Good day. And thank you for standing by. Welcome to the Philip Morris International 2025 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, James Bushnell, Vice President of Investor Relations and Financial Communications. Please go ahead.

Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2025 first quarter results. The press release is available on our website at www.pmi.com. A glossary of terms, including the definition for smoke-free products as well as adjustments, other calculations and reconciliations to the most directly comparable U.S. GAAP measures for non-GAAP financial measures cited in this presentation are available in Exhibit 99.2 to the company's Form 8-K dated April 23, 2025, and on our Investor Relations website. Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the Forward-Looking and Cautionary Statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements. I'm joined today by Emmanuel Babeau, Chief Financial Officer. Over to you, Emmanuel.

Thank you, James, and welcome everyone. In Q1, we delivered a very strong start to the year with all key elements of the business contributing strongly to deliver double-digit increases in organic net revenue, operating income, and adjusted diluted EPS in both constant currency and dollar terms. Our smoke-free business performed exceptionally well across all areas, with shipment volumes up 14.4% year-on-year, organic net revenue growth of 20%, and outstanding organic gross profit of 33%, as all three smoke-free categories extended gross margins. This was especially fueled by the rapid growth of ZYN and the continued volume momentum, operating leverage, and scale benefit of IQOS. Our smoke-free business now accounts for 44% of total gross profit as we continue to deploy our multi-category strategy across markets and broaden our growth opportunities. IQOS delivered close to 10% HTU-adjusted IMS growth, with continued strong performance both in Japan and Europe, despite the annualization impact of the EU characterizing flavor ban. We expect double-digit growth for the rest of the year. ZYN, once again, delivered strong growth in the US, with shipments increasing by an impressive 53% to reach 202 million cans, exceeding our initial expectations as demand remained strong and production capacity increased ahead of schedule in the latter part of March, enabling some initial replenishment of trade inventories. International nicotine pouch can volumes also grew by 53% or by 182%, excluding the Nordics, demonstrating the global dynamism of this emerging category. In e-vapor, VEEV Q1 performance was impressive, demonstrating its increasing contribution within our multi-category offering. Shipments more than doubled year-on-year and gross margin further expanded, driven by strong pod growth in Europe as we increase our distribution and commercial activity. Within combustible, overall volume growth, coupled with strong pricing and ongoing cost initiatives, drove a robust performance, despite notably negative geographic mix from increased volumes in lower margin markets. Overall, the very strong and increasingly profitable underlying growth of our smoke-free business was coupled with very solid combustible results and the added benefit of favorable shipment timing. This allowed us to deliver 16% organic operating income growth and 250 basis points of expansion in adjusted OI margin to reach 40.7% and resulted in strong double-digit adjusted diluted EPS growth in both currency neutral and dollar terms, despite currency headwinds. While it is early in the year and there are a number of uncertainties in the global economic outlook, we remain confident that we will achieve another year of super growth. As such, we now forecast double-digit adjusted diluted EPS growth at prevailing exchange rates. Turning to the headline numbers, we delivered volume growth of 3.9%, reflecting the very strong dynamism of our smoke-free business. Combined with strong pricing and despite unfavorable combustible mix, we delivered double-digit organic net revenue growth of 10.2%, reaching $9.3 billion in total. There was also a technical impact from the change in commercial model for the Indonesia below tier-one cigarette segment, where we now act as a handling agent. This results in lower net revenue and cost of goods sold that has no meaningful impact on gross profit or operating income. Excluding this effect, which will notably affect the first three quarters of the year, organic net revenues grew by around 12%. And as I mentioned, our smoke-free business was the primary driver behind our organic adjusted OI growth of 16% or 12.8% in dollar terms. Q1 adjusted diluted EPS grew by 17.3% in constant currency and by 12.7% in dollar terms to $1.69. This includes a $0.07 unfavorable currency variance, notably due to non-recurring transactional losses in the quarter linked to currency volatility. This stronger than expected performance was primarily driven by the top line and gross margin result of our smoke-free business. Excellent ZYN performance was further enhanced by the great work of our manufacturing team in accelerating capacity initiatives. Strong IQOS HTU shipment growth includes a robust performance in Europe and around 1 billion units in favorable shipment timing, which we expect to reverse in H2. This was complemented by the resilience of our combustible business. Looking at the category performance in more detail, our smoke-free business grew net revenue by 20.4% and gross profit by 33.1%. This led to an impressive 670 basis points of organic gross margin expansion to surpass 70%, more than five points above the gross margin of combustible at the current category and geographic mix of SFPs. As I mentioned, this reflects an acceleration in gross margin expansion for all three smoke-free categories, notably combined with the positive mix impact of ZYN's accretive unit economics and pricing on both HTUs and ZYN. Very strong IQOS gross margin expansion reflects the powerful growth and scale effect of this large and growing business, manufacturing productivity, and a comparison benefit from higher device shipments in the prior year when ILUMA i was launched in Japan. On an organic basis, combustible net revenues and gross profit grew by 3.8% and 5.3% respectively. While pricing was strong and volumes were positive, there was a notably negative geographic mix this quarter due to growth in markets such as Turkey and Egypt, in addition to the technical impact from Indonesia. We expect gross pricing and negative geographic mix to moderate over the rest of the year and target combustible gross margin expansion organically and in dollar terms. As expected, input cost headwinds eased compared to recent years and based on current assumptions, we expect this to further improve in 2026. Taking a closer look at our volumes, shipment growth of 3.9% was