Q2 2025 Philip Morris International Inc Earnings Call

and thank you for standing by.

Operator: Welcome to the Philip Morris International 2025 Second Quarter Results Conference. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. to ask a question during the session. You will need to press star 1-1 on your tel... You will then hear an automated message advising your hand is... To withdraw your question, please press star 1 1 again.

Good day and thank you for standing by.

Speaker Change: Welcome to the Philip Morris International 2025, second quarter results conference. Call.

Speaker Change: At this time, all participants are in a listen-only mode.

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James Bushnell: Please be advised that today's conference is being I would now like to hand the conference over to your speaker today, James Bushnell, Vice President, Investor Relations. Please go ahead.

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I would now like to hand the conference over to your speaker today. James Bushnell, vice president investor relations. Please go ahead.

James Bushnell: Welcome and good morning. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2025 second quarter results. Press release is available on our website at pmi.com The 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.

Speaker Change: Welcome and good morning. Thank you for joining us earlier. Today, we issued a press release containing detailed information on our 2025 second quarter results.

Speaker Change: Press release is available on our website at pmi.com.

James Bushnell: GAAP measures for non-GAAP financial measures cited in this presentation, are available in Exhibit 99.2 to the company's Form 8K, dated today 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.

Speaker Change: A glossary of terms, including the definition for smoke-free products, as well as adjustments, other calculations. And reconciliations to the most directly comparable us, gaap measures for non-gaap financial measures cited in this presentation are available in exhibit. 99.2 to the company's Form 8K dated today and on our investor relations website.

James Bushnell: I'm joined today by Emmanuel Babeau, Chief Financial... Over to you, Emmanuel.

Speaker Change: to differ materially from projections of forward-looking statements,

Emmanuel Babeau: Thank you, James, and welcome, everyone. We delivered an excellent set of H1 results following another very strong performance in the second quarter of 2025. Top-line dynamism from our Smokefree portfolio which reached a record $4 billion in net revenues. coupled with margin improvements across our business. drove strong double-digit adjusted diluted earning per share growth in both constant currency and dollar per share. The multi-category momentum of our smoke-free business accelerated with the Q2 step-up in off-tech growth for ICOs, ZIN, and VIV. As expected, ICOs delivered another strong performance with heated tobacco units adjusted in market sales growth accelerating to plus 11.4 percent in Q2.

Speaker Change: I'm joined today by Emmanuel babot, Chief Financial Officer over to you Emmanuel.

Emmanuel Babot: Thank you, James, and welcome, everyone.

Emmanuel Babot: We delivered an excellent set of H1 results. Following another very strong performance in the second quarter of 2025.

Emmanuel Babot: Topline dynamism from our smoke report portfolio which which record 4 billion dollar in net revenue used.

Emmanuel Babot: Coupled with margin improvements across our business drove, strong double digit, adjusted diluted, earning per share growth. In both constant currency and the lower terms.

Emmanuel Babot: The multi-category momentum of our smoke-free business accelerated with the Q2 Step Up in of growth for icos, Zen and Viv.

Emmanuel Babeau: This reflects broad-based growth, both globally and in Europe, as markets such as Italy pass the transitory disruption of the characterising flavour ban. then confirm its upward trajectory with a significant acceleration in US consumer of tech growth to plus 26% for Q2 and plus 36% in June as in-store availability improves. Internationally, Q2 nicotine pouch volumes increased plus 65% and almost trebled outside the Nordic. In e-vapor, Veeve continued its remarkable trajectory with shipments more than doubling year-on-year, driving further gross margin expansion. For Combustibles, despite unexpected return to modest volume declines, our business delivered robust top and bottom line performance, reflecting its resilient model led by strong prices.

As expected. I could delivered another strong performance with it. Tobacco, unit, adjusted in market, sales growth accelerating to Plus 11.4% in Q2.

This reflects broad-based growth, both both globally and in Europe as markets such as Italy pass, the transitory disruption of the characterizing flavor band.

Emmanuel Babot: Zen confirm its upward trajectory with a significant acceleration in US consumer of the growth to plus 26% for Q2 and plus 36% in June as in store availability improved.

Emmanuel Babot: Internationally Q2 nicotine part volumes increase plus 65% and almost trebled out as the nordics.

Emmanuel Babot: In E Vapor V continued. Its remarkable trajectory with shipments more than doubling year on year driving further, gross margin expansion.

Emmanuel Babot: For combustibles. Despite an expected return to modest volume declines, our business delivered robust up and bottom line performance reflecting its resilient model led by strong pricing.

Emmanuel Babeau: We continue to generate base-in-class growth across the P&L with high single-digit organic H1 top-line growth and mid-teens adjusted OI growth. to reach a margin of over 41%. This high quality performance reflects the increasing profitability of our three smoke-free categories at scale, operating leverage, and efficiencies combined. These results provide an excellent platform for another year of superior growth.

Emmanuel Babot: We continue to generate based in class growth across the p&l with high single digit organic H1 Topline growth and meetings, adjusted oi growth.

Emmanuel Babot: To reach a margin of over 41%.

Emmanuel Babot: this high quality performance reflects the increasing profitability of our 3, smoke free categories at scale, operating leverage and efficiencies combined,

Emmanuel Babeau: We expect strong smoke-free momentum to continue in H2, while we factor in the exceptional H2-Priya comparison, notably on growing combustible volumes and certain timing. With strong business fundamentals and a slightly more favourable expected tax rate, we are raising our adjusted deleted EPS full year forecast to plus 13 to plus 15% growth or plus 11.5 to plus 13.5% excluding current. Looking at our Q2 financials, we delivered another quarter of shipment volume growth of plus 1.2% and organic top line growth of plus 6.8% or plus 7.1% in dollar terms to reach over 10 billion dollars in quarterly net revenues for the first time.

Emmanuel Babot: These results provide an excellent platform for another year of superior growth. We expect strong smoke-free momentum to continue in H2 while we factor in the exceptional, H2, prior comparison, notably on growing combustible volumes and certain timing factors.

Emmanuel Babot: With strong business fundamentals and a slightly more favorable expected tax rate. We are raising our adjusted deleted EPS fully a forecast, to plus 13, to plus, 15% growth, or plus 11.5 to plus 13.5%, excluding currency.

Emmanuel Babot: Looking at our Q2 financials, we delivered another quarter of shipment volume growth of plus 1.2% and organic Topline growth of Plus 6.8% or Plus 7.1% in dollar terms.

Emmanuel Babeau: Excluding the Indonesia technical impact explained last quarter, organic net revenues grew by more than plus 8%. Adjusted OI grew by plus 14.9% organically, with growing profitability in all categories. Positive smoke-free margin mix and ongoing cost-efficient. Adjusted deleted EPS of $1.91, reflects growth of plus 20% including a favorable currency variance of 2 cents, 4 cents lower than previously guided, mainly due to intercompany transactional impact from currency volatility at period end, including on the Swiss franc.

To reach over 10 billion dollars in quarterly, net revenues for the first time.

Emmanuel Babot: Excluding the Indonesia technical impact explained last quarter organik. Net revenues, grew by more than plus 8%.

I just did oi grew by plus 14.9% organically with growing profitability in all categories.

Emmanuel Babot: Positive smoke-free margin, mix and ongoing cost efficiencies.

Emmanuel Babeau: This better-than-expected EPS delivery notably reflects strong top-line momentum, positive margin evolution in our smoke-free product business, and robust combustible Combining this excellent Q2 with a strong first quarter, we achieved one of our strongest ever H1 performance. Total shipment volumes grew by plus 2.5 percent and organic net revenues by plus 8.4 percent or approximately plus 10 percent, excluding the Indonesia technical impact. Strong performance from both smoke-free and combustibles drove adjusted operating income growth of circa plus 15% in both organic and USD terms to reach $8 billion in total. H1 adjusted diluted EPS was up by plus 17.7% in constant currency and by plus 16.1% in dollar Turning to shipment volumes, we delivered Q2 growth of plus 1.2% and plus 2.5% for the first half, driven by more than plus 13% growth from our smoke-free batch.

Adjusted deleted EPS of $1.91, reflects growth of plus 20%, including a favorable currency variance of 2 cents 4 cents, lower than previously. Guided many due to inter company transactional, impact from currency volatility at per end, including on the Swiss rank.

Emmanuel Babot: This better than expected, EPS, delivery, notably, reflect strong, Topline momentum positive margin evolution in our smokefree product business and robust combustible pricing.

Emmanuel Babot: Combining this excellent Q2 with a strong first quarter, we achieve 1 of our strongest ever H1 performances.

Emmanuel Babot: 10%, excluding the Indonesia technical impact.

Emmanuel Babot: Strong performance from both smoke-free and combustibles drove adjusted operating income growth of sa plus 15% in both organic and USD terms to reach 8 billion in total.

Emmanuel Babot: H1 adjusted deleted EPS was up by Plus 17.7% in constant currency and buy Plus 16.1% in the lower terms.

Emmanuel Babeau: while adjusted in-market sales growth accelerated. Q2 HTU shipment volume grew plus 9.2% to 38.8 billion units, including robust growth in Europe and Japan, as well as promising growth from global markets such as Indonesia, South Korea and global travel regions. H1 HTU shipments increased by plus 10.5%, broadly in line with adjusted in market sales. As mentioned last quarter, our H1 shipments include a Q1 shipment timing benefit of around 1 billion units, which we expect to reverse in the fourth quarter. Oral and e-vapor shipments, again, grew significantly. Cigarette volumes declined modestly in Q2 following the exceptional growth of recent quarters.

Emmanuel Babot: Turning to shipment volumes. We delivered Q2 growth of plus 1.2% and plus 2.5%. For the first half driven by more than plus 13% growth from our smoke-free business.

Emmanuel Babot: While adjusted in market sales growth accelerated.

Q2, htu, shipment volume group, plus 9.2%, to 38.8 billion unit, including robust growth in Europe and Japan as well as promising growth from Global Market, such as Indonesia, South Korea, and Global Travel retail.

H1 htu shipments increased by plus 10.5%. Broadly in line with adjusted in market sales growth.

Emmanuel Babot: as mentioned last quarter, our H1 shipments include a q1 shipment timing benefit of around, 1 billion units, which we expect to reverse in the fourth quarter,

Emmanuel Babot: Overall and evapor shipments. Again, grew significantly.

Emmanuel Babeau: This was primarily due to contraction in Indonesia and in Turkey, where we experienced supply chain issues following a change in regulatory requirements. This resulted in a temporary loss of volume and share with some associated inventory write-downs. We expect a gradual recovery through the remainder of the year, though H2 year-on-year comparisons are still likely to be. in Indonesia, despite a good share performance, a growing illicit segment is impacting both the legal industry and our volumes within it, and this is also likely to extend into We expect our cigarette volumes to decline around 2% for the year, more in line with the historic underlying trend.

Emmanuel Babot: Cigarette volumes decline modestly in Q2 following the except exceptional growth of recent quarters.

Emmanuel Babot: This was a primarily due to contraction in Indonesia. And in Turkey, where we experience supply chain issues, following a change, in regulatory requirements,

Emmanuel Babot: This resulted in a temporary loss of volume and share with some Associated inventory, right Downs.

Emmanuel Babot: We expect a gradual recovery through the remainder of the year, though. H2 year on year, comparison, are still likely to be affected.

Emmanuel Babot: And Indonesia, despite the good share performance, a growing illicit, segment is impacting, both the legal industry and our volumes within it. And this is also likely to extend into H2

Emmanuel Babeau: This includes a forecast decline of 3% to 4% in H2 against the high prior year comparison I mentioned, with Turkey accounting for close to half of this decline. This also factors the continuation of decline in Europe and Japan, as smoke-free products grow strongly, and the dynamic in Indonesia and in Egypt, where the recovery of the main local competitor is ongoing after previous supply constraints. As a testament to the resilience of our combustible model, we are still targeting combustible growth, profit growth in H2, supported by pricing and cost efficiency. For smoke-free products, we anticipate continued double-digit volume growth in H2, including the expected reversal of H1 phasing benefits on iQOO.

Emmanuel Babot: We expect our cigarette volumes to decline around 2% for the year more in line with the historic underlying trend.

