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

Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2025 third quarter results. The press release is available on our website at pmi.com. A glossary of terms, including the definition for smoke-free products, as well as adjustments, other calculations, and reconciliations to the most directly comparable US GAAP measures for non-GAAP financial measures cited in this presentation are available in Exhibit 99.2 to the Forms 8-Ks dated 10/21/2025 and on our investor relations website. Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements. I'm joined today by Emmanuel Babeau, Chief Financial Officer. Over to you, Emmanuel.

Thank you, James, and welcome, everyone. Following an excellent first half, we delivered very strong results in Q3. We are especially pleased with the performance of our global smoke-free business, with outstanding volume growth for all three of our flagship brands IQOS, ZYN, and VIVE, which together outgrew the global smoke-free industry by a clear margin on year-to-date IMS. Continued double-digit smoke-free top-line momentum and further scale and cost benefits enable us to achieve more than $3 billion in quarterly smoke-free gross profit for the first time. And an adjusted group operating income margin of over 43%, the highest in almost four years. This drove plus 17% growth in adjusted diluted earnings per share to a record 2.24. These impressive results were also delivered in a quarter with elevated commercial spending as we invest in the future growth of our brands. Our growth investments include geographic expansion, and our smoke-free products are now commercialized in 100 markets, including the launch of IQOS in Taiwan this month. We are increasingly deploying our multi-category strategy to enhance growth with all smoke-free brands now commercialized together in 25 markets. IQOS delivered excellent performance, including a very strong growth margin contribution. With Q3 HTU adjusted in-market sales growth of plus 9% against the high prior year comparison. And plus 15.5% heated tobacco unit shipment growth. This reflects continued strong momentum in Europe, Japan, and global markets. The relaunch of these commercial activities supported a significant Q3 acceleration in U.S. offtake growth to plus 39% as estimated by Nielsen. Enhanced marketing and promotional intensity supported increased trial among legal age nicotine users, with a promising level of repurchase intent. Driven by this strong performance in the fast-growing nicotine pouch category, U.S. shipments grew by plus 37% to 205 million cans, ahead of expectations. International can volumes increased by plus 27% or by over plus 100% excluding Nordic countries. In e-vapor, strong VEEV momentum saw total shipments more than doubling on a year-to-date basis. VIVE is now the number one closed spot brand in eight markets, with notably strong performances in Germany, Romania, and Greece. Combustibles delivered a good Q3 with better than expected volumes in both Turkey and Egypt, combining with further strong pricing to deliver a robust top and bottom line performance. Our Q3 performance reflects our position as the global category leader with the ability to drive strong growth and prioritize resources to invest significantly in our leading brands. The increasing overall profitability of our smoke-free business coupled with cost efficiency measures and combustible resilience places us well on track for another year of double-digit adjusted operating income and earning per share growth in currency neutral terms and even stronger dollar growth at prevailing exchange rates. Turning to the headline financial for Q3. Positive shipment volume, strong smoke-free category mix and pricing resulted in organic top-line growth of plus 5.9% or approximately plus 7.3% excluding the Indonesia technical impact explained earlier this year. Within the high end of our plus 6% to plus 8% mid-term growth algorithm. Adjusted OI grew by plus 7.5% organically and plus 12.4% in dollar terms to $4.7 billion with increasing profitability across smoke-free and combustibles, enabling good adjusted OI margin expansion of plus 120 basis points. Adjusted diluted EPS of 2.24 reflects adjusted net income of $3.5 billion and growth of plus 17.3%, including a currency tailwind of $0.08 which includes around €0.03 of favorable transactional impact in the quarter. This better than expected delivery reflects the strength of our financial model, with both IQOS and ZYN performing at the high end of our expectations further supported by the resilience of combustibles and a more favorable tax rate. Our progress on a year-to-date basis was outstanding with comparable growth above our mid-term targets on all metrics. Organic net revenue growth of plus 7.5% or around plus 9% excluding the Indonesia technical impact was driven by the same factors as the quarter. Adjusted operating income grew by plus 12.5% organically and close to plus 14% in dollar terms to $12.7 billion, enabling EPS growth of plus 16%, both including and excluding currency impact. Our year-to-date adjusted effective tax rate was 1% lower than our forecast of around 22% for the year, with