primarily driven by our smoke-free business with all categories contributing positively and placing us on track for a fifth consecutive year of total volume growth. Smoke-free volumes grew by 14.4%, above our full year target range of 12% to 14%, reflecting very positive contribution from IQOS, ZYN, and VEEV. In addition to the growth of these three brands, which I covered earlier, I would also note that our oral smoke-free business includes US Moist Snuff and Scandinavian Snus, which declined modestly in the quarter. Despite this, oral smoke-free product shipment growth accelerated versus the prior quarter to 27%. Cigarette volumes were positive for the fourth consecutive quarter as we grew share in a modestly declining industry with continuous growth in markets where smoke-free products are not permitted, such as Turkey and India. You have heard us talk recently about our multi-category strategy for smoke-free products as we leverage the strengths of the IQOS brand and commercial infrastructure in international markets to accelerate incremental growth from ZYN and VEEV. This is evidenced by our strong smoke-free portfolio results in Q1, with visible accretion across regions and markets. We have 46 markets with multiple smoke-free offerings, including 16 with all three PMI categories on offer. The execution of this three-pronged strategy is generating positive results in markets such as the Czech Republic, Romania, Switzerland, and our global travel retail business, in addition to promising starts in the UK and Italy. It is also helping to bolster our position as a global smoke-free champion. Double-digit Q1 organic net revenue growth was again driven by all three key elements of our structural growth model, namely volumes, pricing, and smoke-free mix. Pricing contributed six points, reflecting over 8% combustible pricing and around 3% for smoke-free excluding devices. The positive mix impact of the shift to smoke-free products, including the US smoke-free mix, drove a further positive contribution of 3.1 points. Overall, combustible geographic mix and other factors had an unfavorable impact of 2.7 points. This was more negative than in prior quarters, reflecting the technical Indonesia impact and combustible market mix dynamics I explained earlier. Currency had a negative impact of 3.9 points, with a further 0.5 points from acquisition divestiture, which includes the divestment of Vectura. Turning now to gross margin, we delivered very strong expansion of 340 basis points on an organic basis and 360 basis points, including currency, acquisition, and divestitures. This comprised 180 basis points from pricing, more than offsetting an 80 basis point unfavorable impact from cost inflation, net of productivity and other cost items. Smoke-free growth delivered an excellent 230 basis points with a flat contribution from combustible excluding pricing, but including the Indonesia impact. This excellent gross margin performance supported strong adjusted operating income margin expansion of 250 basis points, or 200 basis points organically after accounting for the currency mix of our cost, the divestiture of Vectura, and other scope effects. This impressive margin expansion was delivered despite a 140 basis point impact of higher SG&A costs driven by continued investment in our smoke-free growth, including U.S. investments, a low-cost comparison in the prior year, and the impact of 2025 investment phasing. As we continue to invest in top-line growth, we target organic SG&A growth broadly in line with net revenue growth for the year. We continue to drive manufacturing and back-office efficiency and delivered over $180 million in gross cost savings in Q1 across both cost of goods sold and SG&A. After more than $750 million of savings in 2024, this places us nicely on track to achieve our $2 billion target over 2024-2026. Focusing now on our IQOS business. As expected, calendar effects and EU flavor ban annualization impacted Q1 adjusted IMS. However, the delivery of 9.4% growth despite these factors marks continued strong underlying momentum. We expect double-digit progress in the balance of the year in line with our target of 10% to 12% growth. Supporting this are commercial initiatives around brand building and continuous innovation on devices and consumables as we progressively roll out ILUMA i and new consumable variants of Terea, Levia, and Delia. Over the longer term, we have a rich IQOS innovation pipeline to further enhance the breadth and quality of the user experience with the iconic brand. As disclosed in our latest integrated report, over 99% of our 2024 adjusted R&D spend was on smoke-free products consistent with the last four years as we continue to drive consumer-centered product development. Turning to Europe where we are building on the strengths of our IQOS business to create an integrated multi-category portfolio to accelerate consumers switching and value creation. Total shipments of our flagship smoke-free brand advanced by 17.5% in Q1 with an increasing contribution from both ZYN and VEEV. IQOS HTU shipments grew more than 15%, including a positive comparison impact from the prior year. Our investment in brand building initiatives is exemplified by the recent partnership with Italian designer SELETTI at Milan Design Week as part of the IQOS' Curious X campaign. For IQOS, Q1 HTU adjusted IMS grew by 7.4% as we further accelerated our share of cigarettes and HTUs to a record 11.4%. Many markets in the region grew adjusted IMS by double digits including IQOS growth or more in Spain, Germany, Bulgaria, and Greece. This dynamism more than compensated for flavor ban annualization which has flagged last quarter was especially pronounced in Q1 and most notably in Italy. I am particularly pleased to report that sequential market share in Italy is trending well with a record high of 18.4% for Q1 and probably increases to the quarter. Overall, regional Q1 adjusted IMS growth was in line with our expectations and we expect another robust quarter in Q2 followed by an acceleration in the second half. Our experience of the flavor ban impact remains the same with a broadly consistent pattern of recovery across markets following implementation. We continue to expect an impact of around 1 billion units in 2025, primarily due to annualization with only Hungary and Slovakia implementing the ban so far this year. The most notable remaining market is Poland where the future debt will be in early 2026. We also continue to roll out new and improved variants of our tobacco-free consumable Levia which is driving promising results. This is well illustrated by Hungary where Levia reached a double-digit share of PMI HTUs less than three months from launch. Our fundamental progress in the region is highlighted by the consistent growth in key city offtake share. This also includes Hungary where