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DATE

Friday, Feb. 6, 2026 at 9 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Jacek Olczak
  • Chief Financial Officer — Emmanuel Babeau

TAKEAWAYS

  • Smoke-Free Product (SFP) Volume Growth -- 12.8% year-over-year increase in smoke-free product shipment volumes, reaching 179 billion units, with IQOS HTU shipments up 11% to 155 billion units.
  • Net Revenues -- Total net revenues exceeded $40 billion, with smoke-free business contributing 41.5% (approximately $17 billion).
  • Adjusted Operating Margin -- Operating margin returned above 40%, specifically 40.4%, reflecting margin expansion and continued transformation.
  • Adjusted Diluted EPS -- 15% annual increase in adjusted diluted earnings per share (EPS) in dollar terms to $7.54, at the high end of guidance.
  • Organic Net Revenue Growth -- 6.5% organic net revenue growth, or 7.9% excluding Indonesia's technical impact; within the plus 6%-8% mid-term CAGR target range.
  • Cash Generation -- Operating cash flow met the prior year's record at $12.2 billion, with a targeted leverage ratio close to 2x by 2026.
  • User Base Expansion -- Smoke-free product consumer base rose to 43.5 million, up approximately 10 million in two years.
  • Global Market Presence -- Smoke-free products were available in 106 markets, with 26 markets carrying all three SFP categories and 27 markets exceeding 50% net revenue from smoke-free sales.
  • IQOS IMS Growth -- Adjusted in-market sales (IMS) for IQOS grew 12% in Q4; annual IMS grew by about 15 billion units.
  • ZYN Performance -- US ZYN shipments increased 37% to 11.9 billion pouches, accounting for nearly 7% of total global SFP volume; international ZYN shipments grew 31%.
  • VEEV/VIVE E-Vapor -- Vive shipped doubled year over year, achieving number one market position in eight international closed pod markets.
  • Combustible Segment -- Combustible net revenues grew at low single digits; gross profit expanded low to mid-single digits with a 7.6% pricing boost and 1.5% volume decline.
  • Regional Highlights -- Europe surpassed 50% of net revenues from smoke-free products, and the Japan heat-not-burn segment crossed 50% of total offtake volumes in December.
  • US Business -- US represented about 7% of global net revenues, with ZYN achieving a 61.5% can volume share and over 67% value share in the US nicotine pouch category.
  • Dividend Policy -- Dividend payout approached the 75% adjusted diluted EPS target, enabling potential for continued dividend growth aligned with earnings growth.

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RISKS

  • Jacek Olczak noted, "the upcoming excise tax increases on heat not burn in April and October make 2026 an atypical year," potentially impacting Japanese category volume and growth by 10%-20% of retail prices, particularly for lower price point products.
  • Jacek Olczak highlighted that India and Mexico will be affected by "massive excise duty" increases, forecasting around a 40% price rise for consumers in India and signaling significant volume impacts.
  • Channel inventory fluctuations for ZYN in the US were acknowledged, with an estimated 25 million cans of surplus inventory expected to normalize in early 2026, which could temporarily skew shipment versus offtake trends.

SUMMARY

Management reaffirmed mid- to long-term growth targets for organic net revenue (6%-8% CAGR), organic operating income (8%-10% CAGR), and adjusted diluted EPS (9%-11% CAGR constant currency) through 2028, underpinned by continued expansion in smoke-free products and geographic reach. Operating leverage and cost efficiencies were positioned to drive further margin expansion, with investments supporting multi-category international and US growth, including ZYN Ultra pending FDA action. Philip Morris International (PM +0.29%)'s leverage ratio improved to 2.5x and is targeted to reach close to 2x in 2026, expanding strategic flexibility for growth and shareholder returns. Capital deployment priorities include dividend growth in line with earnings, backed by robust cash flow and a record $12.2 billion in operating cash generation. Quarterly phasing expectations for 2026 call for the first quarter to be the softest, with sequential improvement as supply chain normalization and regional recovery trends take hold.

