Q2 2026 Philip Morris International Inc Earnings Call

July 22, 2026

Operator: Good day. Thank you for standing by. Welcome to the Philip Morris International 2026 Q2 results. At this time, all participants are on a listen-only mode. After the speakers' presentation, we will open up for questions with a limit of two questions per person before rejoining the queue. To ask a question during the session, you will need to press star one one on your telephone. You will hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, James Bushnell, Vice President of Investor Relations and Financial Communication. Please go ahead.

Speaker #1: Good day, and thank you for standing by. Welcome to the Philip Morris International 2026 second-quarter results. At this time, all participants on a listen-only mode.

Speaker #1: After the speaker's presentation, we'll open up for questions, with a limit of 2 questions per person, before rejoining the queue. To ask a question during the session, you will need to press star 11 on your telephone; you will then hear an automated message advising your hand is raised.

Speaker #1: To withdraw your question, please press star 11 again. Please be advised that today's call is being recorded. I would now like to hand it over to our first speaker, James Bushnell, Vice President of Investor Relations and Financial Communication.

Speaker #1: Please go ahead.

Speaker #2: Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2026 second-quarter results. The press release is available on our website at pmi.com.

James Bushnell: Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2026 Q2 results. The press release is available on our website at pmi.com. A glossary of terms, including the definition for smoke-free products, as well as adjustments, other calculations, and reconciliations to the most directly comparable US GAAP measures for non-GAAP financial measures cited in this presentation are available in Exhibit 99.2 to the company's Form 8-K, 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 #2: A glossary of terms, including the definition for smoke-free products, as well as adjustments, other calculations, and reconciliations to the most directly comparable U.S. gap measures for non-gap 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.

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

Speaker #2: I'm joined today by Emmanuel Babeau, Chief Group Chief Financial Officer, and Massimo Andolina, currently Regional President for Europe, who will succeed Emmanuel as Group CFO in August.

James Bushnell: I am joined today by Emmanuel Babeau, Group Chief Financial Officer, and Massimo Andolina, currently Regional President for Europe, who will succeed Emmanuel as Group CFO in August. Emmanuel, over to you.

Speaker #2: Emmanuel, over to you.

Speaker #3: Thank you, James, and welcome everyone. I am pleased to report a Q2. As we generated plus 8% organic growth in net revenue, and plus 11% in operating income, driving plus 14% currency-neutral progression in adjusted deleted earnings per share to $2.20, or plus 15% in dollar terms.

Emmanuel Babeau: Thank you, James. Welcome everyone. I am pleased to report a very strong Q2 as we generated +8% organic growth in net revenue and +11% in operating income, driving +14% currency-neutral progression in adjusted diluted earnings per share to $2.20 or +15% in dollar terms. This better than expected delivery contributed to very robust H1 growth, despite the tough comparison of the Q1. Our Q2 results were once again powered by excellent performance, as expected from our international smoke-free business, with high single-digit volume growth, double-digit top line growth, and impressive gross margin expansion. IQOS adjusted in-market sales volume increased by +5%, including expected transitory headwinds from the April excise increase in Japan, and the characterizing flavor ban in Poland. Excluding these two markets, double-digit growth continued, reflecting the broad-based strengths of our smoke-free business across markets.

Speaker #3: This better-than-expected delivery contributed to very robust H1 growth, despite the tough comparison of the first quarter. Our Q2 results were once again powered by excellent performance, as expected, from our international smoke-free business, with high single-digit volume growth, double-digit top-line growth, and impressive gross margin expansion.

Speaker #3: ICOS adjusted in-market sales volume, increased by plus 5%, including expected transitory headwinds from the April excise increase in Japan, and the characterizing flavor ban in Poland.

Speaker #3: Excluding these two markets, double-digit growth continued, reflecting the broad-based strengths of our smoke-free business across markets. Our multi-category commercial approach continues to gain momentum, supported by ZIN and VIV.

Emmanuel Babeau: Our multi-category commercial approach continues to gain momentum, supported by ZYN and Vuse. Our combustible performance was above our expectation in an especially strong quarter, with growing volumes, very good pricing, stable category share, and gross profit growth. While we do not expect this delivery to be repeated to the same magnitude for the full year, such results demonstrate the robustness of our portfolio as we leverage our leadership in cigarettes to support the switching of legal-age smokers to better alternatives. In the US, we posted a significant sequential improvement in net revenues, gross profit, and operating company income compared to a challenging Q1. While the US nicotine pouch category continued to grow, ZYN offtake volumes were broadly stable to slightly growing versus the prior year, reflecting the uneven competitive landscape described in recent quarters.

Speaker #3: Our combustible performance was above our expectations in an especially strong quarter, with growing volumes, very good pricing, stable category share, and gross profit growth.

Speaker #3: While we do not expect these deliveries to be repeated to the same magnitude for the full year, such results demonstrate the robustness of our portfolio, as we leverage our leadership in cigarettes to support the switching of legal edge smokers to better alternatives.

Speaker #3: In the U.S., we posted a significant sequential improvement in net revenues, gross profit, and operating company income compared to a challenging Q1. While the U.S.

Speaker #3: nicotine pouch category continued to grow, ZIN off-take volumes were broadly stable to slightly growing versus the prior year, reflecting the uneven competitive landscape described in recent quarters.

Speaker #3: ZIN shipments increased by plus 2% to $2.9 billion pouches, despite an inventory tailwind in the prior year, broadly reflecting off-take trends and the initial shipments of new variants, including ZIN Ultra.

Emmanuel Babeau: ZYN shipments increased by +2% to 2.9 billion pouches, despite an inventory tailwind in the prior year, broadly reflecting offtake trends and the initial shipments of new variants, including ZYN Ultra. We are excited about this first phase of portfolio expansion, with additional initiatives planned in the coming months to enhance and enrich our offering to legal-age American nicotine consumers. Supported by a rich product pipeline and improving regulatory clarity, we believe it is the right moment to accelerate US investment in the H2 of the year to support ZYN's brand equity and portfolio expansion, and to prepare for the future launch of IQOS ILUMA. Overall, our strong H1 performance reinforces our confidence in our ability to consistently invest behind smoke-free growth opportunities while delivering another year of best-in-class top and bottom-line growth.

Speaker #3: excited about this first phase of portfolio expansion, with additional initiatives planned in the coming months to enhance and enrich our offering to legal edge American nicotine consumers.

Speaker #3: Supported by a rich product pipeline and improving regulatory clarity, we believe it is the right moment to accelerate U.S. investment We are in the second half of the year to support ZIN's brand equity and portfolio expansion and to prepare for the future launch of ICOS Illuma.

Speaker #3: Overall, our strong first half performance reinforces our confidence in our ability to consistently invest behind smoke-free growth opportunities, while delivering another year of best-in-class top and bottom-line growth.

Speaker #3: Looking now at our Q2 financials, we delivered very good shipment volume growth of plus 2.5%, underpinned by continued momentum in ICOS and favorable combustible dynamics.

Emmanuel Babeau: Looking now at our Q2 financials, we delivered very good shipment volume growth of +2.5%, underpinned by continued momentum in IQOS and favorable combustible dynamics. Organic net revenues grew +7.6%, or more than 10% in dollar terms, to reach over $11 billion in quarterly net revenues for the first time. This strong top-line performance translated into robust profitability. Adjusted gross profit grew by +8.7% organically, or +11.5% in dollar terms, driven by pricing, volume leverage, and favorable smoke-free mix. Adjusted operating income grew close to +11% organically and +12% in dollar terms to reach $4.8 billion, reflecting the same underlying business drivers and continued growth investment. Adjusted diluted earnings per share grew by an impressive +15% to reach $2.20. This includes a $0.01 favorable currency impact, which was notably better than our previous forecast, despite ongoing dollar strength.

Speaker #3: Organic net revenues grew plus 7.6%, or more than 10% in dollar terms, to reach over $11 billion in quarterly net revenues, for the first time.

Speaker #3: strong top-line performance translated into robust profitability. Adjusted gross profit grew by plus 8.7% organically, or plus 11.5% in dollar terms, driven by pricing, volume leverage, and favorable smoke-free mix.

Speaker #3: Adjusted operating income grew close to plus This 11% organically, and plus 12% in dollar terms, to reach $4.8 billion, reflecting the same underlying business drivers and continued growth investment.

Speaker #3: Adjusted deleted earnings per share grew by an impressive plus 15%, to reach $2.20. This includes a $0.03 favorable currency impact, which was notably better than our previous forecast, despite ongoing dollar strength.

Speaker #3: This was primarily due to a positive impact from unrealized transactional effect from deferred tax liability, associated with a weaker Russian ruble. This currency impact represents around one-third of the EPS outperformance compared to our prior forecast.

Emmanuel Babeau: This was primarily due to a positive impact from unrealized transactional effect from deferred tax liability associated with a weaker Russian ruble. This currency impact represents around one-third of the EPS outperformance compared to our prior forecast. The remaining two-thirds reflect a combination of SG&A phasing as certain commercial investments previously anticipated in Q2 are now expected to occur in Q3, and the strong performance of our combustible business, which I'll come back to. Combining our Q2 and Q1 performance, we delivered a very robust H1 despite the comparison headwinds of Q1. Total shipment volumes increased +0.4% as smoke-free growth outweighed combustible declines. Organic net revenues grew by +5.3%, while adjusted operating income increased by +6.1% organically, or +11% in dollar terms, to reach $8.9 billion.

Emmanuel Babeau: This was primarily due to a positive impact from unrealized transactional effect from deferred tax liability associated with a weaker Russian ruble. This currency impact represents around 1/3 of the EPS outperformance compared to our prior forecast. The remaining 2/3 reflect a combination of SG&A phasing as certain commercial investments previously anticipated in Q2 are now expected to occur in Q3, and the strong performance of our combustible business, which I'll come back to. Combining our Q2 and Q1 performance, we delivered a very robust H1 despite the comparison headwinds of Q1. Total shipment volumes increased +0.4% as smoke-free growth outweighed combustible declines. Organic net revenues grew by +5.3%, while adjusted operating income increased by +6.1% organically, or +11% in dollar terms, to reach $8.9 billion.

Speaker #3: The remaining two-thirds, reflect a combination of SG&A phasing, a certain commercial investment previously anticipated in Q2, and are expected to occur in Q3, and the strong performance of our combustible business, which I'll come back to.

Speaker #3: Combining our Q2 and first quarter performance, we delivered very robust first half, despite the comparison headwinds of Q1. Total shipment volumes increased plus 0.4%, as smoke-free growth outweighed combustible declines.

Speaker #3: Organic net revenues grew by plus 5.3%, while adjusted operating income increased by plus 6.1% organically, or plus 11% in dollar terms, to reach 8.9 billion.

Speaker #3: Adjusted deleted EPS grew by plus 9.4%, excluding currency, and by plus 15.6% in dollar terms, reaching first half record of $4.16. The strengths of our international business, which made up 93% of H1 Group net revenues, were naturally at the core of this remarkable performance.

Emmanuel Babeau: Adjusted diluted EPS grew by +9.4%, excluding currency, and by +15.6% in dollar term, reaching a H1 record of $4.16. The strength of our international business, which made up 93% of H1 group net revenues, was naturally at the core of this remarkable performance. International smoke-free was again outstanding, with H1 organic growth of +13.7% in net revenue and +16.9% in gross profit, driving gross margin expansion of +190 basis points to reach 70%. This primarily reflects continued IQOS growth, with further announcement from our other smoke-free category, especially VEEV. Combustible also performed very well, exceeding our midterm trajectory of low single-digit organic top-line growth and low to mid-single-digit gross profit growth.