Emmanuel Babot: This includes a forecast decline of 3 to 4% in H2 against the high prior year comparison. I mentioned with turkey accounting for close to half of this decline.

Emmanuel Babot: This also Factor the continuation of decline in Europe and Japan as smoke-free product, grow strongly and the dynamic in Indonesia. And in Egypt, where the recovery of the main local competitor is ongoing after previous Supply, constraint.

Emmanuel Babot: As a testament to the resilience of our combustible model, we are still targeting combustible growth profit growth in H2 supported by pricing and cost efficiencies.

Emmanuel Babeau: However, given cigarette dynamics, it is possible that H2 may see modest decline for total PMI volume. Importantly, with the forecast full year increase of around plus one percent, we continue to target our fifth consecutive year of total volume growth, as we do for future years as our smoke-free portfolio continues to drive performance. Breaking the performance down by category, exceptional growth margin and OI growth in Q2 resulted in impressive first-half results powered by our increasingly profitable smoke-free H1 smoke-free net revenue grew organically by plus 17.3% to $8.1 billion and growth profit by plus 27% to $5.6 billion with plus 530 basis points of organic expansion to reach over 70% growth margin.

4 smoke-free products, we anticipate continued, double digit, volume growth in H2, including the expected reversal of H1 facing benefits on iOS.

Emmanuel Babot: However, given cigar Dynamic, it is possible that H2 may seem modest decline for total PMI volumes.

Importantly, with the forecast full year increase of around. Plus 1%, we continue to Target our fifth consecutive year of total volume growth as we do for future years. As our smoke free portfolio continues to drive performance.

Emmanuel Babot: braking the performance down by category, exceptional, gross margin, and oi growth in Q2 resulted in impressive, first half results, powered by our increasingly profitable smoke-free business,

H1, smoke-free net revenue, grew organically by plus 17.3%, to 8.1 billion.

And growth profit by plus 27% to 5.6 billion with.

Emmanuel Babeau: This is around 4.5 points above the gross margin of combustible at the current category and geography. As in 2024, this reflects continued margin expansion for all three smoke-free categories, notably combined with the positive mixed impact of the accretive unit economic and pricing on both H2Us and ZIN. Very strong high-cost growth margin expansion reflect the powerful growth and scale effect of this large and growing business, manufacturing productivities, and a comparison benefit from higher device shipment in the prior year when ILUMA-I was launched in Japan and other markets. We expect strong margin to continue in H2, albeit without the device year-on-year comparison benefit, as we also further expand the presence of Illuma Eye across market and bonds in Indonesia.

Emmanuel Babot: Plus 530 basis, point of organic expansion to reach over 70%, gross margin.

Emmanuel Babot: this is around 4.5 points, above, the gross margin of combustible at the current category and Geographics

Emmanuel Babot: as in 2020.

Emmanuel Babot: Creative unique economic and pricing on both htu and Zen.

Emmanuel Babot: Very strong icos gross margin expansion, reflect the powerful growth and scale effect of this large and growing business manufacturing productivities and a comparison benefit from higher device shipment in the prior year when iluma I was launched in Japan and other markets.

Emmanuel Babot: We expect strong margin to continue in H2 albeit without the device year-on-year comparison benefit. As we also further expand the presence of iluma I across Market and Bones in Indonesia.

Emmanuel Babeau: Combustible net revenues increased by plus 2.9% or more than 5%, excluding the Indonesia technical impact. Gross profit grew by plus 5%, driving plus 140 basis points of margin expansion, despite the financial impact of the Turkey crisis. This includes a robust Q2 with organic net revenue growth of plus 2% and gross profit growth of plus 4.8%. This performance epitomises the resilience of our ongoing combustible business model, with low single-digit volume declines, robust pricing and efficiencies, combining to deliver top-line and gross profit growth over time. continue to target combustible gross margin expansion organically and in dollar term for the year despite slower pricing and weaker volume in it.

Emmanuel Babot: combustible net revenues increased by plus 2.9% or more than 5%, excluding the Indonesia technical impact

Emmanuel Babot: Gross profit grew by plus 5% driving plus 140 basis point of margin expansion, despite the financial impact of the turkey disruption.

Emmanuel Babot: This includes a robust Q2 with Organic net revenue, growth of plus 2% and gross profit growth of Plus 4.8%.

Emmanuel Babot: This performance epitomize the resilience of our ongoing combustible business model with low, single digit, volume declines, robust pricing and efficiencies combining to deliver Topline and growth profit growth over time.

Emmanuel Babeau: combination of sustained smoke-free momentum and combustible resilience led to plus 15.4% H1 organic OI growth at total PMI level resulting in plus 250 basis points of operating income margin expansion to surpass 41%. H1 net revenue growth of plus 8.4% was again fueled by the three engines of our top-line growth model. Positive Volumes, Robust Pricing, and Favorable Smoke Frames. Pricing contributed plus 5.2 points, driven by combustible pricing of plus 7.7%, and low single-digit smoke-free pricing excluding devices. The positive mixed impact of rapid SFP growth drove a further contribution of plus 3.1 points. Combustible geographic mix and other factors had an unfavorable impact of 2.4 points, including the Indonesia technical impact of around 1.5.

we continue to Target combustible gross margin, extension organically, and in dollar term, for the year, despite slower pricing and weaker volume in H2

Emmanuel Babot: The combination of sustained. Smoke, free, momentum and combustible resilience.

Emmanuel Babot: led to plus 15.4% H1 organic oi growth at total PMI level resulting in plus 250 basis points of operating income margin expansion to surpass 41%

Emmanuel Babot: H1, net revenue, growth of plus 8.4% was again fueled by the 3 engines of our Topline growth model.

Emmanuel Babot: With positive volumes, robust pricing and favorable, smoke remix.

Emmanuel Babot: Pricing contributed, plus 5.2 points, driven by combustible pricing of plus 7.7% and low single digit, smoke-free pricing, excluding devices.

Emmanuel Babot: The positive mix impact of Rapid SFP growth drove further contribution of plus 3.1 points.

Emmanuel Babeau: currency at a negative impact of 1.5 pounds, with a further 0.4 points from acquisition and divestitures, which include the divestment of Ektora. Turning now to gross margins, we delivered H1 organic expansion of plus 300 basis points and plus 320 basis points, including currency acquisition and divestiture. Pricing made a plus 160 basis point contribution, more than offsetting the 60 basis point unfavorable impact from cost inflation, net of productivity, and other. Smoke-free growth drove an excellent plus 190 basis points, reflecting the factors I covered earlier. The impact of combustible was broadly flat, excluding pricing, but including the Indonesian Below growth profit, we continue to invest strongly in the future growth of our smoke-free brand, including in the US, with SG&A organic growth of plus 10.6% for H1, marginally above net revenue growth, excluding the technical impact of Indonesia.

Emmanuel Babot: Combustible Geographic mix and other factors add an unfavorable impact of 2.4 points, including the Indonesia technical impact of around 1.5 points.

Emmanuel Babot: Currency at negative impact of 1.5 pounds with the further, 0.4 points from acquisition and divestitures, which include the diverse.

Emmanuel Babot: Turning now to gross margins, we delivered H1 organic expansion of plus 300 basis point. And plus, 320 basis point, including currency, acquisition and diverse teachers.

Emmanuel Babot: Pricing made a plus 160 basis point contribution, more than upsetting the 60 basis point, unfavorable impact from cost inflation, net of productivity and other cost items.

Smoke free growth, drove an excellent. Plus, 190 basis, points reflecting the factors I covered earlier.

Emmanuel Babot: The impact of combustible was broadly flat excluding pricing, but including the Indonesian impact.

Below gross profit. We continue to invest strongly in the future growth of our smoke free Brands, including in the US with sgna Organic growth of Plus 10.6% for H1 marginally above net revenue growth. Excluding the technical impact of Indonesia.

Emmanuel Babeau: We achieve more than $500 million in gross cost savings year-to-date through our manufacturing and back-office efficiency initiatives. Now at the midpoint of our target 24-26 period, we have delivered over $1.2 billion, placing us well on track towards our $2 billion objective. Altogether, we grossed margin expansion more than compensating for higher year-on-year commercial investment. We delivered plus 290 basis points of adjusted operating income margin expansion in H1, or plus 250 basis points organically. Q2 organic OI margin expansion of plus 300 basis points was even stronger than the plus 200 basis points in our first quarter. Focusing now on our smoke-free business, where our multi-category strategy is facilitating the continuous growth of our smoke-free user base.

Emmanuel Babot: We achieve more than 500 million dollar in growth cost, saving year to date.

Emmanuel Babot: Through our manufacturing and back office efficiency initiatives.

Emmanuel Babot: Now at the midpoint of our Target 20426 period, we have delivered over 1.2 billion dollar placing us well on track towards our 2 billion dollar objective.

Emmanuel Babot: All together, we grow margin expansion more than compensating for higher year-on-year. Commercial Investments. We delivered plus 290 basis point of adjusted operating income margin expansion in H1 or plus 250 basis points, organically

Emmanuel Babot: Q2 organic or margin expansion of plus 300 basis points was even stronger than the plus 200 basis point in our first quarter.

Emmanuel Babeau: Estimated legal age consumer of our SFPs grew by approximately 5 million versus one year ago, reaching around 41.5 million as of June the 30th. Our smoke-free products are now available in 97 markets following the Q2 launch of Zin in Ireland and Cambodia. Almost half of these markets now have a multi-category offer with at least two of ICOs, Zin and Viv on sale to legal-edge nicotine users. As shown on this slide, we now have all three categories deployed in 20 markets as we continue to broaden our multi-category presence. The regulatory environment is a key enabler of smoke-free growth, and I'm pleased to report some more examples of positive progress, such as legislation providing new market access for one or more SFP categories across several Middle East markets.

Emmanuel Babot: Focusing. Now on our smoke-free business, where our multi category strategy is facilitating The Continuous growth of our smoke-free user base.

Estimated legal Edge, consumer of our sfps, grew by approximately 5 million versus 1 year ago. Reaching around 41.5 million as of June the 30th.

Emmanuel Babot: Our smoke-free products are now available in 97 markets following the Q2 launch of the in Ireland and Cambodia.

Emmanuel Babot: Almost half of these markets. Now have a multi-category offer with at least 2 of icos Zen and Viv on sale to Legal Edge nicotine user.

Emmanuel Babot: Soon on this slide we now have all 3 category deployed in 20 Market. As we continue to broaden our multi category presence.

The regulatory environment is a key enabler of smoke-free growth and I'm pleased to report some more example of positive progress. Such as legislation providing new market access for 1 or more SFP category across several Middle East Market.

Emmanuel Babeau: We also note the recently published proposal to revise the EU Tobacco Excise Directive, which marks the start of a formal legislative process that will require unanimous approval by all Member States and subsequent transposition into national law. Many member states have already adopted risk-proportionate regulation and taxation frameworks for smoke-free products, which can serve as a valuable foundation and benchmark for shaping the final directives. While we know the clear differentiation for smoke-free products relative to combustible in the proposed minimum rates, we are also disappointed to observe the lack of a plan to counter the threat of illicit trade, which accounted for 9.2% of total EU cigarette consumption in 2024, with governments losing over 14 billion euros in tax revenue at a time when many countries face intense economic pressure.

We also know the recently published proposal to revise the EU tobacco. Excise directive.

Emmanuel Babot: Which marked the start of a formal legislative process that will require unanimous approval by all member states and subsequent transposition into National Law.

Many member states have already adopted risk. Proportionate regulation and Taxation Frameworks for small free product which can serve as a valuable foundation and Benchmark for shipping the final directory.

Emmanuel Babot: While we know the clear differentiation for smoke free product relative to combustible in the proposed minimum rate. We are also disappointed to observe the lack of a plan to counter the threat of illicit trade, which accounted for 9.2% of total EU. Cigarette consumption in 2024 with governments losing over 14 billion Euro in tax revenue at a time when many countries faced intense economic pressure.