a higher rate expected in Q4. Turning to shipment volumes, where we again delivered positive growth of plus 0.7% in Q3, or plus 1.8% on a year-to-date basis. Q3 smoke-free volume growth of plus 16.6% was underpinned by the strong fundamentals of IQOS, where HTU shipments grew plus 15.5% to 41 billion units, above our prior expectation even when excluding a shipment timing benefit of around 1 billion units. On a year-to-date basis, HTU shipments grew plus 12%. The excellent volume trajectory of both ZYN and VIVE was again accretive to smoke-free product growth in both Q3 and year-to-date, notably including U.S. ZYN. Cigarette volumes declined by 3.2% in Q3, close to the more favorable end of our 3% to 4% forecast decline for H2, and reflecting better than expected dynamics in Turkey and Egypt. Turning to Q3 net revenues in more detail. Growth of plus 7.3% excluding the technical Indonesia impact reflects the strong smoke-free performance described alongside robust pricing. Total pricing contributed plus 3.1 points with convertible pricing of over plus 8% and a positive IQOS HTU variance offset by the impact of ZYN relaunch promotion in the U.S. The positive mix impact from smoke-free growth drove a further plus 4.7 points. Combustible geographic mix and other factors had an unfavorable impact of 1.2 points. Currency and scope effect had a positive impact of plus 3.5 points. The same dynamic drove strong year-to-date top-line growth, as our three pillars of growth—volumes, pricing, and mix—continue to deliver sustainably. Looking at the Q3 performance by category, both smoke-free and combustibles delivered strong gross margin expansion. Q3 smoke-free net revenues grew organically by plus 13.9%, and gross profit by plus 14.8%. Including the short-term impact of Eton U.S. Promotions. Gross margin expanded by plus basis points to 70% in Q3, exceeding combustibles by 3.5 points at the current category and geographic mix. This performance was powered by IQOS, with a combination of strong volumes, pricing scale and cost efficiency outweighing the dilutive impact of higher device sales in the quarter. While combustible volumes declined by 3%, the business delivered another strong quarter with organic net revenue growth of plus 1% or around plus 3%, excluding the technical impact in Indonesia and gross profit growing strongly by plus 4.8%. This performance epitomizes the continued resilience of our combustible business model with a combination of low single-digit volume decline, robust pricing and efficiency driving top-line and gross profit growth over time. We are well on track to deliver our target of gross margin expansion organically and in dollar terms for the year. The combination of sustained smoke-free momentum and combustible resilience drove plus 170 basis points of gross margin expansion overall, to reach 67.9%, a record quarterly level since the pandemic recovery of 2021. Our year-to-date performance was outstanding, with the accretive impact of smoke-free growth clearly evident. Smoke-free gross margin expanded by plus three sixty basis points with IQOS again a significant contributor in addition to ZYN's superior U.S. margin and a growing contribution from VIVE. Combined with a strong combustible performance, we delivered plus two sixty basis points of gross margin expansion for total PMI. Moving down the P and L to OI margin. We delivered a plus 60 basis point of organic expansion in Q3 or plus 120 basis points in dollar terms to reach an excellent 43.1%. This reflects the plus 170 basis point gross margin expansion I just covered, partly offset by elevated SG&A costs as flagged last quarter. This includes a substantial planned commercial investment in international markets, beyond the expansion and brand equity of IQOS, ZYN, and VIVE. It also includes stepped-up marketing and brand investment behind ZYN in the U.S., following the return to full availability and further investments in our U.S. capabilities to support the future growth of ZYN and IQOS. We anticipate SG&A costs will increase slightly more than underlying net revenue for the year, excluding currency, reflecting this strong reinvestment. Ongoing cost efficiency in both cost of goods sold and SG&A partially offset increased investment. And we remain well on track to deliver our planned $2 billion cost saving objective over twenty twenty-four twenty twenty-six. Focusing now on our global smoke-free business. Our portfolio is outpacing the industry in the 100 markets where we are present with over plus 12% estimated IMS volume growth year-to-date, compared to less than 10% for the industry. We estimate our volume share of smoke-free products in this market is around 60%. And our year-to-date share of category growth is more than 10 points higher than this. With our portfolio of leading premium brands, our share of smoke-free in value terms is notably higher than this 60%. Our multi-category portfolio is a key strength as we leverage equity and reach of high cost convert more legal age nicotine users. IQOS generated more than $11 billion in net revenue last year, and its 75% plus share of the growing global heated tobacco category remains stable despite intensifying