Speaker #3: International smoke-free was again outstanding, with H1 organic growth of plus 13.7% in net revenue, and plus 16.9% in gross profit, driving gross margin expansion of plus 190 basis points to reach 70%.

Speaker #3: This primarily reflects continued ICOS growth, with further enhancement from our other smoke-free category, especially VEVE. Combustible also performed very well, exceeding our mid-term trajectory of low single-digit organic top-line growth and low to mid-single-digit gross profit growth.

Speaker #3: An excellent Q2, with organic growth of plus 6.4% in net revenue, and plus 8% in gross profit, driven by resilient volume and strong pricing, enabled us to realize H1 organic net revenue growth of plus 3.8%, despite negative geographic mix.

Emmanuel Babeau: An excellent Q2 with organic growth of +6.4% in net revenue and +8% in gross profit, driven by resilient volume and strong pricing, enable us to realize H1 organic net revenue growth of +3.8%, despite negative geographic mix. H1 gross profit increased by +6.1%, with margin expansion of +150 basis points to 67.7%, including the benefit of effective cost management. As a result, total H1 international net revenue grew by +7.4% and gross profit by +10.1%, with gross margin expansion of +160 basis points to 68.6%. In turn, adjusted OCI increased +11.7%, all on an organic basis. Turning now to volumes, where total shipment growth returned to a positive trajectory in Q2, with an increase of +2.5%, resulting in +0.4% growth for the H1.

Speaker #3: H1 gross profit increased by plus 6.1%, with margin expansion of plus 150 basis points to 67.7%, including the benefit of effective cost management. As a result, total H1 international net revenue grew by plus 7.4%, and gross profit by plus 10.1%, with gross margin expansion of plus 160 basis points to 68.6%.

Speaker #3: In turn, adjusted OCI increased plus 11.7%, all on an organic basis. Turning now to volumes, where total shipment growth returned to a positive trajectory in the second quarter, with an increase of plus 2.5%, resulting in plus 0.4% growth for the first half.

Speaker #3: Smoke-free shipments grew by plus 7.5% in Q2 and plus 8.3% in H1, mainly fueled by ICOS HTUs, with notable contribution from Taiwan, global travel retail, and Italy.

Emmanuel Babeau: Smoke-free shipments grew by +7.5% in Q2 and +8.3% in H1, mainly fueled by IQOS HTUs, with notable contribution from Taiwan, global travel retail, and Italy. E-vapor shipments increased by a remarkable +55% in Q2 and +72% in H1, with Romania, Greece, and Germany among the main drivers. Overall smoke-free volumes declined by 1.2% in the quarter, primarily reflecting industry decline and inventory impact for snus in the Nordics, despite a stable category share performance. This was partly offset by continued rapid nicotine pouch growth in international markets, excluding the Nordics, and the return to shipment volume growth for ZYN in the US. Q2 cigarette shipments increased by +1.1%, ahead of expectation. This reflects a combination of good category share performance, certain timing or comparison factors, and more favorable industry dynamic in certain large markets, predominantly where smoke-free products are banned or very small.

Speaker #3: E-vapor shipments increased by a remarkable plus 55% in Q2 and plus 72% in H1, with Romania, Greece, and Germany among the main drivers. Overall smoke-free volumes declined by 1.2% in the quarter, primarily reflecting industry declines and inventory impact, for Snooze in the Nordics, despite a stable category share performance.

Speaker #3: This was partly offset by continued rapid nicotine port growth in international markets, excluding the Nordics, and the return to shipment volume growth falls in in the US.

Speaker #3: Q2 cigarette shipments increased by plus 1.1%, ahead of expectations. This reflects a combination of good category share performance, certain timing or comparison factors, and more favorable industry dynamic in certain large markets, predominantly where smoke-free products are banned or very small.

Speaker #3: Notable callouts include Indonesia, Turkey, Egypt, and relative resilience in India and Mexico. However, with industry volumes declining low to mid-single-digit in more developed smoke-free markets, where the average unit economic of cigarettes are more favorable, this generated an unfavorable mix impact on net revenue.

Emmanuel Babeau: Notable call-outs include Indonesia, Turkey, Egypt, and relative resilience in India and Mexico. However, with industry volumes declining low to mid-single digit in more developed smoke-free market, where the average unit economic of cigarettes are more favorable, this generated an unfavorable mix impact on net revenue. For H1 overall, cigarette volumes declined by 1.9%. Given our Q2 performance and the latest industry dynamics, we now expect a more moderate full-year decline in our cigarette volumes of around 2% to 3% versus 3% previously, which remain consistent with the structural evolution of the category. Taken together, we now expect total shipment volume to be around stable to slightly positive for the full year, with high single-digit growth in smoke-free product broadly offsetting the decline in cigarettes. Turning to our H1 top-line growth drivers.

Speaker #3: For H1 overall, cigarette volumes declined by 1.9%. Given our Q2 performance and the latest industry dynamics, we now expect a more moderate full-year decline in our cigarette volumes of around 2 to 3%, versus 3% previously, which remained consistent with the structural evolution of the category.

Speaker #3: Taken together, we now expect total shipment volume to be around stable to slightly positive for the full year, with high single-digit growth in smoke-free products broadly offsetting the decline in cigarettes.

Speaker #3: Turning to our H1 top-line growth drivers: pricing was the largest contributor adding plus 5.9 points of growth, reflecting strong combustible pricing of plus 9.2%, with low single-digit smoke-free pricing, including around plus 3%, from ICOS.

Emmanuel Babeau: Pricing was the largest contributor, adding +5.9 points of growth, reflecting strong combustible pricing of +9.2%, with low single-digit smoke-free pricing, including around +3% from IQOS. The positive mix impact from international smoke-free growth contributed a further +2 points as the increasing weight of SFDs continues to enhance our revenue profile. These drivers were partly offset by the US, which had a negative impact of 1 point, mainly due to Q1 comparison, as well as international combustible geographic mix and other factors, which reduced growth by 2 points. As a result, H1 organic net revenue growth reached +5.3%, while currency provided a tailwind of +4.5 points, bringing reported net revenue growth to +9.8%.

Speaker #3: The positive mix impact from international smoke-free growth contributed a further plus 2 points, as the increasing weight of SFPs continues to enhance our revenue profile.

Speaker #3: These drivers were partly offset by the US, which had a negative impact of 1 point, mainly due to Q1 comparison, as well as international combustible geographic mix and other factors, which reduced growth by 2 points.

Speaker #3: As a result, H1 organic net revenue growth reached plus 5.3%, while currency-provided a tailwind of plus 4.5 points, bringing reported net revenue growth to plus 9.8%.

Speaker #3: The composition of our growth, once again, highlighted the consistency and sustainability of our model, with stable-to-growing volumes, durable pricing power, and superior smoke-free economics continuing to be the primary drivers of our performance.

Emmanuel Babeau: The composition of our growth, once again, highlight the consistency and sustainability of our model, with stable to growing volumes, durable pricing power, and superior smoke-free economics continuing to be the primary drivers of our performance. Moving down to H1 adjusted operating income margin, which expanded by +40 basis points organically or +60 basis points in USD term to reach close to 42%. Gross margin expansion remained a key driver, contributing +70 basis points, supported by strong pricing, favorable smoke-free mix, scale benefit, and manufacturing productivity. While SG&A costs were lower than expected in Q2 due to phasing, increase year-on-year investment in commercial initiative, innovation, and scale nonetheless reduced H1 margin by 30 basis points. We now expect higher SG&A costs in H2 than previously anticipated, as we made the strategic decision to step up our US growth investment.

Speaker #3: Moving down to H1 adjusted operating income margin, which expanded by plus 40 basis points organically or plus 60 basis points in dollar terms to reach close to 42%.

Speaker #3: Gross margin expansion remained a key driver, contributing plus 70 basis points, supported by strong pricing, favorable smoke-free mix, scale benefit, and manufacturing productivity. While SG&A costs were lower than expected in Q2 due to phasing, increased year-on-year investment in commercial initiatives innovation and scale nonetheless reduced H1 margin by 30 basis points.

Speaker #3: We now expect higher SG&A costs in the second half than previously anticipated, as we made the strategic decision to step up our US growth investment.

Speaker #3: As we invest in our top line, we also delivered over 300 million dollars of gross cost saving across COGS and SG&A in H1, keeping us firmly on track to achieve our $2 billion target for the 2024-2026 period, with a cumulative total above $1.8 billion today.

Emmanuel Babeau: As we invest in our top line, we also delivered over $300 million of growth cost saving across COGS and SG&A in H1, keeping us firmly on track to achieve our $2 billion target for the 2024-2026 period, with a cumulative total above $1.8 billion to date. This margin performance underscores the strength of our model as we continue to invest behind our smoke-free transformation while expanding profitability. As implied in our full-year forecast, we expect to deliver organic operating income margin expansion for the full year. Focusing now on IQOS, the driving force of our smoke-free and overall PMI growth trajectory. We continue to generate strong underlying growth despite transitory headwind in Japan and the final EU flavor ban market implementation. Adjusted in-market sales volume grew by +8% in H1, despite these dynamics reflecting broad-based global momentum.

Speaker #3: This margin performance and the score of the strengths of our model as we continue to invest behind our smoke-free transformation while expanding profitability. As implied in our full-year forecast, we expect to deliver organic operating income margin expansion for the full year.

Speaker #3: Focusing now on ICOS, the driving force of our smoke-free and overall PMI growth trajectory. We continue to generate strong underlying growth despite transitory headwinds in Japan, and the final EU flavor banned market implementation.

Speaker #3: Adjusted in-market sales volume grew by plus 8% in the first half, despite this dynamics reflecting a broad-based global momentum. The moderation in Q2 growth to plus 5.1%, primarily reflecting expected volatility in Japan, as Q1 pantry loading reversed and consumers adjusted to the excise-driven price increase on April the 1st.

Emmanuel Babeau: The moderation in Q2 growth to +5.1% primarily reflect expected volatility in Japan as Q1 pantry loading reversed and consumers adjusted to the excise-driven price increase on 1 April. Excluding Japan and Poland, Q2 growth was strong at +10.2% or over +11% for H1, consistent with recent history. Strong Q2 performance in more established IQOS markets such as Italy, Greece, and Romania, was complemented by continued momentum in newer markets, including Saudi Arabia, the Philippines, Mexico, and Taiwan, which maintain its impressive trajectory with off-take volume growth growing double-digit on a sequential basis as we progressively expand distribution. Global travel retail also delivered double-digit adjusted IMS growth. In tandem, we are driving strong commercial execution and ongoing innovation across our device and consumable portfolio with the Remix Special Edition shown on this slide as one example.

Speaker #3: Excluding Japan and Poland, Q2 growth was strong at plus 10.2% or over plus 11% for H1, consistent with recent history. Strong Q2 performance in more established ICOS markets such as Italy, Greece, and Romania, was complemented by continued momentum in newer markets, including Saudi Arabia, the Philippines, Mexico, and in Taiwan, which maintained its impressive trajectory with off-take volume growth growing double-digit on a sequential basis, as we progressively expand distribution.

Speaker #3: Global travel retail also delivered double-digit adjusted IMS growth. In tandem, we are driving strong commercial execution and ongoing innovation across our device and consumable portfolio, with the remix special edition shown on this slide as one example.

Speaker #3: We also continue to expand our alternative eating technology bonds by ICOS, which was launched in Poland, Czech Republic, and Morocco this quarter, with encouraging early results.

