed in the momentum when it come to combustible. Um, and, you know, it's still, uh, 50% plus of the group, uh, we

Emmanuel Babeau: I'm not saying it's going to be huge, because we still have nice price increase expected in Q4, but that would be a bit less favorable than the first nine months. Below that, expect us to continue to invest at a significant pace behind our portfolio. The potential of growth is outstanding. We want to maximize, of course, it's coming with investments. I also flagged in my remark that the tax rate will be significantly higher to lend us around 20%, which is our vision today. That is going to be significantly higher in Q4 than for the first nine months to lend us on the 22%. That is also a negative impact for the Q4. To be clear, we're not expecting a change of momentum in the business. You have all this technical impact I've just been describing.

Expect to be again between 3 to 4% decline in volume. So nothing has changed in our vision of H2. What's going to be a bit less? Favorable is price increase. Uh, because indeed we expect, you know, due to phasing of pricing and so on a lower Q4. So that's going to to, to impact, uh, the quarter. So I'm not saying it's going to be huge because we still have nice price increase expected in Q4. But that would be a bit less favorable than the first 9 months. Then below that expect us to continue to invest at a significant Pace behind our portfolio, the growth. Uh, the potential of growth is outstanding, we want to maximize of course, it's coming with investment and then, uh, I also flagged in my remark that the tax rate will be significantly higher uh, to lend us around 20%, Which is our vision today. Uh, so that's going to be significantly higher in Q4 than for the first uh, 9 months to lend us on the, on the 22%. And, um, and

Of that is also a negative impact for the Q4. But to be clear, we're not expecting a change of momentum in the business. You have all these technical impact. Uh, I've just been describing

Operator: Thank you. Our next question comes from Bonnie Herzog with Goldman Sachs. Your line is open.

Thank you.

[Analyst 3]: All right. Thank you. Hi, Emmanuel.

Our next question comes from Bonnie Herzog with Goldman Sachs; your line is open.

Operator: Hi, Emmanuel.

[Analyst 3]: Good morning. I wanted to ask on DINES, you touched on this, but I wanted to clarify a few things. The stepped-up investments in the U.S., is this all ZYN-related, or are you also accelerating spend behind IQOS or the full planned rollout of IQOS ILUMA? Is this in any way a pull forward from next year, or should we expect continued stepped-up spending in the U.S. next year as well? As it relates to DINES, I also want to understand the drivers behind your full-year dollar EPS growth guidance raise, despite the lower operating income growth guidance. What are the drivers below the line? I think I know, but how did those factors change since the beginning of the year?

All right. Thank you. Hi, Emmanuel. I am.

Good morning. I wanted to ask on dyn's um you know you touched on this but I guess I wanted to clarify a few things. You know, the stepped up investments in the US is this all Zen related or are you also accelerating spend behind ieko? So the full plan you know, roll out of Aluma? And you know, is this in any way a pull forward from next year or should we expect continued stepped up, spending in the US next year as well. And then as it relates to guidance I guess. I also want to understand the drivers behind, you know, behind your full year dollar, EPS growth guidance raise, despite the lower, you know, operating income growth guidance, you know, what are the drivers below the line and I think I know. But you know, how did those factors change since the beginning of the year?

Emmanuel Babeau: Sure, Bonnie. On the U.S. step-up of investment, U.S. is a growth market for us. Thank you for giving me the opportunity to repeat that. In the U.S., we are in a unique opportunity. This is a market where we are smoke-free, basically. We have today the leading brand of the most dynamic category. Hopefully, we are getting close to be able to launch IQOS ILUMA, that is an incredibly successful product everywhere in the world. We are convinced that it will be very appealing for the still close to 30 million smokers in this market. This is a market that is incredibly attractive and where we see a lot of growth in the future. Of course, in line with the potential that we see for this market, we are investing significantly in the country. We are, of course, supporting the ZYN potential and the ZYN growth.

Sure. Bonnie. Um,

So in the U.S., we see a step-up in investment. I mean, the U.S. is a growth market for us. Thank you for giving me the opportunity to repeat that. In the U.S., we are in a unique opportunity. This is a market where we are smoke-free. Basically, we have today the leading brand of the...