Budapest's share reached almost 42%, over four points higher than Tokyo. Impressively, 24 of the 34 markets where IQOS is present in Europe have crossed the 10% key city share mark with 6 above 30%. Notable fallouts across the region include London, Vienna, Zurich, Lisbon, and Athens. The regulatory launch date is an important determinant of smoke-free progress and we are encouraged by recent policy developments in a number of markets which recognize the role of tobacco harm reduction in policy measures. This includes Greece which introduced dedicated legislation supporting science-based plans on smoke-free products and Hungary where factual and science-based communication to consumers on smoke-free products is allowed versus a total advertising ban for combustibles. In Ukraine, an excise tax differential on HPU versus cigarettes was reintroduced following a period of equal treatment. In Japan, we deliver HPU-adjusted IMS growth of 9.3%, effectively marking the 10th quarter of double-digit growth after accounting for last year. HPU-adjusted share increased by 3% year-on-year and 1.6 points sequentially to reach 32.2%, further highlighting the dynamism of the innovative IQOS brand and product portfolio in this new market. IQOS HTU captured more than three quarters of category growth in Q1 and combined with our cigarette business, PMI is now the market leader by volume, of which approximately 75% are HTU. The overall smoke-free category continues to progress reaching almost 48% on a national offtake basis in March with 13 cities and 8 prefectures now crossing the 50% threshold. Globally, we continue to see very strong IQOS performance as illustrated by key city offtake share. Highlights include impressive year-on-year growth in the capital of Indonesia and Mexico to surpass 5% share. Robust progress in the Middle East and North Africa and strong growth in Belgrade to 17.7% share despite increased competitive activity. IQOS reached a new high in South Korea with a 14.1% share in Seoul supported by the launch of ILUMA i in a highly competitive market. Offtake share performance in Cairo continues to be optically impacted by the growth of the combustible market where competitive supply has normalized. Also worth highlighting is the excellent growth of our global travel retail business which is a leading space for our multi-category offerings. We record a strong HTU growth across all regions with a share of over 18% in airports where IQOS is present. In the U.S., as planned, we commenced direct sales of IQOS 3 devices and HTUs in Austin, Texas at the end of March following targeted engagement with legal-age consumers over recent months. While intentionally small-scale, we have received strong interest with further IQOS 3 pilot plans in the coming months as we prepare for the upscale launch of IQOS ILUMA. As a reminder, we are not assuming any significant HTU volume from the U.S. in our full year process. Switching to ZYN, which continues to resonate strongly with adult nicotine users as a superior product with premium brand equity, and deliver excellent results. Continued strong demand and increased production capacity enabled shipment volume growth of 63% to reach over 200 million cans for the quarter. This 70 million year-on-year increase is impressive. Though we should note that the prior year first quarter featured notable depletion of retail and distributor stock levels and therefore a sell-out volume higher than shipment and this quarter included the beginning of replenishment. As we continue to expand production at our Owensboro plant, we accelerated one plan step in this process to the latter part of March. This enabled increased shipments at quarter end and a pull forward of initial distributor re-stocking. With very limited flow-through of this additional shipment to retail in the quarter, this did not yet have a meaningful impact on store availability. We target full normalization of the supply situation in Q3 this year. ZYN continues to perform very robustly at retail given the circumstances with strong double-digit offtake growth. According to Nielsen, Q1 offtake volume grew by around 15% year-on-year with category value share remaining strong at over 70% despite heavy competitor discounting. While Nielsen data is based on only a small sample of stores, it also shows our offtake volume share has been held back by availability and declined by 1.45 points sequentially to 61.5%. We already observe our share on MSA data which measures shipment from distributor to retail recovered to almost 66% in March on the limited flow-through I just mentioned. With category offtake growing at around 30% to 35%, while the leading brand is supply constrained, we expect ZYN offtake to gradually accelerate in the coming months as in-store availability improves and we reactivate commercial and marketing initiatives. We remain excited about the growth prospects of this dynamic category and its potential to regulate consumers from cigarettes and other traditional forms of tobacco. ZYN remains the only nicotine-powered product authorized by the FDA and this includes all variants in both 3 mg and 6 mg strength currently commercialized in the U.S. As outlined at CAGNY, there is a large addressable market in the millions of legalized nicotine users in the U.S. and we plan to engage actively beyond our existing consumer base to other legalized nicotine users. Indeed, with strong latent demand and capacity extension ahead of target, we now raise our shipment forecast to 800 million to 840 million cans per year. With the outstanding effort of our team on the ground, we continue to work on increasing capacity in our Kentucky facility. Construction of our second U.S. manufacturing site in Colorado is well underway with production due to commence in early 2026. We remain, as we have been since entering the U.S., committed to investing in U.S. manufacturing. The substantial investments we have made in the U.S. are expected to continue to result in significant job creation and economic contribution to the country. Outside the U.S. now, we continue to roll out ZYN, leveraging our presence with IQOS and ZYN, drive awareness and trial with legalized nicotine users. The total international nicotine category is nascent in almost all geographies and stands at around half the size of the U.S. in volume terms. We are now in 38 markets globally, following Q1 launches in the UAE and Colombia, and ultimately to all addressable markets as meaningful opportunities given the unique characteristics of the category. Within the 53% growth of our international pouch can volume, shipment almost trebled outside of the Nordics, including promising momentum in European markets such as Austria, Switzerland, and the UK, where we commenced a national share count rollout. In emerging markets, strong progress continues in Pakistan, Mexico, and