competition. ZYN, while still small in comparison, is growing notably faster than the category as we benefit from a strong leadership position in the U.S. and rapid progress in international markets supported by a differentiated and long-term oriented portfolio. The same is true in e-vapor, brand loyalty and repeat purchase for VIVE is accelerating growth. IQOS delivered a strong Q3 with plus 9% adjusted IMS growth against a strong prior year comparison, resulting in plus 10% growth year-to-date. As flagged last quarter, we expect double-digit growth in H2, and plus 10% to plus 12% growth in adjusted IMS for the year, including an acceleration in the fourth quarter. This is supported by continuous innovation on devices and including a high focus on brand engagement, an example being the rollout of the limited edition Celletti device in Japan, followed by other markets, as part of our CurioSX campaign. Turning to ZYN. Can shipment grew by plus 36% on a global basis, with a presence now in 47 markets. This includes the Q3 launch in Spain, as well as the rollout of small-scale pilot in Japan, within BAECO's billing on the strong brand equity and commercial presence of the world's leading smoke-free brand. In the U.S., can shipment grew by plus 37% with a strong acceleration in offtake. Outside the U.S., can shipment grew plus 27%, or over plus 100% excluding the Nordics, with rapid growth from the UK, Pakistan, Poland, and South Africa. We continue to enrich our ZYN product offering including the progressive rollout of lower strength variant as part of our dry lead portfolio, where we observe a substantial increase in repeat purchase for legal age smokers new to the oral category, versus higher strength product. Moving to e-vapor, this strong momentum continued. With the brand now holding the number one closed spot position in eight markets. We delivered excellent Q3 volume growth of plus 91% despite unfavorable regulatory development in Poland. Strong year-to-date volume momentum, including an improved pods to kit ratio driven by repeat purchase, drove increasing operating leverage and scale benefit enhancing profitability. Reviewing now by geography, Europe is the most developed multi-category region with markets such as Italy, Greece, Spain, and Romania posting excellent growth within all three smoke-free categories. IQOS continued its strong growth trajectory in Q3, with adjusted IMS up plus 7.3% against a tougher comparison, notably driven by Italy, and supported by innovation on new terrier variants and Livia capsules. PMI HTU shares of the combined cigarette and HTU industry increased by plus 1.2 points to 10.7% with key cities such as Munich, Rome, and Madrid all posting very strong growth. We expect a nice acceleration in adjusted AMS growth in Q4. After numerous launches and expansions across the region in the last one to two years, ZYN's excellent early traction continued with share gains across markets, including Poland, Switzerland, Greece, and the UK. Within e-vapor, the consumer shift to closed spots continued to underpin growth. These volumes doubled, with the brand now holding the number one post position in seven European markets. In Japan, IQOS continues to grow very robustly, with Q3 adjusted IMS growth of plus 6% again against a strong plus 14% in Q3 last year, and plus 7.6% on a year-to-date basis. This primarily reflects the category growth rate, with twelve-month segment share stable at around 70%, notwithstanding a very significant step up in competitive commercial investment and intensity and, as in similar periods in the past, some increased trial of discounted competitor products. As mentioned last quarter, IQOS delivered truly exceptional growth in 2023 and 2024, especially considering the size of the category, is approaching half of total nicotine offtake volume nationally, and more than half in 14 of the top 20 cities. The growth that our business has delivered so far in 2025 is essentially in line with the trend in the years prior. Q3 adjusted IQOS HTU share increased 1.8 points year on year to reach 31.7%, as we continue to innovate on IQOS and plant the first seeds of multi-category deployment with the introduction of ZYN in select channels and locations. Turning now to The U.S., which made up around 7% of our global net revenues and 9% of our adjusted operating income year-to-date. Q3 ZYN volume performance was remarkable with an acceleration to plus 39% of the growth according to Nielsen, the fastest growth in the last five quarters. As the fastest growing category in the world's highest-value nicotine market, excluding China, we are naturally investing in ZYN, and the category's future growth, where the brand continued to hold over 60% share of volume and two-thirds of value. After posting plus 31% offtake growth across July and August. According to Nielsen, our Q3 growth was amplified in September to plus 58% by the reacceleration of marketing and promotional support after several quarters of supply constraint. With the growth of ZYN now close to that of the industry, ZYN captured the majority of Q3 category growth in both volume and value terms despite a markedly lower average price for the quarter. Indeed, ZYN