Emmanuel Babeau: We continue to build the team to be at the right level to promote and develop this very exciting portfolio that is clearly, you are right, impacting 2025. That is also certainly something we will continue in the future. It's not that the investments are stopping in 2025. That will, of course, in all dimensions, commercial presence, marketing investment, but also presence in the country when it comes to capacity to work at the state level with the right people. These are investments that we are making gradually. We are indeed continuing to invest behind IQOS to prepare the launch in the future. All that is absolutely playing in the U.S. and impacting the U.S.

Emmanuel Babeau: On the full-year guidance, yes, obviously everybody understands, if you take the $100 million and the revision, which is really the new element of this Q3 and the revision of the guidance, everybody understands where the revision of the guidance is coming. Can I just nevertheless say that there is still the possibility that we finish above 11%, which was the previous guidance? We'll see how Q4 unfolds. We are raising EPS because, let's be clear, we continue nevertheless to expect a very strong growth of OI. We are also having some, as we explain, slightly positive or better views on the tax rate. I should probably add that interest costs are not evolving in an unfavorable manner, but rather in a favorable manner. We could be a bit better than what we thought initially.

In 25 that will, of course, in all Dimension, commercial presence, marketing investment. Uh, but of course, also presence, um, in the country when it comes to capacity to work, uh, at the state level, with with, with the right people, these are investment that we are making gradually, and we are indeed continuing to invest behind icos to prepare, uh, the launch in in the future. So that all that is absolutely, um, playing in the US and impacting the the US on the full year guidance. So,

Emmanuel Babeau: Fundamentally, let's be clear, the EPS growth, the strong double digit that is coming from the OI growth. That is a powerful engine that we have, and that is powering very neatly the company. I think on the cake, on top of that, indeed, tax seems to be evolving in the right direction.

Yes. Uh, obviously everybody understand, you know, if you take the 100% of this Q3 and the revision of the guidance, everybody understand where the revision of the guidance is coming, can I just nevertheless say that there is still the possibility that we finish above 11%, you know, which was the previous guidance. So, we'll see how Q4 unfold and we are raising EPS, uh, because I mean, let's be clear. We continue nevertheless to expect a very strong growth of OI. Um and we are also having some some as we explained slightly positive, or better views on the tax rate and uh, I I should probably add that uh, uh, interest cost are not uh, evolving in an unfavorable manner, but rather in a favorable manner. So we could be a bit better than what we thought initially, but fundamentally

[Analyst 3]: Okay, that's helpful. Maybe a quick follow-up question on the free can promo on ZYN. Emmanuel, you touched on it. You said it was a success. Did it actually bring in new consumers to the brand? If so, can you give us a sense of what % of the free can promo resulted in new consumers to the brand? I am curious to hear why you chose to run the promo the way you did versus a BOGO. I guess I'm asking because did it result in some of the competitive brands seeing some volume left given your promo, the way it was run? Thank you.

Mentally, let's be clear. The EPS growth, you know, the strong double digit that is coming from the UI growth, okay? That that is a powerful engine that we have. And that is powering very neatly, the, the company. Well, and I think on the cake on on top of that, indeed, you know, tax seems to be evolving in the in the right direction.

Okay, that's how fun. Maybe a quick follow-up question. On the free can promo and then Emmanuel you touched on it. You said it was a success. Did it actually bring in new consumers to the brand? And if so, I mean, can you give us a sense of what percentage of the free can promo, you know, resulted in new consumers to the brand and then I am curious to hear why you chose to run the the promo the way you did versus a BOGO. I guess I'm asking because you know, did you know, it it result in some of the competitive Brands, seeing some volume left given your promo. The way it was run. Thank you.

Emmanuel Babeau: Look, I'm not going to discuss how relevant is our commercial policy. I think we're sharing a lot, frankly, versus that's a remark I was having the other day. I think I was reading what others are saying about what they do. I think we are sharing a lot. On the positive, it is, clearly we'll need some time to have probably the full impact. Clearly, in terms of creating the awareness of the category and of the ZYN brand, the understanding, first testing, we have some feedback. Remember, we stopped this promotion many weeks ago that are extremely positive. Clearly, we are building new customers for ZYN. I'm not able to yet at that stage tell you how much, but clearly there are positive impacts.