Emmanuel Babeau: We also continue to expand our alternative heating technology, BONDS by IQOS, which was launched in Poland, Czech Republic, and Morocco this quarter with encouraging early results. The fundamental of IQOS remains strong. We continue to benefit from formidable brand equity, deep consumer connection, and an unparalleled commercial presence across a broad and diversified geographic footprint, and we maintain our global share of the fast-growing heat-not-burn category at approximately 76% in H1. This was further illustrated by the recognition of IQOS for the first time among the top 100 most valuable global brands, according to Kantar. Looking at IQOS off-take share performance, we continue to drive impressive progress across key cities globally, an important lead indicator of broader national adoption. In Q2, we recorded further strong share gains across established IQOS markets, including Greece, Italy, Romania, and the UK, alongside global travel retail.

Speaker #3: The fundamental of ICOS remained strong. We continued to benefit from formidable brand equity, deep consumer connection, and an unparalleled commercial presence across a broad and diversified geographic footprint, and we maintain our global share of the fast-growing eat not burn category at approximately 76% in H1.

Speaker #3: This was further illustrated by the recognition of ICOS for the first time among the top 100 most valuable global brands according to Cantar. Looking at ICOS off-take share performance, we continue to drive impressive progress across key cities globally, and important lead indicator of broader national adoption.

Speaker #3: In Q2, we recorded further strong share gains across established ICOS markets, including Greece, Italy, Romania, and the UK, alongside global travel retail. We are also seeing very good momentum in emerging ICOS markets, notably Mexico, Indonesia, and Taiwan, with Taipei share of around 8% in a seasonally higher total market for cigarettes.

Emmanuel Babeau: We are also seeing very good momentum in emerging IQOS markets, notably Mexico, Indonesia, and Taiwan, with Taipei share of around 8% in a seasonally higher total market for cigarettes. These results reflect our strong commercial execution as well as the increasing presence and scale of IQOS in more established markets, combined with excellent early adoption in newer markets, reinforcing our confidence in the long-term growth trajectory. In e-vapor, VEEV continued to deliver excellent results with H1 shipment growth of +72% and very good progression on financial metrics, including profitability. This reflects robust growth across key open markets, reinforcing VEEV's leadership position. VEEV is now the clear number one brand in Europe, both within closed pod and for pods and disposable combined, and the estimated number one closed pod brand in global travel retail where VEEV is present, all ahead of long-established players.

Speaker #3: These results reflect our strong commercial execution as well as the increasing present and scale of ICOS in more established markets, combined with excellent early adoption in newer markets, reinforcing our confidence in the long-term growth trajectory.

Speaker #3: In eVapor, we've continued to deliver excellent results with H1 shipment growth of plus 72% and very good progression on financial metrics, including profitability. This reflects robust growth across key European markets, reinforcing these leadership positions.

Speaker #3: These is now the clear number one brand in Europe both within close pods and for pods and disposable combined, and the estimated number one close pod brand in global travel retail where Vive is present, all ahead of long established players.

Speaker #3: This is supported by the structural evolution of the category, with close pods now representing the predominant format internationally, excluding illicit and open systems. High levels of consumer retention and brand loyalty underpin our performance, supported by responsible innovation and continued portfolio enhancement.

Emmanuel Babeau: This is supported by the structural evolution of the category, with closed pods now representing the predominant format internationally, excluding illicit and open systems. High levels of consumer retention and brand loyalty underpin our performance, supported by responsible innovation and continued portfolio enhancement. This includes the progressive rollout of our latest technology, VEEV ONE PLUS, which offers an elevated consumer experience through a compact premium design, a swap and store functionality enabling 2 pods in one device, and longer-lasting replaceable batteries. For ZYN, international shipment volume grew +6% in H1, or +32% excluding the Nordics. ZYN continued to gain share in this small but fast-growing category, reaching more than 17% of the international segment, excluding the Nordics in Q2. We are seeing encouraging progress across a broad set of geographies, supported by portfolio expansion and consumer adoption as awareness and availability improve.

Speaker #3: This includes the progressive rollout of our latest technology, Vive OnePlus, which offers an elevated consumer experience through a compact premium design, a swap-and-store functionality, enabling two pods in one device, and a longer-lasting replaceable battery.

Speaker #3: For theme, international shipment volume grew plus 6% in the first half, or plus 32%, excluding the Nordics. Then continued to gain share in this small but fast-growing category, reaching more than 17% of the international segment, excluding the Nordics in Q2.

Speaker #3: We are seeing encouraging progress across a broad set of geographies, supported by portfolio expansion and consumer adoption as awareness and availability improve. This includes markets such as the UK, Pakistan, Poland, Greece, and the Philippines, with further footprint and portfolio expansion planned in the second half.

Emmanuel Babeau: This includes markets such as the UK, Pakistan, Poland, Greece, and the Philippines, with further footprint and portfolio expansion planned in the second half. Zooming in on Europe, where we are now present in every market with smoke-free products following the Q2 launch of IQOS in Malta, which recently established a new regulatory framework for smoke-free products. Our multi-category portfolio drove strong growth with combined IMS up +8% in H1 as ZYN and VEEV strength and complement IQOS, supporting growth, consumer acquisition, and long-term value creation. IQOS remains the core engine of our performance, with adjusted IMS volume up by +5.1% in Q2 and +5.4% for H1. We achieved this despite ongoing disruption in Ukraine and the impact of recent flavor ban in markets such as Poland and Hungary.

Emmanuel Babeau: This includes markets such as the UK, Pakistan, Poland, Greece, and the Philippines, with further footprint and portfolio expansion planned in the H2. Zooming in on Europe, where we are now present in every market with smoke-free products following the Q2 launch of IQOS in Malta, which recently established a new regulatory framework for smoke-free products. Our multi-category portfolio drove strong growth with combined IMS up +8% in H1 as ZYN and VEEV strength and complement IQOS, supporting growth, consumer acquisition, and long-term value creation. IQOS remains the core engine of our performance, with adjusted IMS volume up by +5.1% in Q2 and +5.4% for H1. We achieved this despite ongoing disruption in Ukraine and the impact of recent flavor ban in markets such as Poland and Hungary.

Speaker #3: Zooming in on Europe, where we are now present in every market with small free products following the Q2 launch of ICOS in Malta, which recently established a new regulatory framework for small free product.

Speaker #3: Our multi-category portfolio drove strong growth with combined IMS up plus 8% in H1, as then, and these strengths and complement ICOS, supporting growth, consumer acquisition, and long-term value creation.

Speaker #3: ICOS remains the core engine of our performance with adjusted IMS volume up by plus 5.1% in Q2 and plus 5.4% for the first half.

Speaker #3: We achieved this despite ongoing disruption in Ukraine and the impact of recent flavor ban in markets such as Poland and Hungary. Excluding markets where the ban took effect in the prior 12 months, underlying ICOS adjusted IMS growth remained robust at around plus 8% for both Q2 and H1, reflecting momentum across the region.

Emmanuel Babeau: Excluding markets where the ban took effect in the prior 12 months, underlying IQOS-adjusted IMS growth remained robust at around +8% for both Q2 and H1, reflecting momentum across the region. This includes excellent growth across a broad set of markets, including Italy, Germany, Romania, Bulgaria, Greece, and Spain, supported by our innovation and commercial initiatives such as the broader rollout of DELIA, new variants of both TEREA and LEVIA, special edition devices and consumables, and collaboration with partners that share our commitment to innovation, reinvention, and transformation. While VEEV is a global success, its biggest impact is in Europe, where the e-vapor category is highly penetrated. H1 shipment grew +81%, including impressive results in Romania, Greece, and Germany. Similar to its total international progression, ZYN displayed dynamic ex-Nordics growth of around +33% as the category continued to gain traction.

Speaker #3: This includes excellent growth across a broad set of markets, including Italy, Germany, Romania, Bulgaria, Greece, and Spain, supported by our innovation and commercial initiatives such as the broader rollout of Delia, new variants of both Sterea and Livia, special edition devices, and consumables, and collaboration with partner that share our commitment to innovation reinvention and transformation.

Speaker #3: While Vive is a global success, its biggest impact is in Europe, where the eVapor category is highly penetrated. H1 shipments grew plus 81%, including impressive results in Romania, Greece, and Germany.

Speaker #3: Similar to its total international progression, then displayed dynamic ex-Nordics growth of around plus 33% as the category continued to gain traction. In Japan, ICOS fundamentals remain strong, despite expected volatility from pricing and timing effects.

Emmanuel Babeau: In Japan, IQOS fundamentals remain strong despite expected volatility from pricing and timing effects. H1 performance was in line with expectation, with adjusted IMS growth of +3.4%. Following an exceptionally strong Q1, Q2 adjusted IMS declined by 3.4%, reflecting the reversal of consumer pantry loading ahead of the 1 April excise-driven price increase. Excluding this impact, underlying growth was around +1%. While this represented a moderation from recent quarters, the initial impact of consumer adjustment to the price increase was in line with our expectation. The April excise change required the largest HTU price increase to date in Japan to pass on the tax, while there was no excise change for cigarettes.

Speaker #3: First half performance was in line with expectation, with adjusted IMS growth of plus 3.4%. Following an exceptionally strong first quarter, Q2 adjusted IMS declined by 3.4%, reflecting the reversal of consumer pantry loading ahead of the April 1st excess-driven price increase.

Speaker #3: Excluding this impact, underlying growth was around plus 1%. While this represented a moderation from recent quarters, the initial impact of consumer adjustment to the price increase was in line with our expectation.

Speaker #3: The April excess change required the largest HTU price increase to date in Japan, to pass on the tax, while there was no excess change for cigarette.

Speaker #3: Despite implementing the largest increase in the market, ICOS adjusted category share held in the I60s and adjusted IMS recovered nicely through the quarter, to essentially match Q1 monthly volume excluding pantry loading.

Emmanuel Babeau: Despite implementing the largest increase in the market, IQOS' adjusted category share held in the high 60s and adjusted IMS recovered nicely through the quarter to essentially match Q1 monthly volume, excluding pantry loading, a further testament to IQOS' resilience. Despite these factors, IQOS-adjusted HTU share was stable at 31.8% in Q2 or up +0.9 percentage point excluding pantry loading, supported by our tier portfolio, with SENTIA playing an important role in capturing more price-sensitive TEREA consumers. Importantly, underlying demand remained robust. The heat-not-burn category continued to represent more than half of total nicotine offtake, and we expect this to continue growing over time. While the biggest step is behind us, we expect further category volatility in H2, notably around the excise change in October, and we expect similar consumer behavior patterns, including pantry loading and subsequent normalization.

Speaker #3: A further testament to ICOS resilience. Despite these factors, ICOS adjusted HTU share was stable at 31.8% in Q2, or up plus 0.9 percentage point, excluding pantry loading, supported by our tier portfolio with Sentia, playing an important role, in capturing more price-sensitive Sterea consumers.

Speaker #3: Importantly, underlying demand remained robust. The in-urban category continued to represent more than half of total nicotine of tech, and we expect this to continue growing over time.

Speaker #3: While the biggest step is behind us, we expect further category volatility in H2, notably around the excess change in October, and would expect similar consumer behavior patterns including pantry loading and subsequent normalization.

Speaker #3: We continue to target growth in ICOS adjusted IMS volume for the year overall. Moving to the US, where we delivered a sequential improvement of plus 38% in net revenue, and plus 46% in adjusted gross profit compared to a challenging Q1.

Emmanuel Babeau: We continue to target growth in IQOS-adjusted IMS volume for the year overall. Moving to the US, where we delivered a sequential improvement of +38% in net revenue and +46% in adjusted gross profit compared to a challenging Q1. This largely reflects the +25% sequential growth in ZYN shipment and reduced sales promotion as we prepared for new product launches. On a year-on-year basis, segment net revenue declined by close to 1%, reflecting a decline in cigars and unfavorable phasing dynamic in the wellness business, while ZYN net revenue were broadly flat. Gross profit was impacted by higher manufacturing costs, mainly related to the ramp-up of new ZYN capacity in Colorado, where full-scale commercial production began this month, reflecting our continued investment to support future growth.