was the fastest-growing brand by dollar retail value across all categories in The U.S. convenience channel on both the Q3 and year-to-date basis, as measured by Nielsen, with PMI U.S. also the same on a manufacturer level as shown here. This emphasizes the strength and power of the ZYN franchise with both our retail partners and legal-age nicotine users, providing an excellent platform from which to drive further growth. As mentioned, we recently implemented a strong step-up in overall marketing and brand building activities to support ZYN's presence at point of sale, brand visibility, brand equity, and relative price positioning. In Q3, this added a notable skew to promotions. In the supply-constrained 2025, only around 20% of these volumes were sold on promotion according to Nielsen, with competitors closer to 50%. With our return to full commercial activity, we expect to maintain a higher level of promotion than H1, as we continue to adapt our marketing mix to provide the appropriate level of support for the brand and the growth of the category. We naturally intend to maintain a clear premium positioning for ZYN, as the leading premium brand. We also look forward to reporting back on future commercial initiatives with one example being limited edition variants based on our authorized product range. As part of our activities, we also decided to launch a special September promotion to mark ZYN's return to full availability. This offered a free ZYN can for legal-age consumers purchasing other nicotine products in select locations and was designed to target legal-age smokers and other nicotine users to increase awareness and trial. This is in line with ZYN's mission to grow the nicotine pouch category over the coming years, and we are very happy with the results. The vast majority of those accessing the offer were smokers or vapers, with improved brand perception and promising level of repurchase intent. This offer accounted for a single-digit percentage of our Q3 shipment. Essentially, all the promotional costs of activating the special free can offer including retailer incentives, were booked in net revenues in the quarter. This largely explains the lower Americas top line when volumes were growing. With the accumulation of relaunch activities, this was an exceptional quarter of investment with around $100 million of Q3 specific investment and reduced revenues linked to restarting our commercial engine. The U.S. nicotine pouch category has been growing at more than 40% over the last eighteen months and today represents a high single-digit percentage of the nicotine market by volume. We believe it has the capacity to become one of the largest categories in The U.S. over the coming years, where we estimate cigarettes are more than 40% of the market, and e-vapor in the region of 30%. ZYN is America's number one smoke-free brand by value with a franchise which is second to none. We are investing to support ZYN's momentum both within and outside The U.S. We also hope for a positive outcome from the FDA's recently announced plan to streamline the review process for nicotine pouches which should help clarify and level the playing field. As a reminder, the FDA has only authorized 20 nicotine pouch products to date, all of which are under the ZYN brand, and we expect the Tipsak hearing from ZYN MRTP application in 2026. Altogether, we expect ZYN will continue to be an important growth driver of PMI net revenue and operating income. While the absence of a full commercial program in the first half of this year drove an exceptional level of U.S. profitability, we expect ZYN to continue delivering best-in-class margins within PMI. On a more short-term basis, we continue to expect H2 shipment volume growth broadly in line with offtake growth before channel inventory movement. We anticipate a 20 million to 30 million can inventory reduction in the coming months, this impact being effectively delayed from Q3 given strong September promotional activity. We also continue to await the FDA authorization of IQOS ILUMA, which represents by far the most successful product globally in switching cigarette users completely away from smoking. In the meantime, we are continuing with IQOS 3 pilots including the latest location of Jackson, Mississippi, as we also await the renewal of our IQOS 3 MRTP following the TPSAC meeting earlier this month. Outside of The U.S., Japan, and Europe, all three of our Smoke-Free categories are delivering dynamic growth with Q3 shipments up plus 23% to over 12 billion units. This includes continued strong IQOS performance in South Korea, rapid growth in Pakistan and South Africa, and very dynamic multi-category growth in global travel retail and Indonesia. We include further IQOS scarcity of tech shares in the appendix. Moving to combustibles. Our SIGAI portfolio continued to demonstrate its resilience, a strong performance from Marlboro gaining plus 0.4 points to reach a historic high share of 10.9%. The international category share declined in the quarter, largely driven by Turkey, following supply chain disruption earlier in the year. However, our share is recovering well sequentially and was essentially stable year to date. Q3 