Emmanuel Babeau: Our multi-category approach is built on the strength of the brand and commercial presence of ICOs, which remains our core smoke-free product growth engine. We continue to be laser-focused on maximizing the growth of ICOS over time with the deployment of Zin and Vive under its umbrella, offering complementary opportunities to fully transition legal-edge nicotine users from cigarettes to SFPs. In this context, I'm especially pleased to confirm the acceleration in ICOS-HTU adjusted in-market sales growth to plus 11.4% in Q2, notably driven by Europe, and including excellent progress in its largest market of Italy, as the impact of the characterising Flavoban recedes, and our commercial initiatives be of Japan also delivered another robust quarter of growth, and other global markets accelerated nicely.

Emmanuel Babot: Our multi-category approach is built on the strength of the brand and Commercial presence of icos which remains our core smokefree product growth engine.

Emmanuel Babot: We continue to be laser focused on maximizing. The growth of icos over time with the deployment of Zen and Viv under its umbrella, offering complimentary opportunities to fully transition, legal Edge, nicotine user from cigarette to sfps.

Emmanuel Babot: In this context, I'm especially pleased to confirm the acceleration in, iOS htu adjusted in market sales growth to Plus 11.4% in Q2, notably driven by Europe and including excellent progress in its largest market of Italy as the impact of the characterizing. Flavor band. Recedes.

Emmanuel Babot: And our commercial initiatives, be a fruit. Japan also delivered another robust quarter of growth and other Global markets, accelerated nicely

Emmanuel Babeau: While competitive activity is increasing, we see this as positive for category growth over time, and we expect continued strong high-cost progress in HR. continue to target plus 10 to plus 12 percent HTU-adjusted IMS growth for the year. Continuous high-cost innovation on devices and consumables, combined with investment in brand equity, are fundamental pillars of our growth. The rollout of the Illuma Eye technology, now present in over 30 markets, remains ongoing. We are expanding the portfolio of Livia tobacco-free consumables with promising initial results from recently launched new test variants and flavor combinations. We also commenced the rollout of a revamped pack design on our co-premium Terea HTUs, as well as the expansion of our mainstream price offering Delia, with excellent results in markets such as Germany and Poland.

While competitive activity is increasing, we see this as positive for category growth over time and we expect continuous strong icos progress in H2.

Emmanuel Babot: We continue to Target plus 10 to plus 12%, htu, adjusted IMS growth for the year.

Continuous iOS Innovation, on devices and consumables combined with investment in brand Equity are fundamental pillars of our growth.

Emmanuel Babot: The rollout of the iluma. I technology now, present in over 30 markets remains ongoing

Emmanuel Babot: We are expanding the portfolio of Livia. Tobacco free consumable with promising. Initial results. From Recently, launched new test variants and favor capsules.

We also comments the rollout of a rhythm pack design on our core premium carrier HT use as well as the expansion of our mainstream price offering Delia with excellent result in markets such as Germany and Poland.

Emmanuel Babeau: In the US, we continue with small-scale ICO3 pilots, which are generating considerable adult consumer interest. As we progress our commercial pilot in Austin, we also launch a second pilot in Fort Lauderdale during the quarter with further initiative plan in the coming months as we prepare for the at-scale launch of ICOS ILUMA once authorized by the FDA. Our second flagship premium smoke-free brand, Zin, leads a category which has the potential to fundamentally reshape the consumption of nicotine for the substantial net benefit of global public health as adult smokers increasingly switch to smoke-free products. Q2 can shipments grew by plus 43% on a global basis, and off-tech re-accelerated strongly in the U.S., which I'll come back to in more detail.

Emmanuel Babot: In the US, we continue with small scale icos 3 Pilots which are generating considerable adult consumer interest.

Emmanuel Babot: As we progress our commercial pilot in Osteen, we also launched a second pilot in Fort loaded Del during the quarter with further initiative plan in the coming months, as we prepare for the at scale, launch of iOS iluma once authorized by the FDA.

Emmanuel Babot: Our second Flagship premium smoke free brand Zen leads a category which has a potential to fundamentally reshape the consumption of nicotine, for the substantial net, benefit of global Public Health, as adult smokers increasingly switch to smoke free product.

Emmanuel Babot: Q2 can shipments grew by plus 43% on the global basis.

Emmanuel Babeau: Building on the newest strengths. Our global rollout continues to advance with Q2, international can volume up plus 65% year-on-year or a remarkable plus 179% excluding the Nord. The growth of our international business reflects both market expansion and strong off-tech growth, supported by expanding production capacity in new geographies. Notable strong performances include our global travel retail business with close to plus 200% volume excluding the US as well as the UK, Pakistan, Poland, South Africa and Mexico. as covered in our recent Europe Focus event. Our focus is on growing the category by switching legal edge smokers rather than sourcing from the small existing category.

Emmanuel Babot: And off Tech react strongly in the EU, in the US, which I'll come back to in more detail.

Emmanuel Babot: Building on the US strengths.

Emmanuel Babot: our Global rollout, continue to advance with Q2 International can volume up plus 65% year on year or a remarkable plus 179%, excluding the nordics

Emmanuel Babot: the growth of our international business, reflects both Market expansion, and strong of the growth supported by expanding production capacity in New geographies,

Emmanuel Babot: Notable strong performances include our Global Travel retail business.

Emmanuel Babot: With close to plus 200% volume, excluding the us as well as the UK Pakistan Poland, South Africa, and Mexico.

Emmanuel Babot: As covered in our recent Europe, Focus event.

Emmanuel Babeau: It is also notable that Zin holds the number one position in Mexico and South Africa, where we launched our predominantly mini dry portfolio at the same time as competitor brands. Dry pouches already make up the majority of our pouch volumes in more than three-quarters of the market, and we believe this format is especially relevant for legal-age smartphones. Zinn is now present in 44 markets globally, following additional launches in Canada. Our Smokefree Trilogy is completed by VIVE. H1 shipment volumes more than doubled to reach almost 1.5 billion equivalent units. with increasingly profitable growth driven by Europe, where VIV now holds the number one closed-pod position in six markets, including Italy and Greece.

Emmanuel Babot: Our focus is on growing the category by switching legal Edge smokers rather than sourcing from the small existing category.

Emmanuel Babot: It is also notable that Zen all the number 1 position in Mexico and South Africa, where we launched, our predominantly mini dry portfolio. At the same time as competitor brands,

Dry pouches already make up the majority of our pouch volumes in more than 3/4 of Zen market. And we believe this format is especially relevant for legal age smokers.

Emmanuel Babot: Zen is now present in 44 Market globally, following additional launches in Q2.

Emmanuel Babot: I was more free Trilogy is completed by this, H1 shipment, volumes more than double to reach almost 1.5 billion equivalent unit.

Emmanuel Babeau: outside Europe, we see significant potential for the brand with nice results in diverse markets such as Indonesia, Canada and Colombia and further rollout. Increasing repeat purchase rates and consumer loyalty are especially promising as we seek to leverage our multi-category infrastructure under the ICOS umbrella of quality, premiumness, and superior technology. In this vein, we recently launched our latest innovation, Viv in Prime, in the Czech Republic. In Prime offers an upgraded premium user experience with higher intensity of flavors, a larger cloud size, and higher battery capacity with an optimized podcast. The most developed multi-category consumer landscape is in Europe and we now have 30 markets with at least two categories on offer.

Emmanuel Babot: With increasingly profitable growth driven by Europe where these now all the number 1 close Port position in 6 Market, including Italy and Greece.

Emmanuel Babot: Outside Europe, we see significant potential for the brand with nice results in diverse Market such as Indonesia, Canada, and Columbia and further roll out plan.

Emmanuel Babot: Increasing, repeat purchase rates and consumer. Loyalty are especially promising as we seek to leverage our multi-category infrastructure Under the icos Umbrella of quality premiums and Superior technology.

Emmanuel Babot: In this vein, we recently launched our latest Innovation V. In Prime in the Czech Republic, in Prime offers an upgraded premium, user experience with higher intensity of levels, a larger Cloud size and higher battery capacity with an optimized podcast profile.

Emmanuel Babeau: Of course, ICOs remain the core driver of our performance in the region, and I'm delighted to report a meaningful Q2 acceleration of HTU adjusted in-market sales growth to plus 9.1%, as adjusted market share grew by plus 1.2 points year-on-year to 10.9% in this seasonally higher period for competition. As explained at our recent Europe event, ICOS has a very strong brand platform across the region and this performance reflects our innovation and commercial initiatives including those on Illumii, Livia and Delia. This helped drive strong double-digit adjusted IMS growth across markets including Germany, Spain, Romania, Greece, and Bulgaria.

Emmanuel Babot: The most developed multi category consumer, landscape is in Europe. And we now have 30 markets with at least 2 categories on offer.

Emmanuel Babot: Of course, iOS Remains The Core driver of our performance in the region. And I'm delighted to report a meaningful Q2 acceleration of htu adjusted in market sales growth to plus 9.1% as adjusted market. Share grew by plus 1.2 points year on Year to 10.9% in this seasonally higher period for combustibles.

as explained at our recent Europe event, iOS has a very strong brand platform across the region and this performance reflect our Innovation and Commercial initiative, including those on iluma, I Libya and Delia

Emmanuel Babeau: A significant Q2 call-out is Italy, Europe's largest high-cost market by volume, which delivered a very welcome uptick in both sequential and year-on-year growth. With the exception of Poland, Austria, Estonia, and Croatia, the impact of the EU characterizing flavor ban is now behind us. And our absolute regional growth in HTU-adjusted AMS is now getting closer to pre-ban level. While quarterly comparisons from 2024 have some volatility from flavor band dynamics, sequential trends are very positive and we look forward to the remainder of the year with confidence in further strong high-cost growth. On top of this high-cost progression, the accretion from our multi-category strategy is evident in our total volume of high-cost Zin and Viv, with shipment growth of plus 13.5% in Q2, compared to HDUs alone at plus 10.5%.

Emmanuel Babot: this helped Drive strong double digit, adjusted IMS growth across Market, including Germany, Spain, Romania, Greece, and Bulgaria,

Emmanuel Babot: A significant Q2 call out is Italy Europe's largest icos market by volume, which delivered a very welcome uptick in both sequential and year-on-year growth.

Emmanuel Babot: While quarterly comparison from 2024 have some volatility from Flavor band Dynamics. Sequential Trends are very positive and we look forward to the remainder of the year with confidence, in further strong iico growth.

Emmanuel Babeau: Zin and Viv are still very early in their development, but are demonstrating exceptional growth. The numbers you see here are for Europe overall. And I would also note that where we are present with all three brands, such as Italy, Greece, Poland, and Romania, we see several points higher SFP volume growth. In Japan, we achieved a significant milestone of 10 million estimated users and Q2 adjusted HTU shares increased plus 2.3 percentage point year-on-year to 31.7 percent despite increased competitive intensity. ICOS continues to deliver strong progress with Q2 adjusted IMS growth of plus 7.8% against a prior year period which included the full launch of ILUMA-I.

Emmanuel Babot: On top of this icos progression, the accretion from our multi category strategy. Is evident in our total volume of icos Zen and Viv with shipment growth of Plus 13.5% in Q2 compared to HT use alone at Plus 10.5%.

Emmanuel Babot: Zen and Viv are still very early in their development, but are demonstrating exceptional growth.

Emmanuel Babot: The number you see here are for Europe overall. And I would also note that where we are present with all 3 Brands, such as Italy, Greece, Poland and Romania. We see several points, higher SFP, volume growth,

Emmanuel Babot: Japan.

Emmanuel Babot: This is the significant Milestone of 10 million, estimated users and 22. Adjusted htu shares, increase plus 2.3 percentage Point year on year to 31.7% despite increase competitive intensity.

Emmanuel Babeau: As shown on the slide, ICOs delivered truly exceptional growth in 2023 and 2024. especially considering the size of the category now stands at almost half of total nicotine of tech volume nationally and more than half in certainty. The high single-digit growth that our business delivered in H1 2025 remained very healthy and is essentially in line with the trend in the years prior. We expect further strong adjusted IMS growth in the remainder of the year. We are pleased to see our competitors embrace the heat not burn category, as while our category share was sequentially stable at around 70% in Q2, our biggest focus is on accelerating the size of smoke-free products overall to maximize the growth of our leading proposition and convert more smoke.

Emmanuel Babot: I could continue to deliver strong progress with Q2 adjusted IMS, growth of plus 7.8% against a prior year period, which included the full launch of iluma. I

Emmanuel Babot: As shown on the slide, I could deliver truly exceptional growth in 23 and 24.