  • Jacek Olczak stated, "we are today renewing these growth targets for the next three years further validating our best-in-class growth profile within a consumer packaged goods."
  • Emmanuel Babeau reported, "We have delivered around $1.5 billion in growth cost savings since 2024, placing us firmly on track to achieve our $2 billion objective the 2426 period."
  • Deployment of all three SFP categories in 26 markets signals broadening leadership in reduced-risk product adoption relative to traditional combustibles.
  • Emmanuel Babeau clarified, "we continue to expect ZYN to deliver best-in-class gross margin within PMI above the average of IQOS."
  • Japan pricing actions, driven by tax hikes, are expected to affect consumer elasticity and shipment timing; Philip Morris International has submitted an application for April price increases and anticipates underlying category growth trend to persist longer-term.
  • Jacek Olczak emphasized, "multi-category strategy in international markets will continue to be the dominant driver of smoke-free products growth further amplified by the substantial opportunity in The US."

INDUSTRY GLOSSARY

  • IMS (In-Market Sales): Company-reported shipments adjusted for trade inventory movements, used as a proxy for end-market demand.
  • HTU (Heated Tobacco Units): Consumable tobacco sticks for use with heat-not-burn devices such as IQOS.
  • SFP (Smoke-Free Product): Products that do not involve combusted tobacco, including heated tobacco, e-vapor, and oral nicotine pouches.
  • Iluma: The latest generation IQOS heat-not-burn device platform.
  • Adjusted Diluted EPS: Earnings per share metric excluding certain non-recurring items and calculated using fully diluted shares outstanding.

Full Conference Call Transcript

Jacek Olczak: Thank you, James, and welcome, everyone. 2025 was another outstanding year for PMI. The shift of adult smokers to better alternatives is a lasting structural movement, one that we continue to lead and from which we are generating strong sustained growth. Our leading global position in smoke-free products enables us to deliver a fifth consecutive year of positive volumes with rapid top-line progress and significant margin expansion. We grew our smoke-free products volumes by an excellent 12.8% with the increasing profitability of the portfolio, reflecting inorganic smoke-free gross profit growth of 18.7%. IQOS remains the core driver with both shipments and adjusted IMS growing around 11%.

This includes an impressive acceleration in the fourth quarter with a return to strong double-digit growth in Italy, and a very promising start in Taiwan, just two examples of the broad growth across geographies. This performance also reflects the success of our multi-category strategy with Bonsin, ex Nordics, and Viiv more than doubling shipment volumes in international markets. Our strong brand offering, which includes high-quality science-backed products in all three smoke-free products categories, allows us to better serve consumers and enhance our financial performance. While the nicotine pouch category remains nascent in most geographies, Zen gained significant international share as we expanded the product portfolio and market reach.

The more established e-vapor category VIVE is the fastest growing brand of any major player in international closed pots and holds the number one position in eight markets with substantial increase in gross profit. Although our performance continues to be fueled by the international business, we generated the vast majority of total PMI organic net revenue growth led by SFPs. We have a substantial opportunity in the US where ZYN grew shipment by 37% despite supply constraints in the first half, a significant price premium, and the competitive portfolio gaps. Our Aspire Wellness Business also grew organic net strongly. Combustibles delivered robust top and bottom line performance, notwithstanding a more normalized industry volume decline and supply chain issues in Turkey.

We accomplished this through strong pricing, portfolio resilience, and disciplined execution, with Marlborough reaching a historic high share. Managing this business responsibly enables us to invest boldly in better alternatives and sustain our smoke-free momentum. Together, these factors enabled us to deliver 15% adjusted diluted EPS growth in dollar terms, the strongest growth since 2011, excluding the pandemic recovery year of 2021. This reflects currency-neutral growth of 14% well above our expectations at the start of the year, and the second year of mid-teens progress. Indeed, we have successfully achieved our three-year CAGR targets for organic OI and currency-neutral EPS in two years.