pricing of plus 8.3% came in better than expected with contribution from all regions and notably from Indonesia, Australia, Turkey, and Germany. While this was partially offset by unfavorable geographic mix, we now forecast full year pricing a little above plus 7%, with a slowdown in Q3 as expected due to timing factors. Most importantly, and as covered earlier, our combustible business continues to deliver a very robust contribution, with close to plus 5% year-to-date growth profit growth. This is fully in line with our objective of maximizing value over time and supporting the growth of our smoke-free business. This brings me to our outlook for the full year. We are on track for a very strong performance with another year of double-digit growth in adjusted operating income and adjusted diluted earnings per share. This starts with shipments, where we continue to target total PMI growth of around plus 1%. Our fifth consecutive year of volume growth including a cigarette decline of around 2%, smoke-free volume growth of plus 12% to plus 14%. Smoke reshipment growth is more likely to be in the lower half of this range, factoring in the potential inventory adjustments for ZYN I described, and expected IQOS HTU shipments of close to 38 billion units in Q4. This Q4 HTU forecast includes modestly lower channel inventory and a reversal of around 2 billion units, due to timing impact with HTU shipment growth thus broadly in line with our plus 10 to plus 12 adjusted IMS growth forecast for 2025 overall. We continue to forecast organic net revenue growth of plus 6% to plus 8%, driven by positive volumes, smoke mix, and pricing. Consistent with smoke-free volumes and given the top-line impact of U.S. investment, the lower half of this range is also more likely. Excluding the technical impact of Indonesia, our forecast growth would be at or above the high end of our three-year growth algorithm. We expect another year of double-digit organic operating income progression, where we now forecast plus 10% to plus 11.5% growth for the year including the same factors as net revenues. We expect this growth to drive strong adjusted OI margin expansion to land firmly back above 40%. This above algorithm growth in a year of strong investment clearly demonstrates the dynamism of our global growth model. We are raising our adjusted diluted earnings per share forecast to the mid to upper end of our previous currency neutral growth range at plus 12% to plus 13.5%, which translates into plus 13.5% to plus 15.1% in dollar terms. This includes an estimated Tencent currency tailwind and we would expect a similar size tailwind for 2026, all at prevailing exchange rates. The 2025 forecast includes an adjusted effective tax rate of around 22% for the year based on the latest assessment of tax dynamics and market mix. In Q4, we expect a continued strong performance from our Smoke-Free business, including an acceleration in 6% currency neutral adjusted diluted EPS growth. In addition, we are upgrading our full year operating cash flow forecast to more than $11.5 billion at prevailing exchange rates subject to year-end working capital requirements. This reflects strong full-year profit delivery and cash conversion and now includes a Q3 dividend payment from our deconsolidated Canadian affiliate. In terms of our balance sheet, we continue to target further deleveraging in 2025 with no currency movement, of course having a potential influence on our ultimate year-end leverage ratio, given our euro debt position. Importantly, we remain on track for our target ratio of around 2x net debt to EBITDA, by 2026. Given our strong year-to-date and expected full-year performance, we are well on track to exceed our twenty twenty-four twenty twenty-six CAGR targets, which already represent a best-in-class growth profile within the Consumer Package Group. With such strong progress already delivered and an exciting growth outlook over the coming years, we look forward with confidence to 2026 and beyond. In summary, our year-to-date performance reflects the strength and momentum of our global smoke-free business, combined with the resilience of combustibles. Our smoke-free business is increasingly profitable with IQOS and ZYN leading the way. We remain excited about our future growth potential as we continue to deploy a multi-category strategy and invest in our category-leading premium brands. Our financial model is built on strengths across all categories, complemented by proactive measures on pricing and cost efficiencies. This drives our confidence in strong and sustainable adjusted diluted EPS growth in both currency neutral and dollar terms. Our focused capital allocation strategy allows us to not only reinvest at the optimal level to support and elevate our smoke-free portfolio, but also to reward our shareholders. In September, we raised our dividend for the eighteenth consecutive year to $5.88 per share, with growth of plus 8.9%, the largest increase since 2013, reflecting our strong year-to-date performance and confidence in our outlook. We look forward to further rewarding our shareholders as our transformation continues. Thank you, and we are now very happy to answer your questions.