Speaker #3: This largely reflects the plus 25% sequential growth in thin shipment, and reduced sales promotion as we prepared for new product launches. On a year-on-year basis, segment net revenue declined by close to 1%, reflecting a decline in cigars and unfavorable phasing dynamic in the wellness business, while zine net revenue were broadly flat.

Speaker #3: Gross profit was impacted by higher manufacturing cost, mainly related to the ramp-up of new zine capacity in Colorado, where full-scale commercial production began this month, reflecting our continued investment to support future growth.

Speaker #3: Zine shipments returned to growth with an increase of plus 2% year-on-year to 2.9 billion pouches, despite an inventory restocking tailwind of around 150 million pouches in the prior year.

Emmanuel Babeau: ZYN shipments returned to growth with an increase of +2% year-on-year to 2.9 billion pouches, despite an inventory restocking tailwind of around 150 million pouches in the prior year. This growth is broadly in line with stable to slightly growing offtake volume and includes some initial shipments of new variants in June, including the ZYN Ultra range, which contains 20 pouches per can. Looking to the H2, we expect the dynamism of ZYN to be enhanced by our expanding portfolio and increased commercial activity, which I'll come back to shortly. However, it is important to note that volume comparison in Q3 will be impacted by the one-off promotional activity in September of last year, which accounted for around 250 million pouches. Importantly, ZYN remains the clear premium leader of the nicotine pouch category, with a retail value share of around 57%.

Speaker #3: This growth is broadly in line with stable to slightly growing off-tech volume and includes some initial shipments of new variants in June, including the zine ultra range which contains 20 pouches per can.

Speaker #3: Looking to the second half, we expect the dynamism of zine to be enhanced by our expanding portfolio and increased commercial activity, which I'll come back to shortly.

Speaker #3: However, it is important to note that volume comparison in Q3 will be impacted by the one-off promotional activity in September of last year, which accounted for around 250 million pouches.

Speaker #3: Importantly, zine remains a clear premium leader of the nicotine pouch category, with a retail value share of around 57%. As discussed in prior disclosures, recent category share performance has been impacted by both competitive gaps in the growing higher strength segment, including moist product, and in certain flavor segment, as well as an elevated price premium.

Emmanuel Babeau: As discussed in prior disclosures, recent category share performance has been impacted by both competitive gaps in the growing higher strength segment, including moist products, and in certain flavor segments, as well as an elevated price premium. With improving regulatory clarity and operational readiness, we have now taken the first step to address this with additional variants. This started with the launch of ZYN Ultra in 9 and 11 milligram moist variants at a lower per pouch price than the ZYN flagship range of dry pouches, reducing the price premium to the closest competitor while maintaining a clear premium position alongside targeted addition to our flagship flavor range. These new variants are rapidly building distribution, and while early days, we are pleased by promising initial offtake trends and positive consumer feedback.

Speaker #3: With improving regulatory clarity and operational readiness, we have now taken the first step to address this with additional variants. This started with the launch of zine ultra in nine and 11 milligram moist variants at a lower per pouch price than the zine flagship range of dry pouches, reducing the price premium to the closest competitor while maintaining a clear premium position alongside targeted addition to our flagship flavor range.

Speaker #3: These new variants are rapidly building distribution and while early days, we are pleased by promising initial off-tech trends and positive consumer feedback. As a related aside, I would note that while scanner data typically provide a good directional indication of volume trend, it does not always fully capture the effective consumer price.

Emmanuel Babeau: As a related aside, I will note that while scanner data typically provide a good directional indication of volume trend, it does not always fully capture the effective consumer price. We plan further extension in the coming months, including the introduction of 1.5 milligram and 8-milligram dry formats in Q3. Together, these launches will broaden our offering with an expanded range of strengths and taste profile, enabling us to better address the spectrum of legal age consumer preferences and further strengthen our competitive positioning across segments. With such an exciting lineup of new products to complement the existing portfolio, we plan to accelerate our US investment in the H2. This includes a comprehensive commercial program across marketing, distribution, and in-store execution with the rollout of our major new brand campaign, When It Clicks, starting this month to support brand engagement and consumer relevance.

Speaker #3: We plan further extension in the coming months, including the introduction of 1.5 milligram and 8 milligram dry formats in Q3. Together, these launches will broaden our offering with an expanded range of strengths and test profile, enabling us to better address the spectrum of legal edge consumer preferences, and further strengthen our competitive positioning across segments.

Speaker #3: With such an exciting lineup of new product to complement the existing portfolio, we plan to accelerate our US investment in the second half. This includes a comprehensive commercial program across marketing, distribution, and in-store execution, with a rollout of our major new brand campaign when it clicks, starting this month to support brand engagement and consumer relevance.

Speaker #3: We are also implementing commercial initiatives to optimize zine's premium positioning, and enhance consumer value perception. In addition, our US investment includes preparation for the future launch of ICOS Illuma, subject to FDA action.

Emmanuel Babeau: We are also implementing commercial initiatives to optimize ZYN's premium positioning and enhance consumer value perception. In addition, our US investment include preparation for the future launch of IQOS ILUMA, subject to FDA action. We also believe ZYN is well-positioned from a regulatory standpoint, notably following the modified risk tobacco product authorization of 20 SKUs, making it the only nicotine pouch product with the designation and allowing us to market the claim, Using ZYN instead of cigarettes puts you at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema, and chronic bronchitis. This further reinforces its differentiated and sustainable positioning, supporting consumer trust and long-term growth potential. Overall, we remain confident in the long-term trajectory of ZYN and the US nicotine pouch category, supported by strong legal age consumer demand and the investment we are making in responsibly commercializing a significantly enhanced product range for long-term leadership.

Speaker #3: We also believe zine is well positioned from a regulatory standpoint, notably following the modified risk tobacco product authorization of 20 SKUs, making it the only nicotine pouch product with a designation and allowing us to market the claim using zine instead of cigarettes, puts you at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema, and chronic bronchitis.

Speaker #3: This further reinforces its differentiated and sustainable positioning, supporting consumer trust and long-term growth potential. Overall, we remain confident in the long-term trajectory of zine and the US nicotine pouch category, supported by strong legal edge consumer demand and the investment we are making in responsibly commercializing a significantly enhanced product range for long-term leadership.

Speaker #3: Finally, moving to combustible, where our business delivered a particularly strong Q2 performance. In addition to the favorable volume trajectory, I described earlier, this was driven by a pricing variance of plus 9.2% in the first half, or almost plus 10% in Q2 with notable contribution from market, including Turkey, Indonesia, the Philippines, and Mexico.

Emmanuel Babeau: Finally, moving to combustible, where our business delivered a particularly strong Q2 performance. In addition to the favorable volume trajectory I described earlier, this was driven by a pricing variance of +9.2% in H1 or almost +10% in Q2, with notable contribution from markets including Turkey, Indonesia, the Philippines, and Mexico. While we expect some moderation in H2 due to timing factors and annualization, we now forecast a pricing variance of more than 7% for the full year. Although we expect this additional benefit will be largely offset by a more adverse geographic mix as volumes skew more to markets with lower per-unit revenues. Despite such strong pricing, our portfolio maintained its international category share at 25.3% in Q2, with Marlboro again demonstrating the strength of its premium brand equity, matching its record high of 11%.

Speaker #3: While we expect some moderation in H2 due to timing factors and annualization, we now forecast a pricing variance of more than 7% for the full year, although we expect this additional benefit will be largely offset by a more adverse geographic mix as volumes queue more to market with lower per unit revenues.

Speaker #3: Despite such strong pricing, our portfolio maintains its international category share at 25.3% in Q2, with Marlboro again demonstrating the strength of its premium brand equity, matching its record high of 11%.

Speaker #3: This combination of pricing power, brand leadership, and discipline execution translated into robust profitability with international combustible growth profit growing by plus 6.1% in organic terms, and by an impressive plus 8% in Q2.

Emmanuel Babeau: This combination of pricing power, brand leadership, and disciplined execution translated into robust profitability with international combustible gross profit growing by +6.1% in organic terms, and by an impressive +8% in Q2. Our combustible business continues to demonstrate the strength of its model, delivering solid top and bottom line growth, while supporting the ongoing expansion and increasing profitability of our smoke-free portfolio. This brings me to our outlook for the full year. With our international smoke-free business growing very strongly as expected, and the combustible business outperforming our prior expectations, we have additional capacity to invest while maintaining a best-in-class growth performance. The success of PMI is built on investing in the short term for long-term growth, just as we have with IQOS and in decades past, Marlboro.

Speaker #3: Our combustible business continues to demonstrate the strength of its model, delivering solid top and bottom line growth, while supporting the ongoing expansion and increasing profitability of our smoke-free portfolio.

Speaker #3: This brings me to our outlook for the full year. With our international smoke-free business growing very strongly as expected, and the combustible business outperforming our prior expectations, we have additional capacity to invest while maintaining a best-in-class growth performance.

Speaker #3: The success of PMI is built on investing in the short term for long-term growth. Just as we have with ICOS and in decades past Marlboro.

Speaker #3: A defining characteristic of our company over the last 15 years is that as we invest, we also deliver strong growth and cash generation. For 2026, we continue to target organic net revenue growth of plus 5 to plus 7%, organic operating income growth of plus 7 to plus 9%, and currency neutral adjusted diluted EPS growth of plus 7.5 to plus 9.5%.

Emmanuel Babeau: The defining characteristic of our company over the last 50 years is that as we invest, we also deliver strong growth and cash generation. For 2026, we continue to target organic net revenue growth of +5% to +7%, organic operating income growth of +7% to +9%, and currency neutral adjusted diluted EPS growth of +7.5% to +9.5%. In dollar terms, we now forecast a currency tailwind of around $0.15 at prevailing rates, translating into an adjusted diluted EPS range of $8.26 to $8.41, an increase of +9.5% to +11.5%. With an expectation of broadly stable to slightly growing volumes, we are also aiming for our sixth consecutive year of total volume growth. For H2, this implies a continued strong top line and an acceleration in organic operating income growth.

Speaker #3: In dollar terms, we now forecast a currency tailwind of around 15 cents at prevailing rates, translating into an adjusted diluted EPS range of $8.26 to $8.41, an increase of 9.5 to plus 11.5%.

Speaker #3: With an expectation of broadly stable to slightly growing volumes, we are also aiming for a six consecutive year of total volume growth. For the second half, this implies a continued strong top line and an acceleration in organic operating income growth.

Speaker #3: Further robust international progression should be complemented by US momentum, notwithstanding a fairly even phasing of international HTU shipment through the four quarters, with shipment broadly in line with adjusted IMS for the full year.

Emmanuel Babeau: Further robust international progression should be complemented by US momentum, notwithstanding a fairly even phasing of international HTU shipments through the four quarters, with shipment broadly in line with adjusted IMS for the full year. We also expect robust progress at the EPS level, while noting challenging H2 comparison on net finance cost and the effective tax rate. For Q3 specifically, we expect HTU shipment volume of around 41 billion units. Against a strong Q3 2025, when HTU shipment grew by 15.5%, we thus expect mid-single digit international smoke-free organic net revenue and gross profit growth. For PMI overall, we forecast mid-single digit Q3 organic top line growth with modest organic margin expansion. We target adjusted diluted EPS of $2.20 to $2.25, including an unfavorable currency impact of $0.08 at prevailing exchange rate. This also reflects the challenging tax rate comparison from Q3 last year.