Look. Uh, I'm not going to discuss, you know, our relevant is our commercial policy. Um, and I think we're showing a lot frankly versus that's a remark that was, you know, having the other day. I think that's it. I was reading what other are saying about what they do. I think we are sharing a lot. So on, on the positive, it is, you know, it's really, it will will need some time to have, um, uh, probably the the full impact. But still in term of creating the awareness of the category and of the Zen brand, the understanding first testing, uh,

Emmanuel Babeau: On the BOGO versus what we've been doing, we could have a discussion, but let's be back to what was here the objective of this free can objective. That was really, let's make a big splash, let's create the blast. We want people to have a first, I would say, connection with this category. When you do a buy one, get one free, you are applying to your consumer. You're not recruiting, you're not creating awareness for new possible customers. I said, but I'm really happy to repeat, the potential of the nicotine pouch category is enormous. The category is growing very fast. That is the category that has the potential to be one day as big as vaping, why not as big as combustibles.

We have some feedback. And remember, you know, we stopped this promotion but many weeks ago that are extremely positive and clearly, we are building new customer for Zen. I'm not able to yet at that stage. Tell you how much battery they are positive impact, uh, on the the BOGO versus what we've been doing. We could have a a discussion but let's be back to what was here, the objective of this uh free can object is that was really let, make a big splash, let's create the blast. We want people to have a first, I would say connection with this category. When you do a buy 1, get 1 free. I mean, you are applying to your consumer. You're not recruiting. You're not creating awareness for new possible customers.

Emmanuel Babeau: As the leader, it is our role, it is our mission to make it known, to make it understood, and to contribute to the growth of the category. Are we contributing to others, because they also sell nicotine pouch when we grow the nicotine pouch category? Yes, probably. You know what? As the art leader of the category, we are the first beneficial of this promotion. Again, I'm not saying we're going to repeat it every quarter. I'm sure you understood that. It was a kind of exceptional moment, but I think we are very pleased with the results.

I said, but I'm really happy to repeat the potential of the nicotine. The Porsche category is enormous. The category is growing very fast. That is the category that has the potential to be, one day, as big as vaping. Why not? As big as combustible as the leader; it is our role. It is our mission to make it known, to make it understood, and to contribute to the growth of the category. Are we contributing to, uh, others? You know, because they also sell nicotine. Part when we go to the nicotine support category? Yes, probably. But you know what, as the art leader of the category, we are the first beneficiaries of this promotion. Again, I'm not saying we're going to repeat it every quarter. I'm sure you understood that it was a kind of exceptional moment, but, um, I think we are very pleased with it.

[Analyst 3]: All right. Thanks so much, Emmanuel.

Delivery.

Emmanuel Babeau: Thank you.

All right, thanks so much, Manual. Thank you.

Operator: Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Again, that is star 11 to ask a question. Our next question comes from Mirza Faham Ali Baig with UBS Investment Bank. Your line is open.

Thank you. As a reminder, to ask a question, please press *1, 1 on your telephone, and wait for your name to be announced.

Again, at a star, 1, 1 to ask a question.

Our next question.

Um, bike with UBS. Your line is open.

[Analyst 4]: Hi, Emmanuel. Thank you for taking my question.

Emmanuel Babeau: Hello, Faham.

[Analyst 4]: Hey, thanks for taking my questions. The first one from me will start from heated tobacco, and you called out some intensifying competitive activity. I presume you're referring to the two product launches in Japan over the past couple of months that are being supported by heavy promotional activity. I guess the question is, historically, these competitor launches have had a limited impact on IQOS's performance. Do you think it will be similar this time, and that IQOS can maintain its high single-digit growth in Japan?

Hi Emmanuel. Um, thanks.

For taking my question, questions. Um, the first 1, um, for me will will start from here, to Tobacco, um, and you called out some intensifying, um, competitive activity. Um, I presume you're, you're referring to the 2 products in in Japan, um, over the past couple of months, um, that that are being supported by heavy promotion activity. Um, I guess the question is, um, historically. Um, these competitive competitor launches, um, have had a limited impact on on ios's performance. Um, do you think it will be similar this time? Um, and that icus can maintain its high single digit growth in Japan.