South Africa. PMI global travel retail is a notable standout as it also increases global visibility and awareness of ZYN within our multi-category offerings. Finally, closing our smoke-free performance with e-vapor. This plays an increasingly important role within our multi-category universe with growing volumes and gross margins. Shipment volume doubled year-on-year to 0.6 billion on an equivalent unit basis, driven by very good performance in Europe, whereas the pod pot segment continues to grow strongly, partially at the expense of disposable given increased ban and restrictions for this format. We observe increasing ZYN adoption rates and low abandonment across key markets, which is a testament to the quality and presentation of this premium product to legal-age consumers. Turning to combustibles, our business performed robustly in Q1 with organic net revenue growth of 3.8%, or closer to 7%, excluding the Indonesia technical impact. This was driven by strong pricing of 8.3%, with notable contributions from Turkey, Poland, and Germany. With less favorable dynamics in H2, we continue to expect truly combustible pricing of 5% to 6%. The cigarette industry declined by 1.3% in Q1, due to growth in geography where smoke-free products are nascent or not present, more than offset by accelerated cigarette declines and sales. Where SFPs are not permitted, such as in Turkey or India, we expect this divergence to continue, supported in some cases by demographic trends. Nonetheless, we continue to expect a low cigarette industry decline for the year. Category share was strong, growing 0.4 points in Q1, partly due to service-to-market needs. Both Marlboro and our global brand portfolio reached all-time first quarter highs. We continue to target broadly stable category share over time, with our main priorities being maximizing value and supporting the growth of smoke-free products. Most importantly, combustible organic gross profits continued to grow robustly at 5.3% following the recovery of 2024. This brings us to our outlook for 2025. We delivered a very strong first quarter, including better-than-expected margins, and we remain confident we will achieve another year of superior growth. As such, we are reconfirming the currency-neutral growth outlook we provided in February, despite a backdrop of increased uncertainty in the global macroeconomic environment. As a global company with broadly diversified production and a worldwide sectorial network, including an established U.S. manufacturing base, we believe we are well positioned to mitigate potential supply chain challenges. While the situation is volatile, we do not currently anticipate a material impact on our business from recently introduced or discussed tariffs. We expect a continuation of strong momentum from our smoke-free business, including the benefits of further multi-category deployment. As I explained, we are raising our forecast for U.S. shipment to 800 to 840 million cans. This further supports our forecast of 12% to 14% SFP shipment growth, which incorporates unchanged strong growth assumptions for IQOS. We also continue to expect total semi-organic net revenue growth in the range of 6% to 8%, organic operating income growth of 10.5% to 12.5%, and currency-neutral adjusted diluted EPS growth of 10.5% to 12.5%. As announced in this morning's press release, we are raising our 2025 adjusted diluted EPS forecast to $7.36 to $7.49. This now reflects 12% to 14% growth in dollar terms and includes a favorable estimated currency impact of $0.10 at the value exchange rate. This reflects recent strength in the Euro, Japanese yen, and Russian ruble, vastly offset by a stronger Swiss Franc. For Q2, we assume HTU shipment volume of 37.5 to 38.5 billion, with another strong quarter of HTU adjusted IMS growth of around 10%. For U.S. ZYN, we expect shipment to be at a similar level to Q1, as trade restocking continues and offtake gradually accelerates. We forecast adjusted diluted EPS of $1.80 to $1.85, including a favorable currency variance of $0.06 at prevailing rates. We expect a strong H1 overall, with organic net revenue growth around the mid-point of our target range for the full year, and organic OI growth slightly above. With regard to our balance sheet, delivery remains a key priority and we continue to target further reduction in 2025, placing us on track for our target ratio of around two times by the end of 2026. We believe our growth profile is best-in-class within large-cap consumer goods, as shown by our three-year CAGR target, which we are well on track to meet or exceed. Adjusted diluted EPS growth in dollar terms is a key priority. As demonstrated in 2024, we are committed to taking proactive steps to manage potential currency volatility, including through our hedging activities. Behind the delivery of our growth lies the enormous effort we have made to transform our business over the last 10 years, and the continued drive towards our ambition to become substantially smoke-free. This quarter coincides with the publication of the sixth edition of our annual integrated report, which provides a comprehensive view of our company's performance across both financial and non-financial dimensions. Highlights include the important efforts and actions we are taking with regard to youth access prevention, as well as the progress we have made on our operational efficiency, strengthening our resilience, driving innovation, and ultimately future-proofing our business. As explained in the report, our approach to sustainability is fundamentally business-driven, with the objective of both sustaining and enhancing the growth of our small-group transformation to drive continued value creation. I would encourage anyone with an interest in how and why we are transforming to read it. I will now conclude today's presentation with some key messages. Following an excellent start to the year, we are now on track for another year of strong performance in 2025. While no company is immune to macroeconomic volatility, we believe we are well positioned to navigate external dynamics. We have three powerful growth drivers with pricing power and positive smoke-free categories on top of volume growth, where we target our fifth consecutive year of extension, led by IQOS, ZYN, and VEEV. As we continue to invest strongly behind our smoke-free brand, these drivers are also profit-accretive, and combined with our proactive measures on pricing and cost, we have great confidence in sustainable, adjustable EPS growth in both currency-neutral and dollar terms. Finally, we will remain a highly cash-generative business with an unwavering commitment to our progressive dividend policy. We look forward to further rewarding our shareholders as our transformation delivers sustainable growth. Thank you, and we are now very happy to answer your questions.