Speaker #3: We also expect robust progress at the EPS level, while noting challenging H2 comparison on net finance cost and the effective tax rate. For Q3, specifically, we expect HTU shipment volume of around 41 billion units, against a strong Q3 25 when HTU shipment grew by 15.5%, with us expect mixed single-digit international smoke-free organic net revenue and gross profit growth.

Speaker #3: For PMI overall, we forecast meet single-digit Q3 organic top line growth, with modest organic margin expansion. We target adjusted diluted EPS of $2.20 to $2.25, including an unfavorable currency impact of 8 cents at prevailing exchange rate.

Speaker #3: This also reflects the challenging tax rate comparison from Q3 last year. Finally, we continue to expect operating cash flow generation of around 13.5 billion dollars, providing further flexibility to support both investment and continued attractive shareholder return.

Emmanuel Babeau: We continue to expect operating cash flow generation of around $13.5 billion, providing further flexibility to support both investment and continued attractive shareholder return. I will now conclude today's presentation with a few key takeaways. We delivered an excellent H1, underscoring the quality of our business model and placing us firmly on track for another year of strong performance. Our results reflect the powerful combination of smoke-free growth and strong combustible execution, with the profitability of our smoke-free portfolio continuing to improve as IQOS, VEEV, and Vuse gain scale and drive synergies across markets. This performance, together with effective cost management, provide us with the flexibility to reinvest behind our smoke-free future while sustaining best-in-class growth. We also remain a highly cash generative business with an unwavering commitment to our progressive dividend policy and to returning value to shareholders.

Speaker #3: I will now conclude today's presentation with a few key takeaways. We delivered an excellent first half, underscoring the quality of our business model and placing us firmly on track for another year of strong performance.

Speaker #3: Our results reflect the powerful combination of smoke-free growth and strong combustible execution, with profitability of our smoke-free portfolio continuing to improve, as ICOS, Zine, and Vive gained scale and drive synergies across market.

Speaker #3: This performance, together with effective cost management, provides us with a flexibility to reinvest behind our smoke-free future, while sustaining best-in-class growth. We also remain a highly cash-generative business, with an unwavering commitment to our progressive dividend policy and to returning value to shareholders.

Speaker #3: Looking ahead, we approach the remainder of 2026 with confidence, well-positioned to deliver superior and sustainable growth. On a more personal note, this is my last earning calls as Group CFO of PMI, and I would like to thank our shareholder and analyst for your support, engagement, and constructive challenge over the past six years, a period of strong performance and shareholder returns.

Emmanuel Babeau: Looking ahead, we approach the remainder of 2026 with confidence, well-positioned to deliver superior and sustainable growth. On a more personal note, this is my last earnings call as Group CFO of PMI, and I would like to thank our shareholder, analysts for your support, engagement, and constructive challenge over the past six years, a period of strong performance and shareholder returns. As I look at the business today, I am confident PMI will continue to represent a standout performer within CPG over the coming years, and I leave you in the very talented hands of my successor, Massimo Andolina, who will transition from his current role as regional president for Europe in August.

Speaker #3: As I look at the business today, I am confident PMI will continue to represent a standout performer within CPG over the coming years, and I leave you in the very talented hands of my successor, Massimo Andolina, who will transition from his current role as regional president for Europe in August.

Speaker #1: Thank you, Emmanuel. Good morning and good afternoon to everyone. Emmanuel, I would first like to pay tribute to your significant contribution to the performance of our company over the last few years.

Massimo Andolina: Thank you, Emmanuel. Good morning and good afternoon to everyone, Emmanuel, I would first like to pay tribute to your significant contribution to the performance of our company over the last few years, and to the great collaboration that you and I have personally enjoyed, both in my previous roles and in the process of this transition. Emmanuel, I am fully aware that you leave behind big shoes to fill, and I will continue to count on your support in the coming months to do so effectively. Thank you. I am very much looking forward to serving as the Group CFO of Philip Morris International, and continuing our relentless focus on delivering superior shareholder returns over the long term. We have a very robust business model built on investing for sustainable smoke-free growth, and a strong and talented organization with an excellent track record of delivering for shareholders.

Speaker #1: And to the great collaboration that you and I have personally enjoyed, both in my previous roles and in the process of this transition. Emmanuel, I am fully aware that you leave behind big shoes to fill.

Speaker #1: And I will continue to count on your support in the coming months to do so effectively. Thank you. I am very much looking forward to serving as the Group CFO of Philip Morris International and continuing our relentless focus on delivering superior shareholder returns over the long term.

Speaker #1: We have a very robust business model built on investing for sustainable smoke-free growth and a strong and talented organization with an excellent track record of delivering for shareholders.

Speaker #1: I look forward to engaging with our investors our analysts and all other stakeholders over the coming months and beyond.

Massimo Andolina: I look forward to engaging with our investors, our analysts, and all other stakeholders over the coming months and beyond.

Speaker #2: Thank you, Massimo. Thank you, Emmanuel. The team are now happy to answer your questions.

James Bushnell: Thank you, Massimo. Thank you, Emmanuel. The team are now happy to answer your questions.

Speaker #3: Thank you. At this time, we will conduct a question and answer session. As a reminder to ask a question, you will need to press star 11 on your telephone, and wait for your name to be announced.

Operator: Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please limit yourself to two questions per person and rejoin the queue again for further questions. Please stand by while we compile the Q&A roster. Our first question coming from the line of Bonnie Herzog with Goldman Sachs. Your line is now open.

Speaker #3: To withdraw your question, please press star 11 again. Please limit yourself to two questions per person, and rejoin the queue again for further questions.

Speaker #3: Please stand by while we compile the Q&A roster. Our first question coming from the line of Bonnie Herzog with Goldman Sachs. Your line is now open.

Speaker #4: All right. Thank you. Emmanuel, it's been great working with you, and I do wish you all the best in the future. My first question.

Bonnie Herzog: All right. Thank you. Emmanuel, it's been great working with you, and I do wish you all the best in the future.

Emmanuel Babeau: Thank you, Bonnie.

Bonnie Herzog: Yes, you're welcome. My first question is on your guidance. Despite two quarters of better-than-expected performance and strength, you did maintain your full-year underlying growth guidance. I did just want to verify this is primarily due to your strategic decision to step up investments in the US in H2, or is there something else we should be mindful of? Your guidance still does imply slightly faster income growth in 2H versus 1H. I wanted to understand, how much flexibility you have with this greater spending, could you maybe just give us a little more color on these planned investments? For instance, should we anticipate a big step-up in promotional spend behind ZYN?

Speaker #4: Yes. You're welcome. My first question is on your guidance. Despite two quarters of better-than-expected performance and strength, you did maintain your full year underlying growth guidance.

Speaker #4: So I did just want to verify this is primarily due to your strategic decision to step up investments in the US in the second half, or is there something else we should be mindful of?

Speaker #4: And then your guidance still does imply slightly faster income growth in 2H versus 1H. So I wanted to understand how much flexibility you have with this greater spending, and then could you maybe just give us a little more color on these planned investments?

Speaker #4: For instance, should we anticipate a big step-up in promotional spend behind Zine?

Speaker #1: Thank you, Bonnie. So I mean, H1, you've seen it is great. And the fact that after a great H1, indeed, with some very good news in Q2 globally and notably with the confirmation of a strong smoke-free business, CC, that is doing better than expected.

Emmanuel Babeau: Thank you, Bonnie. H1, you've seen it, is great. The fact that after a great H1, indeed, with some very good news in Q2 globally and notably with the confirmation of a strong smoke-free business, CC, that is doing better than expected. The reason why today we're not revising the guidance is indeed the fact that we also are facing a very exciting moment in the US. We have an alignment of planet that is, of course, great. We have, as we've been explaining now, a much broader portfolio of variants. We're coming with more flavor on our dry offering, and you've seen that. We talk about peach, Dragon Berry, and black cherry. We are coming with now ZYN Ultra. With 9 and 11. We are announcing that we are coming with 1.5 and 8 milligrams.

Speaker #1: The reason why today we're not revising the guidance is indeed the fact that we also are facing a very exciting moment in the US.

Speaker #1: We have an alignment of planets that is, of course, great. We have, as we've been explaining, now a much broader portfolio of variants. We're coming with more flavor on our dry offering, and you've seen that.

Speaker #1: We talk about pitch dragonberry and black cherry. We are coming with now Zine Ultra. So with 9 and 11, we are announcing that we are coming with 1.5 and 8 milligrams.

Emmanuel Babeau: We are really putting together now a portfolio that is really, I would say, nicely matching consumer demand and the evolution of the market. On top of that, we have our new marketing campaign, When It Clicks. I think we are very enthused by the potential of this campaign to build further the emotion around the ZYN brand and develop the brand franchise. I would say the MRTP is almost coming as an icing on the cake. We were confident this would come. We were confident about the quality of the product. That is great that we're able now to have this authorization to market the product with this reduced risk mention, and I've been elaborating on that. That's really a great moment in the US to accelerate. I would say, we're going to go 360.

Speaker #1: So we are really putting together now a portfolio that is really I would say nicely matching consumer demand and the evolution of the market.

Speaker #1: On top of that, we have our new marketing campaign when it clicks. I think we are very, very enthused by the potential of this campaign.

Speaker #1: To build further the emotion around the Zine brand and develop the brand franchise. I would say the MRTP is almost coming as a nice thing on the cake.

Speaker #1: We were confident this would come. We were confident about the quality of the product that is great that we're able now to have this authorization to market the product with this reduced risk mention.

Speaker #1: And I've been elaborating on that. So that's really a great moment in the US to accelerate. And I would say we're going to go 360.

Speaker #1: So it's going to be every lever we can pull to accelerate the growth of Zine and leveraging this new situation. And it's going to come, of course, with a lot of marketing, commercial activity at the point of sales.

Emmanuel Babeau: It's going to be every lever we can pull to accelerate the growth of ZYN and leveraging this new situation. It's going to come, of course, with a lot of marketing, commercial activity at the point of sales. That's going to be really important. I think you were questioning, okay, what does it mean in term of promotional activity? Well, you've seen that Q2 has been more reduced in term of promotional activity. That's why we are close to flat year on year in term of revenue, with volume slightly up. I think we'll see. I'm not going, of course, to comment in advance, that would be anti-competitive, any kind of price action. There is one starting point, which is absolutely intangible. ZYN is a leading premium brand of the market and is going to stay as the leading premium brand of the market.

Speaker #1: That's going to be really important. I think you were questioning, okay, Well, you've seen that Q2 has been more reduced in terms of promotional activity.

Speaker #1: That's why we are close to flat year-on-year in terms of revenue with volume slightly up. I think we'll see. I'm not going, of course, to comment in advance.

Speaker #1: That would be anti-competitive any kind of price action. There is one starting point, which is absolutely intangible. Zine is the leading premium brand of the market, and it's going to stay as the leading premium brand of the market.

Speaker #1: And then everything we will be doing in that respect will be to optimize volume growth and the bottom line growth. And once I've said that, I've said everything I can say in that respect.

Emmanuel Babeau: Everything we will be doing in that respect will be to optimize volume growth and the bottom line growth. Once I've said that, I've said everything I can say in that respect. It's illustrating how we are looking at things. Certainly in the US, after several quarters of frustration, it's a great moment, and it's great that obviously we have the capacity to deliver a very strong growth while accelerating our investment in the US.

Speaker #1: But it's illustrating how we are looking at things. But that's certainly in the US, after several quarters of frustration, it's a great moment. And it's great that, obviously, we have the capacity to deliver a very strong growth while accelerating our investments in the US.