Emmanuel Babot: especially considering the size of the category now stands at almost half of total, nicotine of tech, volume nationally, and more than half in certain cities,

the high single digit growth that our business delivered in H1 2025.

Emmanuel Babot: remains very healthy and is essentially in line with the trend in the Years prior

we expect further strong, adjusted IMS growth in the remainder of the year.

We are pleased to see our competitors embrace. It it not burn category. As while our category share was sequentially stable at around 70% in Q2 our biggest focus is on accelerating the size of small pre-product overall, to maximize the growth of our leading proposition and convert more smokers.

Emmanuel Babeau: Switching now to the U.S. The strong re-acceleration in Zin of Tech Growth is a clear highlight of our Q2 performance and testament to the strength of the brand as in-store availability improves and legal edge consumers regain access to the full Zin portfolio offering. The supply constraint of previous quarters had limited the growth in sell-out volumes and meant Zin was growing less than the overall category.

Emmanuel Babot: switching, now to the US,

Emmanuel Babot: The strong re acceleration in Zen of the growth is a clear highlight of our Q2, performance and testament to the strength of the brand. As in store, availability, improves and illegal Edge, consumers, regain access to the full Zen portfolio offering.

Emmanuel Babeau: with manufacturing capacity now in very good shape. The recovery to around plus 36% of tech volume growth in June, as measured by Nielsen, and plus 26% in Q2 overall, marks the return of Zin to its category driving position in terms of growth and market share. On a sequential basis, Zin-Ovtech volume accelerated to around plus 12% growth versus Q1, in line with the total category. with a number of commercial programs restarting at the end of the quarter.

Emmanuel Babot: The supply constraint of previous quarters had limited the growth in sellout volumes and meant Zen was growing less than the overall category.

Emmanuel Babot: With manufacturing capacity. Now in very good shape, the recovery to around plus 36% of tech growing growth in June, as measured by Nielsen and plus 26% in Q2 overall, Mark the return of Zen to its category driving position in terms of growth and market share

Emmanuel Babot: On the sequential basis. Zen of tech volume accelerated to around plus 12% growth versus q1 in line with the total category.

Emmanuel Babeau: This is clearly very promising as we increasingly focus on legal edge smokers and vapors who have not yet switched to the category. Q2 shipments increased plus 41% year-on-year, reaching 190 million cans. As with any out-of-stock situation, quarterly shipments are subject to volatility. restocking of the value chain was effectively completed in H1, with the majority of this taking place in the first quarter. We estimate the total net impact at broadly 14 million cans for the year, slightly below our initial expectations. This factors in the good news that retail availability is now approaching normalized level, with a lower scarcity premium in retail prices narrowing the price gap to competition.

Emmanuel Babot: With a number of commercial program. Restarting at the end of the quarter this is clearly very promising as we increasingly focus on legal Edge smoker and Vapors who have not yet switched to the category.

Q2 shipments increased plus 41% year-on-year, reaching 190 million cans.

Emmanuel Babot: As with any out of stock situation.

Emmanuel Babot: Quarterly shipments are subject to volatility.

Emmanuel Babot: Restocking of the value chain was effectively completed in H1 with a majority of this taking place in the first quarter.

Emmanuel Babot: We estimate the total net impact at broadly, 14 million cans for the year slightly below our initial expectation.

Emmanuel Babeau: Importantly, sales velocities are accelerating and with 36% of tech growth in June, this bodes well for the second half of the year. With shipments now primarily driven by consumer of tech, we expect a broadly similar level of shipment in Q3 as in Q2, factoring in the possibility of a few days' adjustment to wholesaler and distributor inventory as the situation fully normalizes. We continue to target full-year U.S. shipments of 800 to 840 million cans, including a sequential step-up in Q4.

Emmanuel Babot: This factors in the good news that retail availability is now approaching normalized level with a lower capacity premium in retail prices, narrowing the price Gap to competition.

Emmanuel Babot: Importantly sales velocity are accelerating and we 36% of the growth in June these boats. Well for the second half of the year.

Emmanuel Babot: Few days adjustment to wholesaler and distributor inventory as the situation fully normalized.

Emmanuel Babot: We continue to Target full year us, shipment of 800 to 814 million cans, including a sequential Step Up in Q4.

Emmanuel Babeau: With our U.S.

Emmanuel Babeau: production capacity increase ahead of plan and now well set for this year and beyond, we are incredibly excited to drive Zin and the overall nicotine pouch category to its full potential over the coming Having covered Europe, Japan and the US in some detail, let's look at the rest of the world.

Emmanuel Babot: With our us production capacity increased ahead of plan and now, well said for this year and Beyond, we are incredibly excited to drive in and the overall nicotine pouch category to its full potential of the coming years.

Emmanuel Babeau: In most markets, both the nicotine pouch category and our multi-category presence are nascent. Both ZIN and ZIV will leverage on the strength of ICOs, where Q2 adjusted in-market sales accelerated to plus 19.3% growth, with broad-based progress including Egypt, the Philippines and Indonesia. While pouch and e-vapor volumes are naturally very small across this market at this stage, we can measure their Q2 growth in multiples rather than percentages. This impressive high-cost growth is exemplified by off-tech share gains in global key cities. strong presence in South Korea and Malaysia, is more than matched by key cities in Mexico, Serbia, the Middle East, and North Africa.

Emmanuel Babot: Having covered Europe, Japan and the US in some detail. Let's look at the rest of the world.

Emmanuel Babot: In most markets, both the nicotine Port category and our multi-category, presence are nent.

Emmanuel Babot: Both Zen and V will leverage on the strength of icos where Q2 adjusted in market sales, accelerate accelerated to plus 19.3% growth with broad-based progress, including Egypt, the Philippine and Indonesia.

Emmanuel Babot: While pouch and E Vapor volumes are naturally very small across this Market. At this stage, we can measure their Q2 growth in multiple rather than percentages.

This impressive icos, growth is exemplified by of tech share games in global cities.

Emmanuel Babeau: Global travel retail, where multi-category is increasingly prominent, also continues to grow strongly. The world's largest cigarette market by volume outside China is Indonesia, where Jakarta's off-tech share grew by plus 2.5 points year-on-year to 7.5%. Following promising results from the pilot launch of our full-flavor heat-not-burn technology, Bonds, which is tailored to local credit test preferences, we have recently commenced a broader rollout. Bond is also progressing well in Lebanon. Turning to combustible, our business delivered robust organic net revenue growth of 2% in Q2 and plus 2.9% for H1, with Marlboro reaching a post-spin category share high of 10.7% in Q2.

Strong presence in South Korea, and Malaysia is more than matched by key city in Mexico. Serbia, the Middle East and North Africa.

Emmanuel Babeau: Strong Q2 pricing of plus 7.2% included notable contributions from Indonesia, Germany, and Italy, yielding plus 7.7% in H1 overall. While we continue to expect a moderation in H2 pricing due to timing and comparison dynamics, we now forecast plus 6 to plus 7 percent for the full year. Our strategy is to take pricing action to optimize the financial contribution to the business over time, which can naturally impact volume and share performance on the quarterly base. Our combustible business is resilient and the combination of pricing, category leadership and ongoing efficiencies drove very good growth, profit growth, as covered earlier.

Emmanuel Babot: Turning to combustible our business delivered robust organik. Net revenue growth of 2% in Q2 and plus 2.9% for H1 with Malborough, reaching a post pin category share high of 10.7% in Q2.

Emmanuel Babot: Strong Q2 pricing of plus 7.2% included, notable contribution from Indonesia Germany and Italy yielding Plus 7.7% in H1 overall.

Emmanuel Babot: While we continue to expect the moderation in H2, pricing due to timing and comparison dynamic.

Emmanuel Babot: We now forecast plus 6 to plus 7% for the full year.

Emmanuel Babot: Our strategy is to take pricing action to optimize the financial contribution to the business over time, which can naturally impact volume and share performance on the quarterly basis.

Emmanuel Babeau: This performance is in line with our objective of maximizing value over time and supporting the growth of our smoke-free business.

Emmanuel Babot: Our combustible business is resilient and the combination of pricing category leadership and ongoing efficiencies drove very good growth profit growth as covered earlier.

Emmanuel Babot: This performance is in line with our objective of maximizing value over time and supporting the growth of our smoke-free business.

Emmanuel Babeau: This brings me to our revised outlook for a remarkable 2025 where we are raising our adjusted deleted EPS forecast for the year in both currency neutral and dollar ten. As expected, we delivered a strong H1 organic performance compared to our target ranges for the full year. While combustible volume dynamics and the phasing of comparison and cost are less favorable in H2, our fundamental outlook remains very good. We expect continued strong momentum on both ICOS and ZIN alongside robust pricing and meaningful margin improvement. We expect further double-digit HTU-adjusted IMS progression, with growth skewed to the fourth quarter, given a strong comparison in Q3.

This brings me to our revised outlook for a remarkable 2025, where we are, raising our adjusted deleted EPS forecast for the year in both.

Emmanuel Babot: Currency neutral and dollar terms.

As expected.

Emmanuel Babot: We delivered a strong H1 organic performance compared to our Target, ranges for the full year.

Emmanuel Babot: While combustible volume Dynamic and the phasing of comparison and cost are less favorable. In H2, our fundamental Outlook remains very good.

Emmanuel Babot: We expect continued strong momentum on both iOS and Xin alongside robust practicing and meaningful margin Improvement.

Emmanuel Babeau: We forecast Q3 HTU shipment of 38.5 to 39.5 billion and dynamic growth in adjusted deleted EPS to $2.08 to $2.13 including strong investment and a favorable currency variance of 5 cents at prevailing for the full year. We continue to expect very strong organic net revenue growth in the range of plus six to plus 8%. Following excellent H1 top-line dynamism and margin progression, we are raising our forecast range for organic operating income growth to plus 11 percent to plus 12.5 percent. We are also raising our currency neutral adjusted diluted EPS growth to plus 11.5 to plus 13.5%.

We expect further double digit htu adjusted IMS progression with growth skewed to the fourth quarter. Given a strong comparison in Q3

We forecast, Q3 htu shipment of 38.5 to 39.5 billion.

Emmanuel Babot: for the full year, we continue to expect very strong organic, net revenue growth in the range of plus 6, to, plus 8%

Emmanuel Babot: Following excellent, H1 Topline, dynamism and margin progression. We are raising our forecast range for organic operating income growth to plus 11% to plus 12.5%.

Emmanuel Babeau: This includes a slightly improved effective corporate tax rate of approximately 22 to 23 percent based on the latest assessment of tax dynamic and market needs.

We are also raising our currency neutral, adjusted deleted EPS growth to plus 11.5 to Plus 13.5%.

Emmanuel Babeau: We are still reviewing the implication of the OBBB Act U.S. tax reform. In dollar terms, we expect adjusted diluted EPS growth of plus 13 to plus 15%. This includes an estimated 10 cent favorable currency impact at prevailing exchange rate with favorable earning translation from a broadly weaker dollar partly offset by transactional impact due to currency volatility which I covered earlier. Given our expectation for a strong full-year profit delivery and cash conversion, we are raising our forecast for operating cash flow to around $11.5 billion at prevailing exchange rate and subject to year-end working capital requirements. We project capital expenditure slightly above our prior forecast at around $1.6 billion.

This include a slightly improved effective, corporate tax rate of approximately 22 to 23% based on the latest assessment of tax Dynamic and Market mix.

Emmanuel Babot: We are still reviewing the implication of the obv ACT us tax reform.

Emmanuel Babot: In dollar terms, we expect adjusted diluted EPS growth of plus 13 to plus 15%.

Emmanuel Babot: This includes an estimated 10%, favorable currency impact at prevailing exchange rate, with favorable earning translation from the broadly weaker dollar partly offset by transactional impact due to currency volatility, which I covered earlier.

Emmanuel Babot: Given our expectation for a strong fully, a profit delivery and cash conversion. We are raising our forecast for operating cash flow to around 11.5 billion at prevailing action rate and subject to a year and working capital requirement.

Emmanuel Babeau: primarily due to further international ZIN capacity investment, with CAPEX spend almost entirely focused on supporting the growth of smog.

Emmanuel Babot: We project capital expenditure slightly above our prior forecast at around 1.6 billion dollar.