And our first question comes from Bonnie Herzog of Goldman Sachs.

All right. Thank you. Hi, Emmanuel and everyone. I had a few questions on ZYN. Could you maybe give us some more color on the out-of-stock issues you might still be experiencing in the U.S.? I know you touched on this, but then just curious how long you think it will take for retailers to rebuild their inventories. And I know you raised your shipment guidance for ZYN for the year, but it does still imply that growth will decelerate year-over-year to around, I think, 35% for the rest of the year. This is at the low end of your range versus, I guess, the 53% you reported this quarter. So just hoping you could talk through the thinking behind this, maybe just the phasing. Thank you.

Sure, Bonnie. Happy to do that. So, of course, we are facing a particular year in 2025 with ZYN in the U.S., because it's going to be a mix of continuation of strong growth and strong consumer offtake growth. Of course, when you look at the shipment, be careful, and I flag that in my remarks, because last year we had clearly consumer offtake in Q1, which was much, much stronger than our shipment. That was the time when the consumers started to empty the shelves. So we need to be cautious when we look at the shipment, if they are now reflecting the consumer offtake and take that into account. And next to this strong growth that we expect from consumer offtake, and we have a very dynamic category, 30% to 35% growth, despite the fact that the leader ZYN was constrained. We're going to add on top of that this replenishment, this restocking. I'm not going to speculate on exactly what it is, but it's certainly a few tens of millions can. And we have started, because of this good performance on production that I explained, to send more product to, first of all, wholesalers, distributors, and then they're going to start to ship to retailers. So it's going to be a very gradual process. There is still, of course, very, I would say, a material situation of out of stock. We're going to continue the replenishment in the second quarter, maybe part of the third quarter as well. And we've been explaining that we are expecting to be back to a normalized situation, if I may say. Therefore, no more material out of stock situation in the third quarter of ‘25. So in terms of shipment, that's going to be this profile through the year of an accelerating growth for our shipment. That's what we expect, which is going to reflect first the consumer offtake that is going to accelerate. And then, of course, replenishment impact that is going to decrease as we fulfill this replenishment, if you want. So it's a particular profile. And the replenishment, if you want, to some extent, is going to hide the fact that there is a growth in the consumer offtake that we're going to experience through the year.