Speaker #4: Okay. That was super helpful. And just maybe a quick follow-up. On Zine, just hoping for a little more color on the rollout of Ultra, early feedback.

Bonnie Herzog: Okay. That was super helpful. Just maybe a quick follow-up on ZYN. Just hoping for a little more color on the rollout of ZYN Ultra, early feedback you've been hearing from retailers and consumers, space gains, how incremental do you expect it to be? You mentioned this morning that you have plans to roll out the lower nicotine ZYN, so just love to hear how you expect to position that within broader ZYN portfolio and how incremental that can be. Thanks.

Speaker #4: You've been hearing from retailers and consumers space gains. How incremental do you expect it to be? And then you mentioned this morning that you have plans to roll out the lower nicotine Zine.

Speaker #4: So just love to hear how you expect to position that within broader Zine portfolio and how incremental that can be. Thanks.

Speaker #1: Yeah. So on Zine Ultra, I don't think we want to be overplaying the first two weeks. I mean, you have seen these first two weeks of Nielsen as we did.

Emmanuel Babeau: Yeah. On ZYN Ultra, I don't think we want to be overplaying the first two weeks. I mean, you have seen these first two weeks of ZYN as we did. It's very nice. We have sequential growth. We are growing our share. We are capturing, I think, a large part of the evolution of the category over this two weeks period. We have a number of positive consumer feedback. I think here we want to stay cautious because we took about two weeks, a lot to come, but I would say the first data and first feedback are certainly encouraging. Let's have a bit more week, and I'm sure after the summer we'll be able to have a much better understanding of what ZYN Ultra is bringing.

Speaker #1: It's very nice. We have sequential growth. We are growing our share. We are capturing I think a large part of the evolution of the category over these two weeks period.

Speaker #1: We have a number of positive consumer feedback. I think we want to stay cautious because we talk about two weeks, a lot to come.

Speaker #1: But I would say the first data and first feedback are certainly encouraging. Let's have a bit more week and I'm sure after the summer we'll be able to have a much better understanding of what Zine Ultra is bringing.

Speaker #1: On your question on the low nicotine, I think we've always said and it's not specific to the US. Generally on the nicotine pouch category, that we see the 1.5 milligram as particularly relevant to convince smokers to switch to this better alternative.

Emmanuel Babeau: On your question on the low nicotine, I think we've always said, and it's not specific to the US, generally on the nicotine pouch category, that we see the 1.5 mg as particularly relevant to convince smokers to switch to this better alternative. We know that too high in nicotine content can actually create a bad experience and discourage some of them to be moving to this product. We hope that this 1.5 mg is gonna be helping really, millions of Americans who really test the category, I would say, in the most favorable possible condition and with the best possible experience. Now, of course, I will stay silent on our plan in term of rollout, and what we're going to do because that's sensitive information. That's really the philosophy that we have behind this 1.5 mg.

Speaker #1: And we know that too high in nicotine content can actually create a bad experience and discourage some of them, to be moving to this product.

Speaker #1: So we hope that this 1.5 milligram is going to be helping really millions of Americans to really test the category I would say in the most favorable possible condition and with the best possible experience.

Speaker #1: Now, of course, I will stay silent on our plan in terms of rollout and what we're going to do because that's sensitive information. But that's really the philosophy that we have behind this 1.5 milligram.

Speaker #2: Thank you. My next question coming from the lineup. Matt Smith with Stifel, you're on a smile open.

Operator: Thank you. Our next question coming from the line of Matt Smith with Stifel. Your line is now open.

Speaker #5: Hi. Thank you for taking the question. Emmanuel, I wanted to Good morning. I wanted to dig in a little bit further on the Japan dynamics during the quarter, more importantly, the progression both from a category growth standpoint in IMS as well as I'm sorry, ICOS's growth during the quarter.

Matt Smith: Hi, thank you for taking the question, Emmanuel.

Emmanuel Babeau: Morning, Matt.

Matt Smith: Morning. I wanted to dig in a little bit further on the Japan dynamics during the quarter, and more importantly, the progression, both from a category growth standpoint in IMS as well as IQOS's growth during the quarter. The overall IQOS HTU share was resilient, but any more detail on the share trends within IQOS, the mix between the IQOS consumable portfolio and expectations in H2, given another excise tax increase in October.

Speaker #5: The overall ICOS HTU share was resilient, but any more detail on the share trends within ICOS, the mix between the ICOS consumable portfolio and expectations in the second half given another excise tax increase in October?

Speaker #5: Whether you think that has another impact on the third quarter versus fourth quarter phasing? Thank you.

Emmanuel Babeau: Yeah

Matt Smith: the Q3 versus Q4 phasing. Thank you.

Speaker #1: Yeah. Yeah, Matt, sure. Happy to do that. So again, maybe let me start by repeating that what we've been experiencing in Japan is in line with our expectation.

Emmanuel Babeau: Yeah, Matt. Sure. Happy to do that. Again, maybe let me start by repeating that what we've been experiencing in Japan is in line with our expectations. We knew it would be a bit chaotic to read between Q1, pantry loading, Q2 with, of course, negative impact at the beginning and then a recovery. If you take a kind of macro approach on what has been happening in Japan, yes, the category has been slowing in terms of growth. What else would you expect? I mean, it's a significant increase for the consumer in a country where the consumer is not, I would say, used to have a very significant price increase. There is a kind of cultural shock here that is happening. That is, of course, something that is a disruption, but that's what we're expected to the category.

Speaker #1: So we knew it would be a bit chaotic to read between Q1, pantry loading, Q2 with, of course, negative impact at the beginning and then a recovery.

Speaker #1: If you take a kind of macro approach on what has been happening in Japan, yes, the category has been slowing in terms of growth.

Speaker #1: But what else would you expect? I mean, it's a significant increase. For the consumer, in a country where the consumer is not, I would say, used to have very significant price increase.

Speaker #1: So there is a kind of cultural shock here that is happening. So that is, of course, something that is a disruption, but that's what we're expected to the category.

Speaker #1: So that has meant that the category has been slowing down. But it's still growing. And as we see the data through Q2, we see things that are regularly improving.

Emmanuel Babeau: That has meant that the category has been slowing down. It's still growing and as we see the data through Q2, we see things that are regularly improving. If I now focus on IQOS. We have been certainly more impacted on Ploom, which is the most expensive consumable brand. There was a very nice SENTIA safety net, I would say, for the consumer. Without giving the precise number, what we've seen is that SENTIA is probably above where it was when Ploom has not fully recovered yet, because of this move from Ploom to SENTIA. Overall, I mean, we finish at 68%, we're at 69% in the quarter before. Frankly, I don't even know whether this is really significant.

Speaker #1: And if I know I focus on ICOS, we have been certainly more impacted on Terra, which is the most expensive consumable brand. And there was a very nice Sentia safety net, I would say, for the consumer.

Speaker #1: So without giving the precise number, what we've seen is that Sentia is probably above where it was when Terra has not fully recovered yet.

Speaker #1: Because of this move from Terra to Sentia. But overall, I mean, we finished at 68%. We're at 69% in the quarter before. So frankly, I don't even know whether this is really significant.

Speaker #1: We have been the one, and I've been saying it again, in my remarks, with the biggest increase with our 40 yen. And we've gone through the worst for us because this first increase was the worst.

Emmanuel Babeau: We have been the one, I've been saying it again in my remarks, with the biggest increase with our JPY 40, we've gone through the worst for us, because this first increase was the worst. The pass-on, I'm not going to say what we're gonna do in H2, but the pass-on is lower. It's closer to JPY 20 in the H2. We've been going through the worst, we know that the competition, if they want to absorb their excise duty increase, they have to increase more than us, or they will have to have significant adverse consequences. That's really what we can say on Japan. We're not totally with this adjustment behind us. As we flagged, there will be more disruption in H2, I would say we're quite confident that we've been going through the most difficult moment.

Speaker #1: And the pass on, I'm not going to say what we're going to do in H2, but the pass on is lower it's closer to 20 yen in the second half.

Speaker #1: So we've been going through the worst. And we know that the competition, if they want to absorb their excise duty increase, they have to increase more than us or they will have to have significant adverse consequences.

Speaker #1: So that's really what we can say on Japan. So we're not totally with this adjustment behind us. As we flag, there will be more disruption in H2.

Speaker #1: But I would say we're quite confident that we've been going through the most difficult moment. It reacted as expected. And I think it's a tribute to the ICOS strengths in the country.

Emmanuel Babeau: It reacted as expected, I think it's a tribute to the IQOS strength in the country. Now we go for H2, as I said, with a lower impact in term of pass-on. Now, just let me say about what's going to happen next, because it's important to have in mind, and this one I think is going to play positively. You know that in 2026 there is no increase on combustible. In 2027, there is already plan, and I think it's 2027 till 2029, three years of excise duty increase at a much more limited level, of course, but both equally for CC and for heat-not-burn. As we've been moving to fixed rates, that is going to open the window probably for a favorable environment where, as a leading brand in term of price, we are less impacted proportionally than others.

Speaker #1: And now we go for H2, as I said, with a lower impact in terms of pass on. Now, just let me say about what's going to happen next because it's important to have in mind.

Speaker #1: And this one, I think, is going to play positively. You know that in 2026, there is no increase on combustible. In 2027, there is already plan.

Speaker #1: And I think it's 2027 until 2029. Three years of excise duty increase at a much more limited level, of course. But both equally for CC and for it not burn.

Speaker #1: And as we've been moving to fixed rights, that is going to open the window probably for a favorable environment where as a leading brand in terms of price, we are less impacted proportionally than others.

Speaker #1: That is creating window to increase price, which was not always obvious in the past. The pass on, I think, is around 12 yen for the coming years.

Emmanuel Babeau: That is creating window to increase price, which was not always obvious in the past. The pass-on, I think, is around JPY 12 for the coming years. Probably after what was a difficult moment to absorb in 2026, I think that is going to translate into a much more favorable landscape 2027 and beyond.

Speaker #1: And probably after what was a difficult moment to absorb in 2026, I think that is going to translate into a much more favorable landscape 2027 and beyond.

Speaker #5: That's very helpful. Thank you, Emmanuel. I'll pass it on.

Matt Smith: That's very helpful. Thank you, Emmanuel. I'll pass it on.

Speaker #1: Thank you, Matt. Thank you.

Emmanuel Babeau: Thank you, Matt. Thank you.

Speaker #2: Thank you. Our next question in queue, coming from the lineup. Eric Soto with Morgan Stanley. You're on a smile open.

Operator: Thank you. Our next question in queue, coming from the line of Erik Serota with Morgan Stanley. Your line is now open.

Eric Serotta: Hi. Good morning. First of all, thank you, Emmanuel. It's been a pleasure working with you. Looking forward to working with you ahead, Massimo. Best of luck, Emmanuel, in your next step.

Speaker #6: Hi. Good morning. First of all, thank you, Emmanuel. It's been a pleasure working with you. Looking forward to working with you ahead. Massimo, and best of luck, Emmanuel, in your next.

Speaker #1: Thank you. Thank you very much, Eric. Thank you.

Emmanuel Babeau: Thank you. Thank you very much, Erik. Thank you.

Speaker #6: You're welcome. Turning to turning back to Japan, could you comment a bit about the competitive environment there? We definitely saw a pickup in promotional activity over the past year from some of your competitors.

Eric Serotta: You're welcome. Turning back to Japan, could you comment a bit about the competitive environment there? We definitely saw a pickup in promotional activity over the past year from some of your competitors. Starting to cycle the beginning of that, how are you seeing that, or how have you seen that evolve in recent months? I know it's certainly noisy given the excise pass-through.