Emmanuel Babot: Primarily due to further International Zen capacity, investment with capex, spend almost entirely focused on supporting the growth of smoke free.

Emmanuel Babeau: With regard to our balance sheet, we continue to target further deleveraging in 2025, placing us on track for our target ratio of around two times by the end of 2026. As mentioned last quarter, we are a global company with broadly diversified production and a worldwide supplier network, including an established US manufacturing base, and we believe we are well positioned to mitigate potential supply chain challenges. While the situation is volatile, we do not currently anticipate a material impact on our business from recently introduced or discussed tariffs. Our financial growth model is driving a continuous improvement in the quality of our business, with smoke-free accretion and combustible resilience driving considerable bottom-line growth.

Emmanuel Babot: With regard to our balance sheet. We continue to Target further deleveraging in 2025 placing us on track for an our Target ratio of around 2 time by the end of 2026.

Emmanuel Babot: As mentioned last quarter, we are a global company with broadly Diversified production and a worldwide supplier Network, including an established us manufacturing base and we believe we are well positioned to mitigate potential supply chain challenges.

Emmanuel Babot: While the situation is volatile, we do not currently anticipate a material impact on our business.

From recently introduced or discussed tariff.

Emmanuel Babot: Our financial gross model is driving a continuous Improvement in the quality of our business.

Emmanuel Babeau: We are well on track to meet or exceed our three-year cargo targets, demonstrating our ability to deliver what we believe to be best-in-class CPG growth. Adjusted Diluted EPS Growth in Dollar Term is a key objective, and we are pleased to see this delivered in H1 as well as in our outlook for the year.

Emmanuel Babot: We smoke free accretion and combustible resilience driving considerable bottom line growth.

Emmanuel Babot: We are well on track to meet or exceed. Our 3 year, cargo targets, demonstrating our ability to deliver what we believe to be best-in-class, cpg growth.

At just a deleted, EPS growth in dollar term, is a key objective. And we are pleased to see this delivered in H1, as well as, in our outlook for the year.

Emmanuel Babeau: I will now conclude today's presentation with some closing remarks. We delivered an exceptional first half of the year, placing us well on track for another year of strong performance. Our small pre-growth is increasingly profitable as ICOs, ZIN and ZIV gain scale and drive synergies at the consumer and commercial level.

Emmanuel Babot: I will now conclude today's presentation with some closing remarks.

We delivered, an exceptional first half of the Year placing us well on track for another year of strong performance.

Emmanuel Babeau: Our best-in-class financial performance is bolstered by underlying strengths across all categories, including the resilience of our combustible business in addition to our proactive measures on pricing and cost-effectiveness. This drives our confidence in strong and sustainable adjusted diluted EPS growth in both currency neutral and dollar.

Emmanuel Babot: Our small free growth is increasingly profitable as iOS Zen, and these gain scale and drive synergies at the consumer and Commercial level.

Emmanuel Babot: Our best-in-class financial performance is bolstered by underlying strengths across all categories, including the resilience of our combustible business. In addition to our proactive measures on pricing and cost efficiencies

Emmanuel Babeau: Finally, we remain a highly cash-generative business with an unwavering commitment to our progressive dividend policy. We look forward to further rewarding our shareholders as our transformation delivers continued growth.

Emmanuel Babot: this drives our confident in strong and sustainable adjusted diluted EPS growth in both currency neutral and the large terms,

Operator: Thank you and we are now very happy to answer your questions. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. stand by while we compile the Q&A room.

Emmanuel Babot: Finally, we remain a highly cash generated business with an unwavering commitment to our Progressive dividend policy. We look forward to further rewarding our shareholder as our transformation delivers continued growth.

Thank you. And we are now very happy to answer your questions.

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

Emmanuel Babot: To withdraw your question. Please press star 1 1, again please, stand by while we compile the Q&A roster.

Gaurav Jain: Our first question comes from Gaurav Jain with Barclays, your line is open. Good morning, Emmanuel. Good morning, Gaurav.

Our first question comes from grav, Jane with Barclays. Your line is open.

Speaker Change: Running around. Um,

uh, thank you, uh, for taking my question. So a few questions from me 1 is on Zen

Speaker Change: So, you know, you are saying that restock was less than what you had expected. So how should 1 read it that? Um, your expectations for future growth, they were higher earlier and now they are lower and not only yours but the market expectations were higher and now they are lower.

Emmanuel Babeau: And in that context, if I look at your ZIN volume guides, if I say 3Q is flat versus 2Q, And in 4Q, you need to do 219 to 259 million times for that 800 to 840 guide range, which would imply almost 15% to 36% growth on a QOQ basis. And I remember from covering Swedish match, you know, a few years ago that Q4 actually used to have lesser shifts. for them, so they didn't really used to grow Q4 over Q3. Can you just help me understand all the moving parts from here? Sure.

Speaker Change: And that's why the need for restock is lower.

Speaker Change: Uh and in that context, if I look at your Xin volume guide. So if I say 3Q is flat versus 2 Q,

Then in 4k, you need to do 219 to 2.59 million cans for that 800 to 840, uh guide range which would imply almost 15% to 36% growth on the QQQ basis. And I remember from covering Swedish match, you know a few years ago that Q4 actually used to have lesser shipping days for them, so they didn't really used to grow queue for over Q3.

Speaker Change: Can you just uh helped me understand all the moving parts from Zen?

Speaker Change: A sugar with, with great pleasure. So first of all, on, uh, the impact of the restoring. Well, let's be a bit humble here. Uh, we talked about a brand that we're targeting to deliver for the year, 800 to 840 million can, uh, there are several weeks, uh, of, uh, inventory between wholesaler distributor and the retailers. I'm not able to tell you. Precise number is probably

Speaker Change: Anywhere between let's say 6 to 7 weeks all together and here we are talking when you say it's a bit lower. Uh, I mean it's clear that, you know, for instance, at the retailer level. We had no precise idea of the level of inventory. So we are a bit below. Uh, our expectation. If I was, uh, you know, to give a number it's probably maybe 10, 20 million can below frankly, I'm not able to be more specific than that. We are talking about a few days of sales so it's really small. So that's really what we're talking about. And again, we've been facing this significant out of stock situation. We had the exercise of reloading, the good news that it's behind us. We made a few assumption on what it would mean in term of restocking. Okay, we've been probably a bit higher with this what the what was really needed, but this is it. So I don't think there is anything else to be read uh there. Um, and at the end of the day, I think we should focus on what is really important, which is the Great.

Dynamism that Zen is facing now that there is full availability. Indeed, June was growing 36% in terms of consumer of take, according to Nielsen. If I look at the first 2 weeks of July, we are north of 37%. I think the market is a bit about 39%, so basically, we are growing now in line with the market. So it just shows that we have absolutely resume a strong momentum. And that, of course, both very well for the future as

Speaker Change: At the same time, as I mentioned, we are really restarting. Promotional advertising commercial activity in a 360 degree matters, I would say. So that that's really, uh, what I think is important on the sequence. So, you know, in, in my remark I noted the fact that there may be some adjustment, you know, as as people have been maybe buying Zen, uh, in in a kind of mindset of, uh, shortages and we think they could be some adjustment on the volume here and there in Q3, uh, so that can impact, uh, the Q3 performance. And then we say there is um, a step up in Q4 at the end of the day, we are now in a dynamic where we are quarter on quarter growing nicely. Um, I think the growth in the second quarter, 12% versus q1 was uh by far the biggest sequential growth quarter on quarter since the first quarter of 2024. So we are absolutely

Speaker Change: Back to renewed dynamism and we are growing fast here on Year. And that what is driving our expectation, uh, for uh, volume growth in, uh, in in the next, uh, in the next month.

Emmanuel Babeau: And my second question is just on EUTD, like you referenced, you know, a few comments, but could you help us understand in more detail, like what exactly are the proposals in terms of different tax rates on NGP products? and yeah there is any update on EUTPD as well.

Shared and um my second question is just on eupd like you reference you know, a few comments but could you help us understand in more detail like what exactly are the proposals in terms of different tax rates on NGP products?

Emmanuel Babeau: So, Gaurav, I'm not going to elaborate on the initial proposal. We are at the beginning of a long process. Last time, it was 2010, 2011. It took two years, I think, from the beginning to the end. A lot of discussion will happen. I reminded everybody that it requires a unanimity from the parties. So, I'm not going to comment on things until there is more clarity on what's going to happen. The process has started. There will be several steps. As I said last time, it took almost two years. And of course, when we have more clarity on what is really likely to happen, then of course, at that moment, we'll comment the implication.

Speaker Change: um, and and if there is any of that on utpd as well,

Emmanuel Babeau: In my remarks, I noted the two points which are important for us for the time being. One is the fact that the initial proposal is indeed coming with differentiation between smoke-free and combustible when it comes to minimum taxation. So, that's an important element. And the second, that as an element which we hope will be improved, obviously, there is nothing when it comes to illicit, which is, I think, a real question for the European Union to tackle. That's what we can say for the time being.

Speaker Change: Um, reminded everybody that it requires unanimity from the parties. So I'm not going to um, comment on uh, things until, you know, there is more clarity on what's going to happen. The process, it started. Um, there will be several step. As I said last time it took almost 2 years. And of course, when we have, uh, more clarity on what is really likely to, uh, to happen. Then, of course, at that moment, we'll we'll come in the implication in my remarks. I noted the 2 points which are important for us, for the time being 1 is the fact that the initial proposal is indeed coming with differentiation between small free and and combustible when it comes to minimum taxation. Uh, so that's an important element and the second that as a, as an element which we hope will be improved, uh, obviously that there is nothing when it comes to elicit, which is, I think a real question for the European Union to tackle, that's what we

Speaker Change: can say, for the time being,

Gaurav Jain: Thank you so much. Thank you.

Thank you so much. Thank you.

Eric Serotta: Our next question comes from Eric Serotta with Morgan Stanley. Your line is open. Great. Thanks, Emmanuel. Good morning, Eric. Good morning.

Speaker Change: Thank you. Our next question comes from Eric Sado with Morgan Stanley. Your line is open.

Speaker Change: Great, thanks. Um, Emmanuel, um,

Eric Serotta: A couple of questions. First, in terms of ICOS, ILUMA, U.S. approval timing, I think you said, you mentioned, you know, launch once authorized by the FDA. Are you guys still sticking to your expectation of a second half authorization, realizing it's not something you have control over?

Emmanuel Babeau: And then second, when you look at international ICOS, can you talk a bit about some of the drivers of the re-acceleration in IMS and sort of the sustainability for the second half of the year? Thank you. Sure, Eric. So first, on the US, so, I mean, we don't have anything new to report on the potential PMTA for ICOS-ELUMA. I think everybody can see that FDA is resuming activity on PMTA, and that's good news. As far as we are concerned, and this is public information, there is now for the renewal of the MRTP on ICO-3, there is a Tobacco Product Scientific Advisory Committee that has been scheduled.

Eric Sado: Good question. Good morning. Um, couple of questions first, uh, in terms of iOS, uh, Aluma us approval timing. Um, I think you said, um, you mentioned, you know, um, launch once authorized by uh, the FDA are you guys still sticking to your expectation of a second half? Authorization, realizing it's not something you have control over and then second um when you look at International icos, can you?

Eric Sado: Talk a bit about uh some of the drivers of the re acceleration in IMS and sort of the sustainability for the second half of the Year. Thank you.

Emmanuel Babeau: They have also opened a docket for Zin MRTP, so a number of things are happening, and that's what we know for the time being. So I have nothing new to report on the PMTA for ICOS-ELUMA. We are still hoping for an approval in H2, but we are also at the same time acknowledging the fact that the agenda and the workload for the FDA is very heavy, and therefore it is clear that we don't have a certainty that we will get this PMTA in 2025, and that could move, of course, to 2025.