Emmanuel Babeau: Thank you for the question, Faham. Look, this is not the first time that we see competition, of course, trying things and coming with innovation and more investment. I think I have to acknowledge that this time it's probably, you know, in some areas taking even more intensity, which frankly, and that would be my first comment, we are happy to see because we've been, during a long period of time, the only one in the industry giving the feeling that we thought that Heat Not Burn was a fantastic category innovation for smokers with the capacity really to convert smokers and, you know, become a big part of the market among smoke-free products and really probably the best solution to convert smokers. It seems that a growing number of players are getting there. They are improving their product. They work on innovation.

Uh, thank you for, uh, for for the question fam. Um, look, this is not the first time that we see competition. Uh, of course, trying things and coming with Innovation and more investment. But I think I have to acknowledge that this time. Um, it's probably, you know, some in in some areas uh, taking even more intensity which frankly and that will be my first comment. Uh we are happy to see because we've been doing a long period of time. The only 1 in the industry giving the feeling that we saw that it not burn was a fantastic category innov.

Emmanuel Babeau: We always thought that, you know, it's a normal development in a category competition would improve and increase their investment. This is happening. At the same time, it's interesting to see that we are in Japan, like in other countries, I mean, we remain extremely stable in terms of overall share of this category. We are north of 75%, and we have been there for the last five, six years, which is quite incredible because, you know, when you have a new segment innovation, normally the leader stays a leader for, you know, a long period of time at a high level, but normally losing, you know, a bit of share as there is other offering and also because lots of this offering is coming at a discounted price and trying to fish at a low price positioning. We are very stable. Actually, Japan is making no exception.

Ation for smokers with the capacity, really to convert smokers and, you know, become a big part of the market among smokefree product. And, and really probably the best solution to, to convert smoker. So, it seems that a growing number of players are getting their, uh, they are improving their product. Um, they work on on Innovation, we always thought that, you know, it's, it's a normal development. In a category competition would improve, um, and increase their investment. This is happening, but at the same time, it's interesting to see that, uh, we are in Japan like in, uh, other country. I mean, we remain extremely stable in term of overall, share of this category, we are north of 75%. And we have been there for the last 5, 6 years, which is quite incredible because, you know, when you have a new segment, Innovation, normally, the leader says the leader for, you know, a long period of time at a high level but normally losing, you know, a bit of

Emmanuel Babeau: You see, and I think we've been showing the data, we are very, very stable in terms of share of the category, which obviously is a tribute to the strengths of IQOS, to the quality of what we offer, which I believe is a unique experience for the consumer. Therefore, I don't want to be complacent, but we certainly believe that we have the capacity to continue to be a strong leader and maintaining very strong leadership in Japan and in other markets. There is certainly for us the vision that Japan will continue to be a market where we can grow very nicely. I'm not going to give a guidance now for 2026, but we certainly see Japan as a growth market for the future.

share as there is other offering and and also because lots of these offering is coming at a discounted price and and trying to fish at a at a low price positioning. Well, we're very stable. And actually Japan is making no exception. You see. And I think we've been showing the data. We, we are very, very stable in term of share of the category which obviously is a tribute to the strength of uh, icos to the quality of what we offer, which I believe is a unique experience for the consumer. And therefore,

Or, uh, I don't want to be complacent, but we certainly believe that. Um, we have the capacity, uh, to continue to be a strong leader, and maintaining very strong leadership in Japan and, um, and in other, um, and in other markets. So,

Emmanuel Babeau: I just want to conclude my comment again, saying it's really good to see that the industry seems to be putting much more resources behind smoke-free globally, and Heat Not Burn in particular. Again, as the leader of this category, we think it's very good news for us. Thank you.

Um, there there is certainly for us the vision that Japan will continue uh, to be uh, a market where we can grow very nicely. I'm not going to give a guidance now for 26, but we certainly Japan as a growth market for the the future. And I just want to conclude, um, my uh, my comment again saying, it's really good to see that the industry seems to be, uh, putting much more resources behind, uh, smoke-free globally, and it's not done in particular. And again, as a leader of this category, we think it's, it's very good news for us.

Thank you.