Okay, that's helpful. I appreciate it. And then just maybe a second question from me on margins. You delivered robust margin expansion in the quarter. So how should we think about the drivers of continued margin expansion for the remaining of the year? I guess, especially in the context of what you mentioned as it relates to continued SG&A growth and the investments, et cetera. And then on the back of that, I know we've talked about this before, but how should we also think about the margin gap you're seeing between your combustible business and then smoke-free products today and then possibly key drivers of further expansion of that gap over the next couple of years? Thank you.

Look, Bonnie, obviously, we are very pleased with our margin expansion. That's something we are targeting for 2025. And we are very positive about our expectation. We have a clear illustration in Q1 of the strong performance in terms of margin expansion. Clearly, our smoke-free products are here driving this, first and foremost, this margin expansion. You have an impressive 670 basis point organic expansion in Q1 for our smoke-free business. Don't take that as a reference for the full year, but that means that we are now above 70% gross margin rate for the smoke-free business. It's five percentage points higher than combustible. So as we are growing, of course, very fast, our smoke-free business and faster than combustible, that means that we are benefiting at the margin level of a very positive mix evolution. And we believe that the difference through 2025 should stay between smoke-free and combustible. I'm not saying it's going to stay exactly at the same level, but we're going to keep a very material difference between the two, and we're going to continue to benefit from this quality of mix effect. I think for the future, there are a number of drivers that will continue to play on the margin for our smoke-free portfolio. There is, of course, a mix coming from ZYN. ZYN in the U.S. is the best-in-class gross profit margin. So when we grow ZYN fast in the U.S., that has a positive impact. You have all the scale impact that we are generating on IQOS. And if you look at the last two to three years, you've seen on a very consistent basis, a gradual improvement on the margin on IQOS. This is certainly magnified in the first quarter, because we have a less sale of device. Last year, we had big device sale in Japan as we were launching ILUMA i. So that is helping the margin. But fundamentally, we are benefiting from scale impact, productivity, and a better performance on device. And then we have some pricing that you have seen 3% on consumables for our smoke-free business. So we are increasing price as well. And last element, which is more marginal today, but we are also improving the margin on ZYN. So that is also helping. So as you can see, we have many positive drivers behind our smoke-free business. And smoke-free business is the driver for or the first driver for margin improvement.