Speaker Change: Sure, Eric. So first on on the US, so I mean we don't have anything new to report on the potential pmta for, uh, for for iOS iluma. Um, I think everybody can see that FDA is resuming activity on, uh, pmta and that's good news as far as we are concerned, and this is public information. There is, uh, now for the renewal of the MTP on io3, there is a tobacco product scientific advisory committee that has been scheduled. They have also

Speaker Change: Open a docket for a Zen mrtp. So, a number of things are happening, um, and, um, and that's what we we, we, we know, for, for the time being. So I, I have nothing new to report on, uh, the pmta for iOS Luma we are still hoping for an approval in H2, but we are also at the same time, acknowledging. The fact that, uh, the uh, agenda and the work load for the FDA is is um is very heavy. Um, and therefore uh it is clear that we don't have a certainty that we will give we will get this pnta in 25 and um and and and and that could move of course to 2026.

Emmanuel Babeau: On the second question, on the reason for the acceleration of FICO's... I mentioned I think many of them. I think it's really, you know, Europe, where you have now the effect of the characterizing flavor ban that are waning and a number of markets reaccelerating. Some markets doing really, you know, very strong performance. I mentioned some of them like Spain, Germany, Romania, Bulgaria. It's great to see Italy reaccelerating as well. So I would say momentum is rebuilding. Now, there will be some phasing last year on the performance in Europe, but I think we are expecting a nice performance overall for H2.

Speaker Change: On the second question on the reason for, um, the acceleration of icos.

I I mentioned I think many of them, I think it's really you know, Europe where you have now the effect of the characterizing flavor ban that are waning and a number of markets re accelerating some Market is doing really, you know, very strong performance. I I mentioned some of them like, uh, Spain, Germany, Romania Bulgaria. It's great to see Italy react, as well. So, I would say momentum is rebuilding now. There will be some, uh, phasing last year on the performance, in Europe, but I think we are expecting a, a nice performance overall.

Emmanuel Babeau: And outside Europe, we expect continued very nice performance from Japan, and I've been elaborating on the trend there, where we continue to do very well. And there are all these new growth markets that are super exciting. And of course, you know, global travel retail is one of them. But Indonesia, many countries in the Gulf region, Mexico, Philippines, I mean, these are plenty of markets where we see very nice growth trajectory and growth potential for ICOS. And in this new growth market, the momentum, I would say, is progressively building.

Speaker Change: 4 H2, um, and outside, uh, Europe. We expect continued very nice performance from Japan and I've been elaborating on the trend there, uh, where we continue to do very well and there are all these new gross Market that are super exciting. Um, and um, of course, you know, Global Travel retail is 1 of them. But uh, Indonesia, many country in the Gulf, uh region. Uh Mexico, uh Philippines and I mean, these are plenty of Market where we see very nice. Uh growth trajectory and growth potential for for iOS and in this new gross Market, the the momentum I would say is a progressively building up.

Emmanuel Babeau: Great. And just one follow up on combustibles, your volumes down one and a half percent, or I should say only one and a half percent, despite the headwinds you called out in Turkey and Indonesia. Was that actually a little bit better than you expected since you guys have been pretty up front really since last year that you expect combustibles volumes to resume their declines in 2025? So you're right. Globally today, when we say that for the year, we are targeting to be around minus 2% in terms of shipment, that's something that I had the opportunity to say in previous instances very clearly, the fact that we believe we are going to be back to what we think is a long-term trend for the combustible business, which is a low single-digit decrease.

Speaker Change: Great. And uh, just want to follow up on combustibles your volumes down 1 and a half percent, uh, or I should say only 1 and a half percent, despite the headwinds you called out and turkey and Indonesia, was that actually a little bit better than than you expected. Since. You know, you guys have been pretty upfront really since last year that that you expect, uh, combustibles volumes to resume their declines in 2025.

Emmanuel Babeau: I'm not able to specifically say exactly which kind of low single-digit, but that is a trend for sure that we expect in the future. Yes, of course, you know, a country where there is a ban on smoke-free can have some impact on this low single-digit decline, but nevertheless, that is a trend. That's what we have seen in Q2, largely in line with our expectation, and that's what we expect for H2. With this impact of Turkey, that is a kind of transitional thing that is going to impact H2 more specifically. But otherwise, I think we are progressively going back to what we described as a normal long-term trend for combustible.

Speaker Change: So, you're right globally today. You know, when we say that for the, uh, the year we are targeting to be, uh, around minus 2% in term of shipment. Uh, that's something that I had the opportunity to say in previous instances very clearly. Uh, the fact that we believe, we are going to, uh, be back to what we think is a long-term trend for the combustible business, which is a low, uh, single digit decrease. I'm not able to specifically say exactly which kind of low single digit, but that is a trend for sure. Uh, that we expect in the future. Yes, of course, you know, country where there is a ban on smoke free, uh, can have some impact on this low Singularity decline, but nevertheless that is the trend. Uh that's what we have seen in uh in in Q2, uh, largely in line with our expectation. And that's what we expect with for, for H2 with this impact of turkey. That is a kind of transitional thing that is going to impact, uh, H2 more specifically. But although

Speaker Change: otherwise, I think we are progressively going back to what we describe as a, as a normal long-term trend for combustible

Emmanuel Babeau: Great, thanks so much Emmanuel, I'll pass it on. Thank you, thank you. Thank you.

Speaker Change: Great. Thanks so much manual. Thank you. Thank you.

Matt Smith: Our next question comes from Matt Smith with Stiefel. Your line is open. Hi, Emmanuel, I wanted to ask about the increase in the underlying guidance. The constant currency range is up about a point from the previous midpoint, and that reflects the stronger second quarter and some favorability on the tax rate. Is it fair to say the second half is more or less in line with your previous expectations? And can you provide a little more detail on the considerations in the second half? You called out phasing and comparisons and costs and the impact on margins from those and the timing of those when they become lapped and in the bay.

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

Matt Smith: Hi. Um, I mean, you I wanted to ask about the increase in the underlying guidance, uh, the constant currency ranges up about a point from the mid, from the previous midpoint that reflects the stronger, second quarter and some favorability on the tax rate. Is it fair to say? The second half is more or less in line with your previous expectations and keep providing a little more detail on the considerations. In the second half, you called out phasing in comparisons and costs, um, and the impact on margins from from those and and the timing of those when the when they become lapped and in the base,

Emmanuel Babeau: Yeah, I think, you know, when you look at, there are, of course, you know, a number of elements that can distort the vision, quarter on quarter, H2 versus H1. What we wanted to ensure that everybody understands is that, in fact, the momentum in Q2 on smoke-free is, in fact, even better than Q1, and Q1 was already very good. But in fact, in Q2, we've seen an acceleration of the high cost in-market sales. And, you know, we are back to a nice double-digit growth. Very nice and very powerful re-acceleration of ZIN in the US. Of course, you know, elsewhere, ZIN and ZIV are growing very fast.

Yeah, I I think, you know, when, when you look at there are, of course, you know, a number of element that can distort, uh, the the vision, um, quarter on quarter H2 versus H1. Um, what we wanted to ensure that everybody understand is that in fact, the momentum into 2 on smoke 3 is in fact, even better than 21 and q1 was already very good. But in fact, in Q2, we've seen an acceleration of the, uh, uh, icos, uh, in market sales. Um, and, you know, we are nice to back to a nice double digit growth. Uh, very nice and very powerful Rex solution.

Emmanuel Babeau: But Q2, in fact, is a very nice acceleration on our smoke-free business, and this is absolutely visible in our numbers. When we look at H2, in fact, we expect a continuation of this very strong momentum that we've seen in H2 once more pre. So we expect ICOS to continue to grow double digit in terms of adjusted IMS. We expect now that we have availability, which is no longer an issue for Zin in the US. We expect the continuation of this very strong acceleration of Zin in the US. Again, I reported the 37 percent growth for the first two weeks of July.

Of Zen in the US of course, you know, elsewhere in and Viv are going very fast.

Matt Smith: But Q2 in fact is a very nice acceleration on our smokefree business and this is um, absolutely visible in our numbers.

Emmanuel Babeau: So H2 is starting on a good note for Zin in the US. So this momentum is unchanged and we expect it to remain very strong. Certainly, what is going to be less favorable is the trend on combustible. We were almost flat, minus 0.3% in volume in H1, and we expect 3% to 4% decline. I've been explaining the driver for that. Despite that, we expect a gross on gross profit for combustible, but nevertheless at the lower level, of course, than in H1. So this is one of the reasons for the differentiated performance in H2 versus H1, for what we can expect.

Matt Smith: When we look at H2, in fact, we expect a continuation of these very strong momentum that we've seen in H2O and smoke free. So we expect iOS to continue to grow double digit in term of adjusted IMS. Uh, we expect now that we have availability, uh, which is no longer an issue for Zen in the US. We expect the continuation of this very strong acceleration of the, in the US again, I reported the 37% growth for the first 2 weeks of July. So H2 is starting on the good note for Zen in, um, in in in the US. So this momentum is unchanged and we expected to remain very strong.

Emmanuel Babeau: And then you have a number of phasing elements on smoke-free, which have nothing to do with performance, but which are due to basis of comparison or a number of one-off events. If I look at ICOs, there was this one billion stick shipment in Q1 that we're going to compensate in Q4. And of course, that is favoring H1 and penalizing H2. We had super favorable comps in H1 because of accelerated sales of device last year that has been growing profit and margin. We're not going to have that in the second part of the year. So that's another element.

Matt Smith: Certainly what, uh, is going to be less? Favorable is the trend on combustible. We were almost flat minus 0.3%, uh, in volume in H1. And we expect 3 to 4%. Decline have been explaining the driver for that, despite that we expect a growth on gross profit for, uh, combustible, but nevertheless, at a lower level, of course, than in, uh, in in H1. So, this is 1 of the reasons for the differentiated, uh, um, performance, um, in uh, in in H2 versus H1 for what we can expect. And then you have a number of phasing element on

Emmanuel Babeau: And then you have the ZIN restocking that has been benefiting H1. And of course, will not be benefiting H2. But I think that's really what is behind the guidance. And I think if you take all the elements I've just been sharing, you have the right understanding of the dynamic. I hope this is helpful.

Emmanuel Babeau: Very helpful, and as a follow-up, pricing for heated tobacco units was up, I think, low single digits again in the quarter. You're about a year into realizing a nice contribution from pricing in that business. In the markets where you are taking pricing, how is that impacting volume in new user acquisition relative to your expectations, and has that changed the way you think about the pricing potential in the HTU business over time? Thank you, and I'll... Yeah, sure, Matt. I think we're really trying to make sure we don't penalise volume with price increase when it comes to ICOs and ZIN because we describe how positive the volume growth is because we have higher revenue per unit, we have higher margins, so the name of the game is of course to absolutely optimise the volume.

Matt Smith: In H1. Because of accelerated sales of device last year that has been growing profit and margin. We're not going to have that in the second part of the year. So that's another element. And then you have the Zen restocking that has been benefiting H1. And of course, will not be, uh, benefiting H2 but I think it's really that that's really what is behind the guidance. And um, and I think if you take all the element, I've just been sharing, you have the the right understanding of the dynamic. I hope this is a helpful.

Emmanuel Babeau: But there is obviously, as we are growing the franchise of the brand, the strength of the brand, there is a possibility to increase price without impacting the volume and I think that is the right balance we're looking for, which is we increase volume but we certainly don't want to change trajectory on volume because of that. So price, yes, but provided it does not impact in a meaningful manner the volume trajectory. That is a strategy and that is what we will continue to do. Thank you.

Very helpful. And as a a followup pricing for heated tobacco units, without I think low single digits. Again in the quarter you're about a year into realizing a nice contribution from pricing in that business. And the markets where you are taking pricing, how is that impacting value in new user acquisition, relative to your expectations and has that changed the way you think about the pricing potential in the htu business over time? Thank you. And I'll leave it there. Yeah, sure. Matt, I think uh we we're really trying to make sure we don't penalize volume uh, with price increase when it comes to icos and Zen. Because we describe how positive the volumes growth is because we have higher Revenue per unit, we have higher margins. So the name of the game is of course to absolutely optimize the volume but there is obviously as we are growing the franchise of the brand, the strength of the brand there is opportunity to increase price without impacting the volume. And I think that is the right balance. We we're looking for

Matt Smith: Which is we increase volume, but we certainly don't want to to change trajectory on on on on volume because of that. So price. Yes, but provided it does not impact in the meaningful manner, the volume trajectory that is a strategy and that is what we will continue to do.