Speaker #6: Starting to cycle the beginning of that, how are you seeing that? Or how have you seen that evolve in recent months? I know it's certainly noisy given the excise pass through.

Speaker #1: Yeah, Eric. So in Japan, as you can imagine, I would say it's probably all hands on deck for every player given this very strong pass on in two steps.

Emmanuel Babeau: Yeah, Erik. In Japan, as you can imagine, I would say it's probably all hands on deck for every player given this very strong pass-on in two steps. People are probably no longer playing with, I'm going to try to make a promotion, here I'm going to try to play a kind of strange game here and there. I think everybody is saying, How do I absorb to the best possible of my capacity what is a big increase? When you don't have the best image in the market, it's more difficult for you to convince the consumer that your product deserves a significant price increase. I believe everybody is a little bit in the middle of that. I think we've been saying the fact that before this excise duty alignment or equalization happened, Japan Tobacco had been gaining share.

Speaker #1: So people are probably no longer playing with, I'm going to trying to make a promotion. Here, I'm going to try to play a kind of strange game here and there.

Speaker #1: I think everybody is saying, how do I absorb to the best possible of my capacity what is a big increase? And when you don't have the best image in the market, it's more that your product deserves a significant price increase.

Speaker #1: So I believe everybody is a little bit in the middle of that. I think we've been flying the fact that before this excise duty alignment or equalization happened, Japan Tobacco had been gaining share.

Speaker #1: I'm not going to comment on the trend on H1. And I'm even sure that it's at that moment easy to read what's going on.

Emmanuel Babeau: I'm not going to comment on the trend on H1, I'm even sure that it's, at that moment, easy to read what's going on. The fact that we are maintaining our share broadly, I mean, 68 versus 69, is just showing that, yeah, you can have between competitor number 2, competitor number 3, you can have some move, at the end of the day, we stay largely ahead of the competition. I think we will need to have the dust settling a little bit towards the end of the year to see what's going to be with the further price or excise duty increase I mentioned, what is the new game of the competitor. I think today everybody's trying to really work on absorbing this significant excise duty.

Speaker #1: But the fact that we are maintaining our share broadly, I mean, 68 versus 69, is just showing that, yeah, you can have between competitor number two, competitor number three, you can have some move, but at the end of the day, we stay largely ahead of the competition.

Speaker #1: I think we will need to have the dust settling a little bit towards the end of the year to see what's going to be the and with the further price or excise duty increase I mentioned, what is a new game of the competitor.

Speaker #1: But I think today everybody is trying to really work on absorbing this significant excise duty.

Speaker #6: Great. Very helpful. And then just a quick follow-up on that. Have seen that Japan Tobacco applied to the Ministry of Finance for the October price increase?

Eric Serotta: Great, very helpful. Just a quick follow-up on that. Have seen that Japan Tobacco applied to the Ministry of Finance for the October price increase. It looks like it was very slightly below the full pass-through of the excise. Is that consistent with your read on it based on pricing in the marketplace? Have you guys applied to the Ministry in terms of October pricing yet?

Speaker #6: It looks like it was very slightly below the full pass through of the excise. Is that consistent with your read on it based on pricing in the marketplace?

Speaker #6: And have you guys applied to the ministry in terms of October pricing yet?

Speaker #1: So look, I'm not going to comment on what the competitor has been doing. I think it's public what they've been granted by the Ministry of Finance.

Emmanuel Babeau: Look, I'm not going to comment on what a competitor has been doing. I think it's public what they've been granted by the Ministry of Finance. I'm not going to comment either on their strategy. I think we've been saying that globally, here I'm not being specific to the competition, the excise duty equalization meant a significantly higher price increase than for us. You remember that for us, altogether it's around 10%. For the competitor, it could go up to 20%. It's a much bigger price increase if they want to fully pass on, I don't know what they're going to do. For us, for our application, because this is your question, this is not public yet, I'm not going to comment on what we've been doing or not doing.

Speaker #1: I'm not going to comment either on their strategy. I think we've been saying that globally, here I'm not being specific. The competition, the excise duty equalization meant a significantly higher price increase at first.

Speaker #1: You remember that for us, altogether, it's around 10%. For the competitor, it could go up to 20%. So it's a much bigger price increase if they want to fully pass on.

Speaker #1: But I don't know what they're going to do. And for us, for our application, because this is your question, this is not public yet.

Speaker #1: So I'm not going to comment on what we've been doing or not doing. But if you can be bearing with us a little bit, I'm sure you'll learn soon.

Emmanuel Babeau: If you can be bearing with us a little bit, I'm sure you'll learn soon.

Speaker #2: Thank you. And again, as a reminder, to ask a question, please press star 11 on your touchdown telephone. Our next question, coming from the lineup, I'm back with UBS.

Operator: Thank you. Again, as a reminder, to ask a question, please press star one one on your touchtone telephone. Our next question coming from the line of Faham Baig with UBS. Your line is now open.

Speaker #2: You're on a smile open.

Speaker #7: Hi, everyone. Thank you for taking my questions. I've got two, if that's okay. The first one is a clarification, Emmanuel. When you suggest optimizing Zinn's price premium positioning, I know you've introduced an ultra, which sort of helps with that.

Faham Baig: Hi, everyone. Thank you for taking my questions. I've got two, if that's okay. The first one-

Emmanuel Babeau: Yes

Faham Baig: is a clarification, Emmanuel. When you suggest optimizing ZYN's price premium positioning. I know you've introduced an Ultra, which sort of helps with that, but are you also referring to ZYN flagship? I know you're conscious about market share, rightly so, but if that is the case, could this also help reaccelerate category growth, which is currently running around 20%? That's my first question. My second question, I appreciate pricing is a highly sensitive topic, and I'm not here looking for forward-looking guidance, but is it reasonable to assume that pricing is likely to be a greater part of the IQOS growth algorithm going forward? Is that a lever that could further drive gross margin expansion at IQOS?

Speaker #7: But are you also referring to Zinn flagship? And I know you're sort of conscious about market share, rightly so, but if that is the case, could this also help re-accelerate category growth, which is currently running around 20%?

Speaker #7: That's my first question. My second question, and I appreciate pricing is a highly sensitive topic, and I'm not here looking forward-looking guidance. But is it reasonable to assume that pricing is likely to be a greater part of the ICOS growth algorithm going forward?

Speaker #7: And is that a lever that could further drive growth margin expansion at ICOS?

Speaker #1: Sure. Thank you for your question. So on optimizing, I think I'm going to go back to what I've been saying, which is for us, optimizing means to put Zinn globally and you will allow me, of course, not to elaborate between Zinn dry, Zinn ultra, or whatever Zinn in the future.

Emmanuel Babeau: Sure. Thank you for your question. On optimizing, I think I'm going to go back to what I've been saying, which is for us, optimizing means to put ZYN globally, and you will allow me, of course, not to elaborate between Zyn Dry, ZYN Ultra, or whatever ZYN in the future, is to position our ZYN variants at the price point where we are maximizing volume growth and bottom line growth. I'm going to repeat it. ZYN is and will remain the premium leader of the market, and of course, it's a very exciting market that is the fastest-growing category in the US. We want to take our fair share of the growth of the category and to do it in a profitable manner. That's what we mean by optimizing the price, and I'm not going to elaborate more on that. On IQOS.

Speaker #1: It's to position our Zinn variants at a price point where we are maximizing volume growth and bottom line growth. I'm going to repeat it.

Speaker #1: Zinn is and will remain the premium leader of the market. And of course, it's a very exciting market. That is the fastest growing category in the US.

Speaker #1: We want to take our fair share of the growth of the category and to do it in a profitable manner. So that's what we mean by optimizing the price.

Speaker #1: And I'm not going to elaborate more on that. Now, on ICOS, you've seen that it's 3%, okay, in this first part of the year, the price increase on ICOS.

Emmanuel Babeau: You've seen that it's 3% in this first part of the year, the price increase on IQOS. To be clear, the name of the game today is more to optimize volume, and I don't need to repeat here that IQOS consumables are coming with two times more USD per stick revenue, even more in terms of gross profit because the gross margin is higher. Really optimizing volume is the name of the game, which doesn't prevent us from, of course, tactically, when we can and without damaging the volume, increasing price. For the timing, that's really the priority. On the long term, of course, there will be a moment where IQOS is becoming bigger. The market will mature at some point in time in the future, and at that time, we are building a brand that is second to none.

Speaker #1: To be clear, the name of the game today is more to optimize volume and I don't need to repeat here that ICOS consumables are coming with two times more dollar per stick, revenue even more in terms of gross profit because the gross margin is higher.

Speaker #1: So really optimizing volume is the name of the game, which doesn't prevent us from, of course, tactically when we can and without damaging the volume increasing price.

Speaker #1: But for the timing, that's really the priority. Now, on the long term, of course, there will be a moment where ICOS is becoming bigger, the market will mature as upon the time in the future.

Speaker #1: And at that time, we are building a brand that is second to none. I mean, the fact I'm not sure that people noticed the fact that we are now in the counter list of the top 100 brands.

Emmanuel Babeau: I'm not sure that people know that the fact that we are now in the Kantar list of the top 100 brands, that's quite an event. That's quite remarkable. The brand is 10 years old. I think we're building something very strong in terms of brand, and we all know that a strong brand in the future will mean our capacity to increase price because the consumer will see value in the brand. We are preparing the ground for indeed the capacity to accelerate price in the future. Today, the priority, as I said, is on optimizing volumes.

Speaker #1: I mean, that's quite an event. I mean, that's quite remarkable. The brand is 10 years old. And I think we're building something very strong in terms of brand.

Speaker #1: And we all know that a strong brand in the future will mean our capacity to increase price because the consumer will see value in the brand.

Speaker #1: So we are preparing the ground for indeed the capacity to accelerate price in the future. But today, the priority, as I said, is on optimizing volumes.

Speaker #7: Thanks, Emmanuel.

Faham Baig: Thanks, Emmanuel.

Speaker #1: Thank you.

Emmanuel Babeau: Thank you.

Speaker #2: Thank you. Our next question in queue, coming from the lineup. Hello, Mattel with Barclays. You're on a smile open.

Operator: Thank you. Our next question in the queue coming from the line of Hello, Nikhil with Barclays, your line is now open.

Speaker #8: Hi, everyone. Thanks for taking my questions. I've got two. So firstly, a question on ICOS in Europe. Clearly, the second quarter saw an impact from flavor ban in the remaining market.

[Analyst] (Barclays): Hi, everyone. Thanks for taking my questions. I've got two. Firstly, a question on IQOS in Europe. Clearly, the Q2 saw an impact from flavor ban in the remaining markets. You highlighted Poland, Hungary, et cetera. What gives you the confidence that IQOS IMS can accelerate again in Europe? And what, in your view, is a sustainable level underlying, say, growth rate in the near term in Europe IQOS? That's the first one.

Pallav Mittal: Hi, everyone. Thanks for taking my questions. I've got two. Firstly, a question on IQOS in Europe. Clearly, the Q2 saw an impact from flavor ban in the remaining markets. You highlighted Poland, Hungary, et cetera. What gives you the confidence that IQOS IMS can accelerate again in Europe? And what, in your view, is a sustainable level underlying, say, growth rate in the near term in Europe IQOS? That's the first one.

Speaker #8: You highlighted Poland, Hungary, etc. What gives you the confidence that ICOS IMS can accelerate again in Europe? And what, in your view, is a sustainable level underlying, say, growth rate in the near term in Europe ICOS?

Speaker #8: That's the first one.

Speaker #1: So I'm going to hand over to Massimo on that one, on Europe.

Emmanuel Babeau: I'm going to hand over to Massimo on that one, on Europe.