[Analyst 4]: Thanks.

Um, thanks.

Operator: Thank you. Our last question comes from Damien McNeill with Deutsche Numis. Your line is open.

Emmanuel Babeau: Hi. Thanks, Emmanuel. Just two quick ones from me, please. Just what degree of visibility do you have on the inventory adjustment that you're expecting in Q4? What's the confidence behind that? It's the first question. The second question is, what do you see as the sort of a long-term sustainable price premium for ZYN in the U.S., please? Thank you for your question, Damien. First, on inventory adjustment. I guess your question was both on IQOS and on ZYN. On IQOS, as I said, we are expecting to align our shipment broadly with our in-market sales. We expect acceleration in in-market sales in Q4. We are,

Thank you. And our last question comes from Damian McNeil with Deutsche Numis; your line is open.

Hi. Um, thanks manual.

Just two quick ones from me, please. Just what degree of visibility do you have on the inventory adjustment that you're expecting in Q4? Um, what's the confidence behind that? It's the first question. And then the second question is, what do you see as the sort of long-term sustainable price premium for Zen in the U.S., please?

Operator: Close to 10%, a bit above at the end of September. That will drive the level of adjustment. Plus, as I said, the fact that, you know, notably in Japan and depending on the situation on logistics and how things evolve, we may want to reduce a bit more the level of inventory. I'm not saying it's going to be very material, but that means that we could have shipment even slightly below adjusted in-market sale for the year. We'll see. In my remark, I said that we expect around 2 billion stick adjustment for Q4, so that for IQOS.

Operator: When it comes to ZYN, we flag the fact that, you know, in this market coming back to normal, there was a higher level than normal of inventory at the level of wholesaler and distributor, notably, that we probably expect to adjust in the coming months, 20 to 30 million can. We were actually expecting that to happen at the end of September, but given the fact that we were in high promotional activity, this did not happen. I would tend to believe that it's going to happen in Q4, but what happened in September is pushing me to be a bit more cautious on the certainty that this adjustment that will happen ultimately is going, with 100% certainty, to take place in Q4. That would be nevertheless my expectation. On the ZYN premium level, I mean, of course, that's something very sensitive.

We are, um, uh, close to 10%, uh, available at the end of September. Um, so that, that will drive, uh, the level of adjustment. Plus, as I said the fact that, you know, notably in Japan and depending on the situation on logistic and how things evolved. But we, we may want, we may want to reduce a bit more, uh, the level of inventory. I'm not saying it's going to be very material, but that that mean that we could have shipment even, you know, slightly below, um, adjusted uh, in Market itself for the year we'll see. And in my remark I said that we expect around 2 billion stick, uh, adjustment for for, for Q4. So that that's for, um, icos. When it comes to Zen, um, we we flag the fact that, uh, you know, in in this market, coming back to normal, there was a higher level than normal of inventory at the level of all seller and distributor notably, um, that, um, we probably expect to

To adjust in the coming uh uh months, uh, 20 to 30 million can uh, we were actually expecting that to happen at the end of September, but given the fact that we were in high promotional activities, this did not happen. So, I would tend to believe that this going to happen in Q4, but what happened in September is pushing me to be, um, a bit more cautious on the certainty. That this adjustment that will happen. Ultimately, is going, uh, with 100% starting to to take place in Q4. But that would be nevertheless, uh, my

Operator: You don't expect me to give a number, but I think today's growth of ZYN and the price positioning of ZYN is certainly confirming that ZYN deserves and justifies, given the franchise, the strength of the brand, the emotional connection with the U.S. consumer that is unique, deserves a very nice premium, and we intend to keep a very nice premium in the future. Of course, I won't elaborate on what it is precisely.

My expectation on the Zen uh premium uh, level. I mean of course I mean that's, you know, something very sensitive. You're not expect me to to give a number but I think today is growth of Zen and uh, the the the price positioning of Zen is certainly confirming Zen deserve.

James Bushnell: Yeah, very clear. Thank you, Emmanuel.

And, and, and justify given the franchise, the strength of the brand, the emotional connection with the U.S. consumer that is unique deserves a very nice premium, and we intend to keep a very nice premium in the future. Of course, I want to elaborate on what it is precisely.