Our next question comes from Matt Smith of Stifel.

Hi, Emmanuel. Thank you for the question. If we could first talk about the guidance outlook. With the strong first quarter and now the second quarter guidance, the first half EPS growth on a constant currency basis is a few points above the high end of the full year outlook. Can you talk about the factors in the second half that we should take into consideration with the constant currency EPS growth outlook implied to be a couple of points below the full year average by my math, just the shape of the year there?

Sure, Matt. Happy to take that one. So yes, we are saying that we expect to be well positioned versus the overall bracket for the year in terms of revenue growth. We expect to be a bit above on OI. These are the traditional differences that you can see during a year between H1 and H2. You may have some comparison bases that can play. There is potentially some phasing on how we're going to position SG&A. So there is here nothing to be read, I think, in terms of change in the underlying business between H1 and H2. These are more how a number of things are positioned in shipment through the year in terms of investment. But I would say we expect a strong year as we go through the quarters. And we've been finding the fact that we expect in some area an acceleration for IQOS in the second half in terms of IMS. But that's not going to necessarily translate into shipment as the phasing for shipment can be a bit different. So again, I think we expect strong momentum through the year for our smoke-free portfolio. We've been finding the fact that on combustible, we are positive in volume in Q1. But for the year, we expect a low single-digit decline. So that could mean that the second part of the year will have more negative volume for our combustible. But clearly, we expect strength through the year.

Thank you for that. And as a follow-up, I wanted to talk about the IMS growth you referenced for IQOS. You had nice growth in the first quarter. I think it was above 9%. But if we look back to the fourth quarter, it was around 13%. Now you're expecting a re-acceleration in those IMS growth across the remainder of 2025. So can you talk about some of the underlying benefits to IMS growth re-accelerating across the rest of 2025? Thank you. I'll leave it there.

Yes. So indeed, 9.4% was in line with our expectation. And Europe was below the average, so there are always turbulence coming from the flavor ban implementation in Europe. We believe that the impact will be lower in H2 as we go through annualization. And therefore, we expect in H2 an acceleration, as I mentioned, in the IMS growth in the second half in Europe. But otherwise, we are expecting this 10% to 12% adjusted IMS growth through the year. So we expect overall a continuation of a nice double-digit growth. Q4 was very strong after a few quarters that have been weaker last year. So you can have some fading through the year. But after this Q1, which was in line with expectation, we expect continuation of very good growth in Europe, in Japan. And I took some time in my remark to talk about the other markets where we see also some very promising growth in several markets.

Our next question comes from Eric Serotta of Morgan Stanley.

Great. Thanks for the question. In terms of the full year guidance, you did raise the ZYN shipment volume. And obviously, that's a very high-margin product. You kept the constant currency EPS guidance the same. You delivered some very robust margin expansion in the first half. Are there any specific offsets that you could point to that caused you to reiterate the guidance rather than flow some more through to the full year? Or is it more of a factor that we're early in the year and there's obviously a lot of macro and geopolitical uncertainty?

Thank you, Eric, for the question. So, indeed, we were targeting a year of very strong growth and performance. And I think Q1 is flagging the fact that we are well on track to deliver a year of strong growth. So we are confirming that we expect a year of very strong growth across the board for PMI. What we've seen in Q1 is indeed very reassuring on the fact that we're going to deliver this full year. We are raising the guidance for the volume for ZYN in the U.S. by, on average, 20 million cans. So, yes, it is a very profitable brand, but not to the extent to dramatically change the outlook for the year. So I would say that goes into various scenarios with which we are playing to give the guidance for the year. And obviously, after only one quarter and in this uncertain volatile environment, we need to, of course, be cautious and say this is the beginning of the year. And we are happy to confirm the guidance. Again, I think Q1 is showing that we are well on track to deliver a very good 2025.