Speaker #9: Thank you. Thank you for the question. Look, if you eliminate the impact that we have had during this year from Poland and Hungary in particular, that are two markets that have been hit by characterizing flavor ban and two markets where we had a high percentage of flavor propositions in the market, you will see that the underlying growth trend in Europe is not substantially changed.

Massimo Andolina: Thank you. Thank you for the question. Look, if you eliminate the impact that we have had during this year from Poland and Hungary in particular, that there are two markets that have been hit by a characterizing flavor ban and two markets where we had a high percentage of flavor propositions in the market. You will see that the underlying growth trend in Europe has not substantially changed. I think the confidence comes for me from a couple of things. Number one, we have already gone through this in a variety of other markets, and we have seen that after the first couple of quarters, in which we take the hit, obviously in terms of volume from the flavor ban, then we reestablish the growth trajectory that we had before that occurred.

Speaker #9: And I think the confidence comes for me from a couple of things. Number one, we have already gone through this in a variety of other markets, and we have seen that after the first couple of quarters, in which we take the hit obviously from in terms of volume from the flavor ban, then we're re-established the growth trajectory that we had before that occurred.

Speaker #9: Which is a testament to the commercial engine that we have in place and the strength of the portfolio. The second thing is that we have been expanding the portfolio in order to be able to prepare for this.

Massimo Andolina: Which is a testament to the commercial engine that we have in place and the strength of the portfolio. The second thing is that we have been expanding the portfolio in order to be able to prepare for this. Therefore, at this point, the portfolio is both tiered vertically with the introduction of DELIA, that is playing more and more a significant role for us, both in terms of acquisition, but also in certain markets where there have been significant tax increases, also in allowing consumer a more affordable proposition. More importantly, I would say a lot of consumers have found in DELIA an opportunity, and especially CC smokers, an opportunity that they understand better and that they find the taste profile adapts better to their needs. Together with that, you have seen that we have launched LEVIA in a variety of markets.

Speaker #9: And therefore, at this point, the portfolio is both tiered vertically, with the introduction of Delia, that is playing more and more a significant role for us, both in terms of acquisition, but also in certain markets where there have been significant tax increases, also in allowing consumer a more affordable proposition.

Speaker #9: But more importantly, I would say a lot of consumers have found in Delia an opportunity and especially CC smokers, an opportunity that they understand better and that they find the best profile adapts better to their needs.

Speaker #9: Together with that, you have seen that we have launched Levia in a variety of markets. That is our non-tobacco flavor proposition. It's obviously still early days for that proposition.

Massimo Andolina: That is our non-tobacco flavor proposition. It's obviously still early days for that proposition. It's a different type of product, but we have seen that in many markets, and Hungary is certainly one of those, we have rapidly achieved double-digit percentage of our portfolio. Last but not least, I would bring the fact that our playground is, at this point, not only IQOS. You have seen that in the course of the past 24 months, we have made a significant pivot to a multi-category commercial engine, in which we also play significantly with VEEV in the e-vapor category.

Speaker #9: It's a different type of products, but we have seen that in many markets, and Hungary is certainly one of those, we have rapidly achieved double-digit percentage of our portfolio.

Speaker #9: Last but not least, I would bring the fact that our playground is at this point not only ICOS. You have seen that in the course of the past 24 months, we have made a significant pivot to a multi-category commercial engine.

Speaker #9: In which we also play significantly with beef in the e-vape category. And as Emmanuel said before, in the space of a couple of years, we have reached the number one position in Europe in closed pods and disposables.

Massimo Andolina: As Emmanuel said before, in the space of a couple of years, we have reached the number one position in Europe in closed pods and disposables, but also more recently and from a small base, also with oral, where the early signals in market like Poland, for instance, or the UK or Austria are extremely encouraging. We have been outperforming the category in growth in the markets and therefore gaining share pretty much everywhere where we have launched. I think these are all the reasons why we remain confident despite the fact the characterizing flavor ban is obviously a very disruptive action.

Speaker #9: But also more recently, and from a small base, also with oral, where the early signals in market like Poland, for instance, or the UK, or Austria, are extremely encouraging.

Speaker #9: We have been outperforming the category in growth in the markets and therefore gaining share pretty much everywhere where we have launched. So I think these are all the reasons why we remain confident despite the fact the characterizing flavor ban is obviously a very disruptive action.

Speaker #8: So that's very helpful. And just one question on your full year group revenue guidance. I understand higher investment and which is why you're not increasing your EBIT guidance after a strong H1.

[Analyst] (Barclays): Sure. That's very helpful. Just one question on your full-year group revenue guidance. I understand higher investments, which is why you're not increasing your EBIT guidance after a strong H1. You are talking of a better cigarette volume numbers, also better cigarette pricing with some adverse mix. There's no change in the group revenue guidance. Can you just talk about what is offsetting that in terms of smoke-free volumes and pricing?

Pallav Mittal: Sure. That's very helpful. Just one question on your full-year group revenue guidance. I understand higher investments, which is why you're not increasing your EBIT guidance after a strong H1. You are talking of a better cigarette volume numbers, also better cigarette pricing with some adverse mix. There's no change in the group revenue guidance. Can you just talk about what is offsetting that in terms of smoke-free volumes and pricing?

Speaker #8: But you are talking of a better cigarette volume numbers. Also better cigarette pricing with some adverse mix. But there's no change in the group revenue guidance.

Speaker #8: Can you just talk about what is offsetting that in terms of smoke-free volumes and pricing?

Speaker #1: Yeah. So of course, we have a nice growth in H1. And we are 5.3% in terms of organic growth. So it's dynamic despite Japan.

Emmanuel Babeau: Yeah. Of course, we have a nice growth in H1, and we are 5.3% in terms of organic growth. It's dynamic despite Japan. For the full year, we're targeting actually to be 5% to 7%. It's giving us ample headroom to be within the guidance while having a very dynamic H2. I think it is based on that we are comfortable keeping the guidance. Indeed, as you know, as we said, we expect better volume on CC. There is more price, but as we said, there is a negative mix. This one is probably largely offset as we've been explaining. That explains why we are comfortable keeping the guidance, again, based on H1 and on the overall trajectory.

Speaker #1: And for the full year, we're re targeting actually to be 5 to 7. So it's giving us ample headroom to be within the guidance while having a very dynamic H2.

Speaker #1: So I think it is based on that that we are comfortable keeping the guidance. Indeed, as you know, as we said, we expect better volume on CC.

Speaker #1: And there is more price, but as we said, there is a negative mix. So this one is probably largely offset as we've been explaining.

Speaker #1: So that explains why we are comfortable keeping the guidance again based on H1. And on the overall trajectory. For smoke-free, I should also emphasize the fact that in H1, you have a shipment that are a bit above IMS when for the full year we expect shipment and IMS to be broadly aligned.

Emmanuel Babeau: For smoke-free, I should also emphasize the fact that in H1, you have a shipment that is a bit above IMS, when for the full year, we expect shipment and IMS to be broadly aligned. That means we expect the reverse. We expect IMS to be a bit above shipment in the second part of the year, and that also will have an impact on the growth of our revenue. As I said, if you look at the guidance and what we have been seeing in H1, we are pointing to another six months, I mean H2, of very dynamic growth for revenue. We are targeting an acceleration on the growth of the operating income. It's not as if we are expecting a slowdown in H2. Actually, quite the contrary.

Speaker #1: So that means that we expect the reverse. So we expect IMS to be a bit above shipment in the second part of the year.

Speaker #1: And that also will have an impact on the growth of our revenue. But as I said, if you look at the guidance and what we have been seeing in H1, we are pointing to another six months, I mean H2, of very dynamic growth for revenue.

Speaker #1: And we are targeting an acceleration on the growth of the operating income. So it's not as if we are expecting a slowdown in H2.

Speaker #1: Actually, quite the contrary.

Speaker #2: Thank you. Our next question in queue, coming from the lineup, to help us correlate with newcoming company, you'll want to smile open.

Operator: Thank you. Our next question in queue coming from the line of Gerald Pascarelli with Needham & Company. Your line is now open.

Speaker #3: Great. Thank you very much. I'd like to just go back to combustibles. Given the outperformance that you delivered in volumes this quarter, are you able to provide any color on whether that momentum has maybe sustained over the first part of July?

Gerald Pascarelli: Great. Thank you very much. I'd like to just go back to combustibles. Given the outperformance that you delivered in volumes this quarter, are you able to provide any color on whether that momentum has maybe sustained over the first part of July? Just looking at the comparisons, the volume comparisons look very favorable in Q3 and really in the back half of the year more broadly. Just curious if there may be some conservatism in your full-year volume outlook, or if there are any, I don't know, specific regional headwinds or timing considerations for us to be mindful of as we model the set. Thank you.

Speaker #3: Just looking at the comparisons of volume comparisons, very favorable in 3Q and really in the back half of the year more broadly. Just curious, there may be some conservatism in your full year volume outlook.

Speaker #3: Or if there are any specific regional headwinds or timing considerations for us to be mindful of as we model the setup. Thank you.

Speaker #1: No, nothing to flag. And you will allow me not to start commenting the Q3 numbers and July. But indeed, I mean, what is behind the strength of combustible in Q2?

Emmanuel Babeau: No, nothing to flag, you will allow me not to start commenting the Q3 numbers and July. Indeed, what is behind the strength of combustible in Q2 are countries with no smoke-free products presence or limited smoke-free products presence. We talk about Turkey, India, Egypt. Indonesia has been doing well as well. These are countries we know where you have big demographics. The legal-age cohorts are growing every year. There is a trend on smoking. India for me is a perfect example. You know how powerful the demographics are over there. Smoke-free products are banned, therefore combustible products are fully benefiting from that. That's the trend in Q2. Okay, it doesn't mean that the rest of the year is going to be at the same level.

Speaker #1: Are countries with no smoke-free product presence or limited smoke-free product presence? And we talk about Turkey, India, Egypt, Indonesia has been doing well as well.

Speaker #1: And these are countries we know where you have big demographics. So the legal edge court are growing every year. There is a trend on smoking.

Speaker #1: India for me is a perfect example. You know how powerful the demographics are over there. Smoke-free products are banned. And therefore combustible products are fully benefiting from that.

Speaker #1: So that's the trend in Q2. Okay, it doesn't mean that the rest of the year is going to be at the same level. But nevertheless, this is why we have been revising a bit the volume outlook from around minus 3 to 2 to 3% decline.

Emmanuel Babeau: Nevertheless, this is why we have been revising a bit the volume outlook from around -3% to 2% to 3% decline. That's what we can say for the time being. Once again, we see a big, big difference between countries where people have largely access to smoke-free products and other countries.

Speaker #1: But that's what we can say for the time being. Once again, we see a big, big difference between countries where people have largely access to smoke-free products and other countries.

Speaker #2: Thank you. And I'm showing now for the questions in the queue at this time. I will now turn the call back over to management for any closing remarks.

Operator: Thank you. I'm showing no further questions in the queue at this time. I will now turn the call back over to management for any closing remarks.

Speaker #5: Thank you. That concludes our call today. Thank you for joining us. If you have any follow-up questions, please contact the Investor Relations team. Thank you again.

Massimo Andolina: Thank you. That concludes our call today. Thank you for joining us. If you have any follow-up questions, please contact the investor relations team. Thank you again, and have a nice day.

James Bushnell: Thank you. That concludes our call today. Thank you for joining us. If you have any follow-up questions, please contact the investor relations team. Thank you again, and have a nice day.

Speaker #5: And have a nice day.

Speaker #1: Thank you all. Bye-bye. Bye.

Emmanuel Babeau: Thank you all. Bye-bye. Warm bye.

Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.

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