And wait for your name to be announced. To two questions per analyst in the interest of time, and we will take any additional questions if time allows. Please standby while we compile the Q and A roster. Our first question comes from Eric Serrano with Morgan Stanley. Your line is open.

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

Thank you, Eric. Good morning, and thank you for your two questions. So I'm going to start with ZYN and thank you for allowing me to clarify or repeat some of what I've been saying. Yes, of course, ZYN is the arch leader of nicotine pouch in The U.S. More than 60% market share in volume, two-thirds in value. It is our role. It is our mission to grow the category, to develop the category, to create the awareness of the category. And of course, as a leader, we will benefit from that. And as I flagged in my remarks, we see tremendous potential for the category, which over the last quarters have been growing between 30-40%. And the dynamism is still there. So indeed, with our special promotion I'm going to come back to this special promotion in a second, we've been further accelerating, I would say, the growth of the category. But the dynamism of the category is absolutely tremendous. And of course, we are very happy as we said we capture the majority of the growth both in terms of volume and in terms of value. I think what we've seen during this Q3, and that's the way I would summarize things, is on one side, normalization that I'm going to explain, and on the other side, let's be clear. I think we wanted to have a kind of blast effect because we were back with full availability. And, you know, when the leader is back in full force, you just want to let it know. That was his special promotion on the free can. But first of all, let me comment on back to normal. I think people probably did not fully get it, but during a year of limitation in terms of availability for ZYN, we've been flying at a level of profitability that was abnormal. Because the level of promotion was very low. We flagged the fact that in H1, the level of promotion was around 20% on price, when the rest of the category and the standard of the category was more around 50%. It doesn't mean that we're going to go to 50%, but it's just to show the difference. But if I look at actually Q3 twenty twenty-four, we were with a single-digit percentage of promotion, so almost no promotion. And what has been happening in Q3 is just now that we are back to full availability, we want, of course, to capture our fair share of the growth. We are a premium brand. We're still a premium brand. As I think Yatech flagged a few weeks ago, there was a big level of difference because of this low level of promotional activity and the very, I would say, aggressive discount activity from competition. And it was important for us to go to a more normal level of promotional activity. Certainly not to close the gap, but just to reduce the gap to a more acceptable level in terms of premium. ZYN remains and will remain a premium brand. So this is what I call normalization that happened in Q3. We are going to a normal promotional activity. We are one, not the only, but one of the elements of the mix in order to develop 80% of this free can promotion went to smokers and vapers. And we know that the future growth will come notably from converting these smokers, these vapers to nicotine pouch. And we were happy to do that and we are very, very pleased with the feedback we are getting from this promotion. Now we acknowledge that this is coming at a cost, and I've been flagging in my remarks the fact that restarting this promotion and all this, you know, I would say, restart of the machine of pushing ZYN at the right level has been costing around $100 million of reduction in sales. And I would say this one, of course, is more exceptional by nature. So I think really give two elements. One, we are now in a normal situation when in the past quarters we were not in a normal situation in terms of net price positioning. And this kind of one-off special, necessarily repeatable promotion that happened in Q3. So that's for explaining what happened in Q3. Now you were asking, okay, what has been happening in terms of consumer offtake? So frankly, the first two weeks, I think, have been above 30% or a bit below 30% in terms of consumer offtake. We stay with a very strong growth. And actually, if you look at Q3 without the special free can promotion, we were at 30% plus growth. So it seems that we are starting the last quarter on the same strong note as the third quarter in terms of the evolution of consumer offtake. Your second question was on September, we are north of 12%. In fact, in terms of HTU shipment growth. So IQOS consumable shipment growth. When we are much closer to 10% in terms of IMS growth. So we expect an acceleration of IMS growth in Q4. But nevertheless, in Q4, we are also expecting to align clearly shipment and IMS. And even I'm not excluding the possibility to have as you know, we manage inventory levels here and there. To have shipments a bit below IMS for the year. So that's what we expect to happen in Q4. And of course, that is having an impact on the financial performance in Q4. But we are very pleased with the IQOS performance in terms of IMS, which is really the long-term driver. And many markets where the brand is doing superbly well. Thank you.

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

Hi, Emmanuel. Thank you for taking my question.

Good morning, Matt.

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

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

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

Sure, Matt. I mean, the message, if I was to simplify it, is the momentum for the business is going to continue in Q4. So in terms of smoke-free portfolio, expect even IQOS to accelerate. We expect ZYN continue to grow very fast. Of course, we expect a good performance in The U.S., but it goes beyond The U.S. And we also expect this to continue to grow very nicely. So in terms of underlying consumer offtake growth, everything is the same. All the elements in terms of margin are exactly the same. And that there is nothing changed. So this is really what is going to impact the number and the reason why Q4 is going to be lower than the first nine months that, of course, are impressive in terms of growth. I would say, all level in terms of operating income and adjusted EPS growth is really the move on inventory. Nothing has changed in the momentum. When it comes to combustibles, and it's still 50% plus of the group, we expect to be again between 3% to 4% decline in volume, so nothing has changed in our vision of H2. What's going to be a bit less favorable is price increase. Because indeed, we expect due to phasing of pricing and so on, a lower Q4. So that's going to impact the quarter. So I'm not saying it's going to be huge because we still have nice price increases expected in Q4, but that would be a bit less favorable than the first nine months. Then below that, expect us to continue to invest at a significant pace behind our portfolio. The growth potential is outstanding, and we want to maximize course, it's coming with investment. And then I also flagged in my remarks that the tax rate will be significantly higher to lend us around 20%, which is our vision today. So that's going to be a significant impact for Q4 but to be clear, we're not expecting a change of momentum in the business. You have all this technical impact I've just been describing.