Operator: Amen.

Yeah, very clear. Thank you, Emmanuel.

Emmanuel Babeau: Thank you. We do have a follow-up from Mirza Faham Ali Baig with UBS Investment Bank. Your line is open.

Thank you. And we do have a follow-up from for home bike with UBS. Your line is open.

[Analyst 1]: Sorry, Emmanuel. I just had one more question. I do appreciate the operator bringing me back in.

James Bushnell: No problem.

[Analyst 1]: My second question, thanks, Emmanuel. The second question was on the potential launch of ZYN Ultra in the U.S. As you sort of highlighted in your remarks, the FDA confirmed plans to more efficiently review nicotine pouch applications. My question would be, when do you expect this process to potentially conclude? Could you consider launching the product ahead of an approval? It seems like some of your peers are. I just wanted to confirm that this product that is going to be launched, ZYN Ultra, corresponds to the 2021 application covering the six milligram and nine milligram strengths and the ten flavors.

Sorry, Emmanuel, I just, I did have 1 more question. Um, I I do appreciate, um, um, the operator bringing me back in no problem, so my second question. Um, thanks so many help. The second question was on, um, the potential launch of the ultra in the US. So, um, as you sort of highlighted in your remarks, the FDA confirmed plans, um, to more efficiently review, nicotine pouch applications. Uh, my question would be

When do you expect this, um, process to potentially conclude? Um, or could you consider um, um, launching the product ahead of an approval? Um, it seems like some of your peers are and I just wanted to confirm that this product that is going to be launched in Ultra corresponds to the 2021 application, covering the 6 milligram and 9 milligram strength and the 10%

Operator: I'm not going to speculate. I think that the FDA has been communicating on their program to accelerate and give clarity on some of the application that it could accelerate. I'm not going to speculate on what's going to happen, but certainly, we are hoping for the FDA to create a level playing field and ensure that all competitors can come with their product and not be at a disadvantage because some would be on the market and other would not be allowed. That's something that we hope to happen as soon as possible and of course, in the coming months. We are monitoring the situation. We see what other competitors are doing. We are considering all options, but as I said, I don't have anything else to add. Again, for us, expectation of the FDA creating a level playing field is really our ask and our priority.

Well, you know, I'm I'm not going to speculate. I think that FDA has been communicating, you know, on the on on their program to accelerate and give give Clarity uh on um, on on on on on some of application that they could accelerate. Um, so I'm not going to speculate on what's going to happen. But certainly, we are hoping for the FDA to create a Level Playing Field and ensure that all competitors can come with uh, their product and not, you know, be at a disadvantage because because, uh, some would be on, on the, on the market and and other would not be, uh, allowed so, um, that's, um, that, that's something that we hope to happen, uh, as soon as possible. And, and, of course, in the coming months, we are monitoring the situation. We see what other competitors are doing. Uh, we are considering all options, but as I said, I don't have anything else to to to add again for us expectation of the FDA.

Operator: I don't think we ever comment on the characteristic of the ZYN Ultra PMTA, but certainly, these are products that would come with some differentiation versus the ZYN Drive that today enjoy already a PMTA.

[Analyst 1]: Thank you.

Creating a Level Playing Field is really our ask and our priority. Um, I don't think we ever comment on uh, the uh, characteristic of the Zen Ultra pmta. Uh, but um, but but but certainly, these are products that would come with some differentiation versus, uh, the Zen Drive. Uh, that today enjoy already a pmta.

Operator: Thank you.

Thank you.

Thank you.

Emmanuel Babeau: Thank you. This concludes the question and answer session. I would now like to turn it back to management for closing remarks.

Thank you. This concludes the question-and-answer session. I would now like to turn it back to management for closing remarks.

James Bushnell: Thank you very much. That concludes our call today. Thank you for joining us. If you have any follow-up questions, please contact the Investor Relations team. Thank you again and have a great day.

Operator: Thank you. Speak to you soon.

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

Uh thank you very much that concludes our call today. Thank you for joining us and if you have any follow-up questions, please contact the investor relations team. Thank you again and have a great day. Thank you, speak to you soon.

This concludes today's conference call.

Thank you for participating. You may now disconnect.