Bonnie Herzog: Our next question comes from Bonnie Herzog with Goldman Sachs. Your line is Thank you. Hi Emmanuel. Hi, I had a few follow-up questions on ZIN. Based on everything you discussed and what you're seeing in the market, should we assume the lower end of your full year shipment guidance range is more realistic? I guess I'm trying to understand if the high end is even possible in your mind. And then can you update us on your capacity and where it stands today and when it will increase? Sure. So, of course, if we give this bracket, because we believe that we can finish the year within the bracket, you know, at every point of the bracket, we give the 800 to 840 million.

Thank you.

Herzog: Herzog, with Goldman Sachs your line is open.

Speaker Change: Thank you. Bye manual. I am

Speaker Change: Hi. I had a a few follow-up questions on Zen based on everything you you discussed. And you know what you're seeing in the market. Should we assume the lower end of your, fill your shipment? Guidance range is more realistic. I guess I'm trying to understand at the high end is even possible in your mind and then can you update us on, You Know, Your Capacity and where it stands today. And when it will increase

Emmanuel Babeau: Clearly, the fact that, you know, this 10 to 20 million lower restocking that what maybe we thought, I mean, that is having an impact. But at the end of the day, you can see that the restart of ICOs can be very powerful. I mean, 36, 37 percent, we are restarting commercial activity, advertising. So we don't know what's going to be the growth profile for H2. So that's why we are still comfortable with the 800 to 840 million can bracket. On the capacity, we can say that today we have been building a comfortable capacity to face all kind of very dynamic growth scenario for the future.

Sure. Um, so of course, if we give this bracket, we believe that, uh, we can finish the, the year, within the bracket at, you know, at every point of the, of the bracket we give the 800 to 840 million.

Clearly the fact that, you know, this 10 to 20 million lower restocking that what maybe we thought, I mean, that is having an impact. But at the end of the day, you can see that the, the restart of icos can be very powerful. I mean,

Emmanuel Babeau: And therefore, we are comfortable for the coming quarter.

36 37%, we are restarting commercial activity, advertising. So we don't know what's going to be the gross profile for H2. So that's why we are still comfortable with with the 800 to 840. Uh, a million can bracket on the capacity. We can say that today. We we have been building, uh, a comfortable capacity to face, uh, all kind of uh of very Dynamic growth scenario for the, for the future. Um, and therefore we are, we are comfortable for the coming quarters.

Emmanuel Babeau: Okay, and then maybe just another follow up, because you just touched on something that I also wanted to ask, which is, you know, now that you're, I guess, essentially back in the stock, or you can ship to demand, how does that change your strategy, you know, as it relates to, you know, your pricing, promotions? You know, are you going to, I guess, get a little bit more aggressive in an attempt to possibly grow Zin faster and take more market share? Just how are you thinking about that? Thanks. Yes. Yes, of course, Bonnie. So you're right.

Speaker Change: okay, and then maybe just

Emmanuel Babeau: As I said, we go for putting all levers to maximize the growth of Zin and all that in a very different environment, because now we have full availability. So during many months, many quarters, we've been refraining ourselves from acquiring new users because we knew that we were not really able to supply the need for new users. So that meant a limited activity, I would say across the board. So in terms of pricing, in terms of marketing activities, so we're going to restart normal activity. And that will certainly include more promotion, you know, we have a much lower level of promotion than any other brand.

Speaker Change: Another follow-up because you just touched on something that I also wanted to ask which is, you know, now that you're I guess, essentially back in the stock or you can ship to demand, how does that change your strategy? You know, as relates for then as it relates to you know, your pricing promotions, you know, are you going to I guess get a little bit more aggressive and an attempt to possibly grow than faster and take more market share. Just how are you thinking about that? Thanks yes. Yes of course Bonnie so

Emmanuel Babeau: And I think it probably will stay like that. But it doesn't mean that we cannot increase the level of promotion as well. That will be certainly advertising and commercial activity on the point of sales, where we need to step up now that the product is available. And that will be the continuation of building the brand franchise and all this iconic element of the Zin brand and the Find Your Zin campaign. So we're going to pull all levers to make sure that we give the best support to Zin. Okay, thank you. I'll pass it on. Thank you.

Speaker Change: Of of promotion as well. Uh, that will be certainly, uh, advertising and Commercial activity on the point of sales, where we need to to step up now that the product is available and that will be, uh, the continuation of building the brand franchise and, uh, and, and all this iconic element of the Zim brand and and the find using campaign. So we're going to pull all leave us to uh, to make sure that we we give the best support Within

Okay, thank you. I'll pass it on. Thank you.

Operator: As a reminder, to ask a question, please press star 11 on your telephone. Again, that's star 11 to ask a question.

Faham Big: Our next question comes from Faham Big with UBS, your line is open. Hi Emmanuel. Thank you for taking my questions. To be honest, your answers have been very thorough, so I don't have many more. But I'll take two. I noticed in the second quarter the gross margin gap between combustibles and smoke-free narrowed. And maybe smoke-free even gross margin slightly reduced to Q2 on Q1. Maybe if you could expand on some of the dynamics around that and maybe what you expect for gross margin, the gross margin gap over the next couple of quarters.

Speaker Change: Thank you as a reminder to ask a question. Please press star 1 1 on your telephone again, that's star 1. 1 to ask a question,

Faham Big: Our next question comes from faham Big with UBS, your line is open.

Faham Big: Hi Emmanuel. Um, hello fam.

Emmanuel Babeau: And the second question is, it's probably simple, but if you could please remind us your FX hedge rates for the year, both Euro, Japanese Yen, and any other currencies that you may hedge. Yes, so on the gross margin evolution, so you are really looking, you know, after the comma, because in fact, we are both in Q1 and Q2 around 70% gross margin rate. So, of course, the mix of ZIN or, you know, the importance of the device can have an impact, but globally, in line with what we said after Q1, we have a smoke-free business that is around, that doesn't mean that it can be a bit below, but around 70% gross margin.

Speaker Change: Thank you for taking, uh, my questions, um, to be honest, your answers have been very thorough. So, um, um, I don't have, uh, many more, uh, but but, but I'll take 2. Um, I noticed in in the second quarter, the gross margin gap, between combustibles and, and smoke free narrowed and maybe smoke free, even gross, margins slightly, um, um, reduced to q21 on, on, on q1, uh, maybe if you could expand on, um, um, some of the Dynamics, um, around that, and maybe what you expect, um, for for, for gross margin, the gross margin Gap, um, over the next. Um,

Faham Big: Couple of quarters.

Um, and, and the second question is, is probably simple. But, um, if you could, please remind us your FX hedge rates, um, for for the year, um, both Euro Japanese Yen and then, and and any other currencies that you may hatch. Thank you.

Emmanuel Babeau: And I would expect H2 not to be very materially different. Okay, so I'm not saying it's going to be necessarily at 70. But I think we are ballpark in this area where there is a very nice gross margin rate for smoke-free, higher than combustible. And you noted that the gap has been narrowing a bit, it's still significant, I mean, 4.5 for the full H1. And it's because CC has been improving a bit, which is price and mix of the combustible cells in the quarter. So when I look at the second part of the year, I think I would really insist on the fact that the improvement of margin on the smoke-free business was very important on H1 as we were facing easy comps because of a lot of Illuma device sales last year as we were launching Illuma I.

Faham Big: Yes. Um, so uh on uh, the gross margin Evolution, so you are really looking, you know, after the comma. Because in fact, we are both in q1 and Q2 around, 70%, gross, margin rates. So of course, the mix of Zen or, you know, the the, the importance of the device can have an impact but globally, um, in line with what we said after q1, we have a smoke-free business that is around, doesn't mean that it can be a bit below, but around 70% growth margin. And, um, I would expect H2 not to be very maturely different, okay? So I'm not saying it's going to be necessary at 70, but I think we are ball park in this area where there is a very nice. Uh, gross margin rate for small free higher than combustible and you noted that the Gap has been narrowing a bit. It's still significant. I mean 4.5 for for the full uh, H1, and it's because CC has been improving a bit uh which is price and mix.

Emmanuel Babeau: Fundamentally, this is not the case again, in H2. So we don't have the same easy comps. And therefore, as I said, expect margin on smoke-free to stay high. And expect, of course, the progress year on year to be reduced, because we are facing higher margin last year on the smoke-free business. For combustible, I think we said that we have the ambition to increase the gross margin as well. And that is valid for H2.

Emmanuel Babeau: I'm not going to repeat on Forex. First of all, because I have to admit, I haven't been looking at exactly the latest position. I've been giving it because after Q1, we wanted to illustrate where we were in terms of Forex edging, but that's not something I intend to do each time, to be clear. Thanks, Emmanuel. Thank you.

Faham Big: Of, um, of the convertible sales in, um, in the quarter. Um, so when I look at the, at the second part of the year, um, I think I would really insist on the fact that the Improvement of margin on the smoke-free business was very important on H1, as we were facing, um, easy comps because of a lot of illuma devices last year as we were launching Luma. I, uh, fundamentally, uh, this is not, uh, the case again in April. So we don't have the same, uh, easy coms. And therefore, as I said expect margin on smooth free to stay high and expect, um, of course, the progress here on year to be reduced, because we are facing a higher margin last year on the smooth free business for combustible. I think we said that we have the ambition to increase, uh, the gross margin as well, and that is valid for for, for H2.

Faham Big: I'm not going to repeat on Forex. Uh, first of all, because I have to admit, I haven't been looking at exactly the latest position. I've been giving it because, uh, after. Um, I think it was after q1. We, we wanted to illustrate, where, where, where we were in term of of, of Forex edging, but that's not something I intend to do. Uh, each time to be clear.

Faham Big: Okay, thanks so much. Thank you.

Callum Elliott: Our next question comes from Callum Elliott with Bernstein. Your line is open. Great, thank you very much for the question, Emmanuel. Hi, Emmanuel. So my first question is on V's, if that's okay. As for a number of years, I think, as a company, you guys were quite reluctant to expand too much into the e-labour space, citing... lower loyalty in that category and and sort of the resultant gross margins that came from that that lower loyalty. We obviously heard a bit at your Europe event a month ago about this increasing emphasis on the three category approach and and the sort of the synergies for all three categories when you sort of play in all three areas at the same time and I guess my question is what's changed over the past year or two to drive this increasing three category approach and in particular I think you called out in the release the the improving gross margin that you're seeing for e-vapor in particular.

Speaker Change: Thank you. Our next question. Comes from Callum Elliott, with Bernstein. Your line is open.

Emmanuel Babot: Great. Thank you very much for the question Emmanuel. Um,

Callum Elliott: Hi Emmanuel. So my first question is on V, if that's okay. Um as for a number of years, I think is a company. You guys work quite reluctant to expand to March into the the UK space, cite citing

Emmanuel Babeau: I wonder just anything I doubt you're going to quantify for me but anything sort of qualitative you can share about what that means.

Callum Elliott: Increasing emphasis on the 3 categories and, and the sort of the synergies for all 3 categories, when you sort of play in all 3 areas at the same time, um, I guess my question is what's changed uh, over the past year or 2 to drive this increasing 3 category approach and and in particular I think you called out in the release, the, the improving gross margin that you're seeing that you April. In particular, I want to just anything. I doubt you're going to quantify for me, but, but anything sort of qualitative you can share about what that means.

Emmanuel Babeau: Sure, Calum. So. Yeah, I guess it has been explained with a great deal of details during our European day, so I'm sure I'm not going to come with the same granularity. But my first comment would be to say Be assured that we know what our priorities are. So our priority is first and foremost to grow ICOS. Okay, this is the leading star brand. This is the one where we see the biggest potential. This is the one where we have the best profitability. Yes, Zin could be one day at the same level, but of course, in terms of volume, it's really small today when it comes to most of the market.

Speaker Change: Sure. Kayyem. So

Speaker Change: Yeah I guess it has been uh explained with a great deal of of details during our European um day. Um so I'm sure I'm not going to come with the same granularity but my first comment would be to say

Emmanuel Babeau: So that's something for the future.