Thank you.

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

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

Sure, Bonnie. So on the U.S. step up of investment, I mean, is a growth market for us. Thank you for giving me the opportunity to repeat that in The U.S., we are in a unique opportunity. This is a market where we are smoke-free. Basically, we have today the leading brand of the most dynamic category. And hopefully, we are getting close to being able to launch 30 million smokers in this market. So this is a market that is incredibly attractive and where we see a lot of growth in the future. And of course, in line with the potential that we see for this market, we are investing significantly in the country. We are, of course, supporting ZYN's potential and the ZYN growth. We continue to build the team to be at the right level to promote and develop this very exciting portfolio. That is clearly, you're right, impacting 2025. But that is also certainly something we will continue in the future. So it's not that the investments are stopping in 2025. That will, of course, in all dimensions, commercial presence, marketing investment, but of course, also presence in the country when it comes to capacity to work at the state level with the right people. These are investments we are making gradually, and we are indeed continuing to invest behind IQOS to prepare the launch in the future. So all that is absolutely playing in The U.S. and impacting The U.S. On the full-year guidance, so yes, obviously, everybody understands, if you take the $100 million and the revision, which is really the new element of this Q3 and the revision of the guidance. Everybody understands where the revision of the guidance is coming. Can I just nevertheless say that there is still the possibility that we finish above 11%, which was the previous guidance? So we'll see how Q4 unfolds. And we are raising EPS. I mean, let's be clear, we continue nevertheless to expect a very strong growth of OI. And we are also having some, as we explained, slightly positive or better views on the tax rate. And I should probably add that interest costs are not evolving in an unfavorable manner, but rather in a favorable manner. So we could be a bit better than what we thought initially. But fundamentally, let's be clear, the EPS growth, the strong double-digit, that is coming from the OI growth, okay? That is a powerful engine that we have, and that is powering very nicely the company. Well and I think on the cake on top of that, indeed, you know, tax seems to be evolving in the right direction.

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

Look. I'm not going to discuss, you know, how relevant is our commercial policy. And I think we're sharing a lot, frankly, versus that is the remark I was, you know, having the other day. I think that's I was reading what other are saying about what they do. I think we are sharing a lot. So on the positive, it is, you know, clearly, it will we will need some time to have probably the full impact. But, clearly, in terms of creating the awareness, of the category and of the ZYN brand the understanding, first testing we have some feedback. And remember, you know, we stopped this promotion that many weeks ago that are extremely positive. And, clearly, we are building new customers for ZYN. I'm not able to, yet at that stage, tell you Oh, but, actually, there are positive impacts. On the BOGO versus what we've been doing, we could have a discussion, but let's be back to what was here the objective of this free can objective. That was really let's make a big splash. Let's create the blast. We want people to have a first connection with this category. When you do a buy one, get one free. I mean, you are applying to your consumer, you're not recruiting. You're not creating awareness for new possible customers. I said, but I'm really happy to repeat the potential of the nicotine pouch category is enormous. The category is growing very fast. That is the category that has the potential to be one day as big as vaping, why not as big as combustibles? As the leader, it is our role. It is our mission to make it known, make it understood, and to contribute to the growth of the category. Are we contributing to others, you know, because they also sell nicotine pouch when we go the nicotine category? Yes, probably. But you know what? As the leader of the category, we are the first beneficiaries of this promotion. Again, I'm not saying we're going to repeat it every quarter. You must understand that. Was a kind of exceptional moment. But, I think we are very pleased already.

Alright. Thanks so much, Emmanuel.

Thank you. And as a reminder, wait for your name to be announced. Again, that is star one one to ask a question. Our next question comes from Faham Baig with UBS. Your line is open.

Hi, Emmanuel. Thank you for taking my question.

Thank you.