Great. And then a quick follow up. How are you guys thinking about what the unconstrained growth for what the unconstrained offtake growth for ZYN theoretically looks like? Obviously, you can't observe it. You could estimate it. But how are you thinking about how that evolves where it is today and sort of how it evolves as you get into the second half and next year where the business is obviously a lot larger than when you bought it? So really, you can't give a precise answer, but any color there would be helpful.

Eric, frankly, we don't know, of course, what is the unconstrained demand because the demand is still constrained. So I'm not able to provide an answer. What I can say is that certainly as we are removing the limitation and the out of stock situation, we expect an acceleration in the consumer offtake. And we are very much encouraged by the very nice dynamism of the category, which shows the appeal, the attraction for the consumer and all these legal-age nicotine users that are discovering the category and understand the benefits. So we expect the acceleration. We're going to be gradually back to normal life because it's true. We've been mentioning that we have very limited commercial marketing activities. So we were trying to service the existing ZYN consumer and we knew that it was not reasonable to try to acquire new consumers that we could not serve and supply. So obviously, that's going to be also another leg of the growth in the coming quarter. And I guess that's certainly something you include in unconstrained demand. But frankly, I don't want to speculate on what this unconstrained demand is going to be. We are expecting a gradual acceleration of the consumer offtake for ZYN in the coming months.

Fair enough. And then just one quick last one. You did cite the Nielsen data in terms of ZYN. Are you seeing different trends or diverging trends when you look at some of the non-track channels that you would have a better read on than we would?

I don't want to dismiss the significance of Nielsen as a data source, but it's worth noting that it covers only 3,000 sales points out of nearly 200,000. This limited scope can lead to some inaccuracies in understanding consumer purchasing behavior, especially during out-of-stock situations. Therefore, I can't definitively confirm the 15% estimate; we know it is just an estimate. What I can share is that we observed a substantial increase in sales from wholesalers and distributors to retailers towards the end of March. However, we lack other reliable data to share. We do perceive a strong demand for ZYN in the market, which is evident. It's also important to mention that the consumer purchasing rate measured by Nielsen last year in the first quarter was likely much higher than the 130 million cans we reported for the first quarter of 2024. This context should help clarify the relevance of the 15% estimate in understanding current consumer purchasing trends.

Our next question comes from Faham Baig of UBS.

Good morning, guys. Thanks for taking the question. Hey, Emmanuel. A couple of questions from me as well. Just coming back to the growth and the offtake. Are you in a position to potentially share what the MSA data highlights is the growth rate for ZYN and how it really compares to this sort of 30% to 35% growth you highlight for the category? The same question sticking with the U.S. and IQOS. I just wanted to get your views on the recent movements at the CTP and how that impacts the timing of ILUMA i’s launch in the market or whether it does impact the timing of the launch would be helpful. And the final question is really how housekeeping net interest guidance for the year would be helpful.

Yes. So taking your question in the order growth of the, I think we said that the share was close to 66% on MSA in March. It's probably a growth around close to 30%. But take that with a pinch of salt. I'm not sure I have very precise data, but clearly, the MSA was showing this acceleration as more product was coming. So that's one thing. On the new situation at the CTP and what it means for IQOS, no, it's too early to say. So we have nothing to report. And I don't know what is going to happen. I think we are still hoping for an efficient process to be put in place and for the FDA to comply with the mandate, which was to give an answer after six months. But I have nothing at that stage new to report on the situation. And on the net interest for the year, I think you have the performance in Q1. I don't have at that stage nothing specific to tell you for the full year. We're not providing any additional data for the full year, but of course, we started well the year. Nevertheless, with some positive impacts coming from mark-to-market on some of our aging.

Thank you. I'm showing no further questions at this time. I'd like to turn it back to James Bushnell for closing remarks.

Thank you. That concludes our call today. Please be aware that the script from the call is posted on our website for any of you that may have had some sound issues partway through the webcast broadcast. Thank you very much for joining us. If you have any follow up questions, please do contact the investor relations team. Thank you again and have a nice day.

Thank you all and speak to you soon. Thank you.

This concludes today's conference call. Thank you for participating and you may now disconnect.