Emmanuel Babeau: You should see Viv as an ailing brand to our portfolio. Yes, there is an interest in the multi-category play. I'm not going to repeat everything we presented in Europe, the fact that some consumers actually prefer to be only in one category and one brand. Other, and sometimes there are also smokers that you want to fully exit from smoking. They will only do that if they move to several smoke-free products. And that's when we want to be able to offer several smoke-free categories. And Viv is having a role to play in these circumstances. We are of course putting priority on VIV where we believe we can develop a profitable business and that's of course a very very important condition to develop VIV.

be assured that we know what our priorities are. So our priority is first and foremost to grow icos. Okay. This is the leading star brand. This is the 1s to uh uh most of the markets. So that's something for the future.

Speaker Change: You should see Viv as an alien brand to our portfolio. Yes, there is an interest in the multi-category play. I'm not going to repeat everything represented in Europe. The fact that uh we some consumer secretly prefer to be only in 1 category in and 1 brand other and sometime. You know, there are also smoker that you want to fully exit from smoking. They will only do that if they move to several smoke, free product, and that's when we want to be able to offer several smoke-free category and these is having a role to play in uh, in this uh circumstances.

Emmanuel Babeau: I'm not going to exactly quantify the gross margin of VIV but I can tell you that it improved by more than 10 percentage points on the beginning of 2025. So its profitability is improving very rapidly and we believe that with the right loyalty the VIV business has the possibility to have a similar profitability as the combustible business. To get there, you need to have the right loyalty, but element that we see today on the market where we develop this, seem to show that we can generate this level of repurchase and loyalty.

Callum Elliott: So it's a bit short as a summary, but these are the conditions for us to develop VIV, and that's what is behind our VIV progression. Just as a clarifying question, when you say similar level of profitability to cigarettes, do you mean percentage margin or unit margin? well, in terms of gross margin on revenue. Ross Marginal as a percentage. in sort of the intersection of Gaurav and Bonnie's two questions earlier where obviously what you've spoken about is a sort of a cadence of growth. that in Q3 is something like 27% year-on-year growth, but maybe a little bit impacted by what seems to be you're suggesting some de-stocking, and then the four-year guide implying a re-acceleration again in Q4.

Speaker Change: We are, of course, putting priority on V, where we believe, we can develop a profitable business. And that's of course a very, very important condition to develop these. I'm not going to exactly quantify the gross margin of, uh, uh, uh these. But I can tell you that it improved by more than 10% each point, uh, on the beginning of 2025. Um, so it's, um, profitability is improving very, uh, rapidly. And we believe that with the right loyalty, the these business as a possibility to have a similar profitability as the combustible business together. You need to have the right loyalty. But, uh, element that we see today on the market, where we develop this seemed to show that we can generate uh, this level of repurchase and and loyalty. So it's, it's a bit short as a summary but

Speaker Change: These are the condition for us to develop Viv and uh and that's what is um behind our V progression.

Speaker Change: Just as a clarifying question. When you say similar level of profitability to cigarettes, do you mean percentage margin or or unit margin?

Speaker Change: well, in ter, in term of gross margin on Revenue,

Speaker Change: Gross margin as a percentage. Okay? Okay. And then my second question is on

Zen sort of the intersection of gav and, and Bonnie's 2 questions earlier, where, obviously what you've spoken about is a sort of a Cadence of growth

Emmanuel Babeau: And I guess my question is, I wonder how the commercial activities sort of flow into that re-acceleration that you're forecasting for Q4, and how confident that you are that as you lean back into those activities, as you have done in the past, right, when you took over this business from Swedish Match, that that drove an acceleration back then, that as you lean into these activities again, that you sort of stepped away from when you had the supply chain problems, and that you have this ability to re-drive the acceleration. How confident are you in that? And does the cadence of these activities explain that sort of cadence between Q3 and Q4?

Speaker Change: Um, that in Q3 is something like 27% year-on-year growth. Um, but maybe a little bit impacted by by, it seems to be your suggesting, some D stocking and then the full year guide, implying a re acceleration again in Q4.

Speaker Change: um, and I guess my question is, I wonder how the commercial activities sort of flow into that we acceleration that, that that your forecasting for Q4 and and how confident that you are that that as you lean back into those activities,

Speaker Change: Um as you have done in the past right? When you when you took over this business from Swedish match that, that drove an acceleration back then,

Speaker Change: But as you lean into these activities again, that you sort of stepped away from, uh, when you had the supply chain problems and that that you have this ability to redrive the acceleration. How confident are you in that? And and does the Cadence of these activities, explain that sort of cadence between Q3 and Q4.

Emmanuel Babeau: Look, I think I've been already, you know, giving the answer I could give. So yes, indeed, that is pointing to a very dynamic second part of the year. Again, the level of growth in the consumer of tech in June and at the beginning of July is pointing to a direction that is broadly in line with this growth. And it is at the point in time where we haven't yet, as I said, fully restarted all the commercial marketing activities. So we are hopeful that this will provide further boost to the growth. But I don't have much to add at that stage.

Speaker Change: Look, I think I've been

Speaker Change: already.

Emmanuel Babeau: I think that the data are there on the table public and everybody can can understand the objective that we have.

Speaker Change: Is pointing to a direction that is, uh, broadly in line with this growth. And it is at the point in time where we haven't yet. As I said fully, uh, restarted all the commercial marketing activities. So we are hopeful that this will provide further boost to the growth, but I don't have much to add at that stage. I think that uh, the data are are there on the table public and everybody can uh, can understand the objectives that we have.

Emmanuel Babeau: Maybe I can just follow up then, like, how quickly can you turn these commercial activities back on? It seems clear that you were taken a bit by surprise with how quickly you were restocking. So how quickly can you turn it back on? Well, yeah, it does not, of course, happen in a few weeks. It's gradual. It's not everything at the same time. So the team are very busy in the US today, restarting gradually everything. But you're right. That is like, you know, reshaping an engine and to get to full speed on the engine, it is going to take some time.

Speaker Change: Maybe I can just follow up then like how quickly you can you turn these commercial activities back on like it it seems clear that you were taken a bit by surprise with how quickly you were restocking. So how quickly can you turn it back on?

Emmanuel Babeau: I'm not going to elaborate further, of course, as you will understand. But that's something that is going to happen gradually in the course of the third quarter. Thank you very much. Thank you.

Speaker Change: Well, I yeah, it's it does not, of course happen in a few weeks. It's gradual, it's not everything at the same time. So the team are very busy in the US today. Uh restarting gradually everything. Uh but you're right that is like, you know, resetting an engine and to get to full speed on the engine. It's it's going to take some time. I'm not going to elaborate further, of course, as you will understand. But that's something that is going to happen. Gradually in the course of the third quarter.

Speaker Change: Okay, thank you very much. Thank you.

Gerald Pascarelli: Our next question comes from Gerald Pascarelli with Neiman Company. Your line is open. Great, thank you very much for the question. Most of them have been answered, but I just, I wanted to go back to currency. If you could just, can you provide some color on exactly what transpired in the quarter? You didn't get the benefit and you had been guiding foreign 2Q. And that really is despite the fact that the dollar weakened further over the course of the quarter. So I think the expectation was that maybe in addition to an underlying EPS raise, we would have seen an even bigger benefit to your adjusted EPS just due to a more favorable outlook on currency.

Speaker Change: Thank you.

Speaker Change: Our next question comes from Gerald pascarelli with any company, your line is open.

Emmanuel Babeau: So, you know, not looking for detail on your exact hedges or anything like that, but maybe just some color or thoughts on how we should think about the currency tailwind in the event that we continue to see this dollar, you know, weaken over the back half of the year. Any color there would be great. Thank you.

Emmanuel Babeau: Sure, Gerald. In fact, what probably people are not always capturing, I think, you know, versus the 10 cents we're coming up with, we are around 4 cents versus consensus below what the consensus was expecting. I think it's largely the Swiss franc, both in the negative impact that it has, because we have a strong exposure in terms of cost to Switzerland, as you all know, but also because the intercompany flows mean that when there is a lot of volatility and there have been a lot of surge in the Swiss franc versus other currency at the end of the period, that is generating some transactional losses.

Great. Thank you very much for the question. Uh, most of them have been answered but I just, um, I wanted to go back to currency. Um, if you could just, can you provide some color on exactly what transpired in the quarter? Um, you didn't get the benefit and you would have been guiding for in 2q. And that really is despite the fact that the dollar weakened further over the course of the quarter. So I think the expectation was that maybe in addition to an underlying EPS raise, we would have seen an even bigger benefit to your adjusted, EPS just due to a more favorable outlook on currency. So, you know, not looking for detail on your exact Hedges or anything like that, but maybe just some color or thoughts on on how we should think about um the currency Tailwind in the event that we continue to see this dollar. Um you know we can over the back half of the Year any color. There would be great. Thank you.

Speaker Change: Uh, sure Gerald, uh, in fact, what probably um, people are not always capturing. And I think, you know, versus the 10 cents we're coming up with we are around 4 cents versus consensus below. What the consensus was was expecting. I think it's largely the Swiss franc, uh, both in the negative impact that it has, uh, because we have a strong exposure in term of cost, uh, to Switzerland as you all know that. Also, because

Gerald Pascarelli: So that's a significant impact. And actually, when I look at what is driving this 10 cents estimated impact at the prevailing rate. In fact, the Swiss franc is, to a large extent, offsetting the benefit we have on the euro, just for people to understand. So it's a very significant negative. Got it. Thank you very much. Thank you.

Speaker Change: The intercompany flows mean that when there is a lot of volatility and there have been a lot of surge in the Swiss Franc versus other currency. At the end of, uh, the period, that is generating some transactional losses. So, that's a significant impact. And actually, when I look at what is driving, uh, this 10 cents, estimated impact at the uh, prevailing rate. Um, in fact, the Swiss franc is to a large extent of setting the benefit we have on the Euro just for people to, to understand. So it's it's a very significant negative impact

got it. Thank you very much. Thank you.

Priya Ohri Gupta: And our last question comes from Priya Ohri Gupta with Barclays. Hi, good morning. Thank you so much for Hi Priya Emmanuel, I was just wondering if you could walk us through... Capital Peas on free cash flow, it looks like based on the numbers that might have been seasonally a bit weaker than what we normally see in the second quarter, is that largely the ICOS dynamics, or what else is going on there. most of that to reverse as we get through the back. Yes Priya, so really I think when you look at the end of H1 on the differences versus last year, I mean indeed the cash flow generation is lower.

Thank you. And our last question comes from Priya Ori Gupta with Barclays. Your line is open.

Speaker Change: Hi, good morning, thank you so much for. I question

Speaker Change: um,

Speaker Change: you could, um, walk

Speaker Change: The capital piece.

Um, based on the numbers that that might have been seasonally a bit weaker, um, than what we normally see in the second quarter, um, is that largely attributable to the icos Dynamics or what else is going on there. Um, and then we expect most of that to reverse as we get through the back half of the year.

Emmanuel Babeau: Most of it is the payment of duty that we made in Germany and the final payment of the Job Act in the US. I think that the cumulated impact is largely north of $1 billion and that is really the biggest impact. Otherwise, yes, we may have had on a temporary basis some inventory building, I mean supply chain of course playing here and there, you may have some regulatory constraints, but I don't think that for the year in terms of working capital, beyond the two elements I mentioned, you should expect anything special. Okay, that's helpful.

Speaker Change: Special.

Emmanuel Babeau: And just with one housekeeping item, what was your CapEx in the quarter? I'm not sure we're disclosing it by quarter, so I'm not going to give you the number. I think we said $1.6 billion for the year, but we don't split that by quarter. Thank you.

Speaker Change: Okay, that's helpful and just 1. 1 house. What was your capex in the quarter?

Speaker Change: I'm not sure we disclosing it by quarter. So I uh I'm not going to give you the the number. I think we said 1.6 billion for the year but we don't split that by by quarter.

Speaker Change: Thank you.

James Bushnell: This concludes the question and answer session.

Speaker Change: Thank you.

James Bushnell: I would now like to turn it back to James Bushnell for closing remarks. Thank you.

James Bushnell: Now, I'd like to turn it back to James Bushnell for closing remarks.

James Bushnell: That concludes our call today. Thank you all for joining us. 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.

James Bushnell: Thank you that concludes concludes our call today. Thank you all for joining us. 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.

Operator: This concludes today's conference. Thank you for participating. You may now.

James Bushnell: This concludes today's conference call.

James Bushnell: Thank you for participating. You may now. Disconnect

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