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

Thank you for the question, Faham. Look, this is not the first time that we see of course trying things and coming with innovation and more investment. But I think I have to acknowledge that this time, it's probably in some areas. Taking even more intensity, which frankly, and that will be my first comment, we are happy to see because we've been, during a long period of time, the only one in the industry giving the feeling that we thought that it not burn was a fantastic category innovation for smokers with the capacity really to convert smokers and become a big part of the market among smoke-free products and really probably the best solution to convert smokers. So it seems that a growing number of players are getting there. They are improving their product. They work on innovation. We always thought that, you know, it's a normal development in a category. Competition would improve and increase their investment. This is happening. But at the same time, it's interesting to see that we are in Japan, like in other countries, I mean, we remain extremely stable in terms of overall share of this category. We are north of 75%, and we have been there for the last five or six years. Which is quite incredible because when you have a new segment innovation normally the leader stays the leader for, you know, a long period of time at a high level, but normally losing, you know, a bit of share as there is other offerings and also because lots of this offering is coming at a discounted price. And trying to fish at a low price positioning, where we're very stable. And actually, Japan is making no exception. You see, and I think we've been showing the data, we are very, very stable in terms of share of the category, which obviously is a tribute to the strength of IQOS, to the quality of what we offer, which I believe is a unique experience for the consumer. And therefore, I don't want to be complacent, but we certainly believe that we have the capacity to continue to be a strong leader and maintain very strong leadership in Japan and in other markets. So there is certainly for us the vision that Japan will continue to be a market where we can grow very nicely. I'm not going to give a guidance now for 2026, but we certainly see Japan as a growth market for the future. And I just want to conclude my comment again saying it's really good to see that the industry seems to be putting much more resources behind smoke-free globally. And Eat Notebrand in particular. And again, as a leader of this category, we think it's good news for us. Thank you.

Thanks.

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

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

Thank you for your question, Damian. First, on inventory adjustment. So again, on, I guess your question was both on IQOS and on ZYN. On IQOS, as I said, we are expecting to align our shipment broadly with our end market sales. We expect acceleration in end market sales in Q4. We are close to 10%, a bit above at September. So that will drive the level of adjustment. Plus, as I said, the fact that notably in Japan, and depending on the situation on logistics and how things evolve, we may want to reduce a bit more from the level of inventory. I'm not saying it's going to be very material, but that means that we could have shipment even slightly below adjusted in-market sales for the year, we will see. And in my remarks, I said that we expect around $2 million stick adjustment for Q4. So that's for IQOS. When it comes to ZYN, we flagged the fact that in this market coming back to normal, there was a higher level than normal of inventory at the level of wholesaler and distributor notably that we expect to adjust in the coming months 20 million to 30 million cans. We were actually expecting that to happen at the September. But given the fact that we were in high promotional activities, it did not happen. So I would tend to believe that this is going to happen in Q4, but what happened in September is pushing me to be a bit more cautious on the certainty that this adjustment that will happen ultimately is going with 100% starting to take place in Q4. But that would be nevertheless my expectation. On the ZYN premium level, I mean, of course, I mean, that's something very sensitive. You don't expect me to give a number. But I think today's growth of ZYN and the price positioning of ZYN is certainly confirming that ZYN deserves and justifies given the franchise, the strength of the brand, the emotional connection with the U.S. consumer that is unique deserves a very nice premium, and we intend to keep a very nice premium in the future. Of course, I won't elaborate on what it is precisely.

Yeah. Very clear. Thank you, Emmanuel.

And we do have a follow-up from Faham Baig with UBS. Your line is open.

Sorry, Emmanuel. I just I did have one more question. I appreciate the operator bringing me back in. No problem. So my second question thanks, Emmanuel. The second question was on the potential launch of ZYN ultra in The U.S. So, as you sort of highlighted in your remarks, the FDA confirmed plans to more efficiently review nicotine pouch applications. My question would be, when do you expect this process to potentially conclude? Could you consider launching the product ahead of an approval? It seems like some of your peers are. And I just wanted to confirm that this product that is going to be launched in Ultra corresponds to the 2021 application covering the six milligram and nine milligram strengths and the 10 flavors.

Well, you know, I'm not going to speculate. I think that FDA has been communicating on their program to accelerate and give clarity on some of the applications that could accelerate. So I'm not going to speculate on what's going to happen. But certainly, we are hoping for the FDA to create a level playing field and ensure that all competitors can come with their product and not, you know, be at a disadvantage because some would be on the market and others will not be allowed. So that's something that we hope to happen as soon as possible and of course in the coming months. We are monitoring the situation. We see what other competitors are doing. We are considering all options, but as I said, I don't have anything else to add. Again, for us, the expectation of the FDA creating a level playing field is really our ask and our priority. I don't think we ever comment on the characteristics of the ZYN ULTRA PMTA. But certainly, these are products that would come with some differentiation versus ZYN drive that today enjoy already a PMTA.

Thank you.

Thank you.

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

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

Thank you. Speak to you soon.

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