With another strong performance expected in 2026 despite some transitory headwinds, we are today renewing these growth targets for the next three years further validating our best-in-class growth profile within a consumer packaged goods. Importantly, this is accompanied by strong and increasing cash generation, and we target the leverage ratio of close to 2x by 2026 at prevailing exchange rates. With our dividend payout now close to our objective of around 75% of adjusted diluted EPS, this provides capacity for strong returns to shareholders. Before I turn it over to Emmanuel, I would like to highlight the achievement of several important milestones as we entered the second decade of our smoke-free journey.

Our total net revenues reached over $40 billion in 2025 with 41.5% or close to $17 billion generated by our smoke-free business. Even more impressive is the smoke-free gross contribution, which has essentially doubled in five years to 43% of total PMI. Our adjusted operating margin also returned to above 40% this year as our transformation expands profitably. Our business is increasingly smoke-free with 27 markets exceeding the 50% net revenue milestone, including South Korea, Poland, Italy, Romania, and, of course, the US, which is also one of eight markets exceeding 75%. In 2025, the Europe region also surpassed 50% making three out of four regional segments majority smoke-free.

We continued to scale our global smoke-free presence reaching 106 markets, 52 of which have already deployed the category strategy which is a critical accelerator of consumer adoption and long-term growth. As adult nicotine consumers search for better alternatives to smoking, we continue to lead the broader industry transformation. A prime example is Japan, where the heat-not-burn category crossed the 50% total threshold in December, driven by the undiminished trend of 106 smoke-free markets, our double-digit adjusted IMS volume growth continues to outpace the industry demonstrating the collective strength of our leading brands. While we are proud of what we have accomplished so far, our focus remains sharply on the future.

With an exciting pipeline of initiatives and innovations over the next three years. This is supported by increasing digitalization and our new organizational model. With that, I will hand over to Emmanuel to discuss our results and outlook in more detail, and I will come back at the end of this presentation.

Emmanuel Babeau: Thank you, Jacek. I will begin with the headline financials for the year, which were indeed impressive. Organic top-line and operating income growth were in line with our forecast ranges set at the 2025, and currency-neutral adjusted diluted EPS growth exceeded with expectation by 1.7 points. Positive shipment volume, strong smoke-free category mix, and pricing drove organic top-line growth of plus 6.5% or plus 7.9% excluding the technical Indonesia impact, positioning us at the high end of our plus six to plus 8% midterm CAGR targets. We delivered another year of double-digit organic operating income growth at plus 10.6%, above our midterm target range and reflecting plus 140 basis points of organic margin expansion.

In dollar terms, adjusted operating income grew by plus 11.8% to $16.4 billion. Excellent currency-neutral adjusted diluted EPS growth of plus 14.2% was ahead of our expectation. This was driven by strong underlying business performance, notably in international multi-category and in combustible, coupled with a more favorable effective tax rate and lower net financing cost. In dollar terms, adjusted diluted EPS of $7.54 was at the high end of our last guidance range. Despite a lower than expected currency tailwind of 4¢ due to nonrecurring transactional losses in Q4 largely related to the Russian ruble, and the Swiss franc. Robust cash generation enabled us to deliver operating cash flow of $12.2 billion matching the record delivery of 2024.

Now looking at Q4 specifically, while growth rates were below the overall year, partly due to the shipment and phasing factors was ahead of our expectation outlined last quarter. Underlying performance this enabled us to deliver almost plus 10% in diluted earnings per share growth, to $1.70 or plus 9% excluding a 1¢ currency tailwind. I will now cover our 2025 performance in more detail, starting with volumes. As Jacek mentioned, we delivered our fifth consecutive year of positive volumes total shipment growth of plus 1.4%. This was driven by the continued dynamism of our smoke-free business, which generated more than a 100 billion incremental units over the past five years, combined with a very resilient cigarette performance.

In 2025, smoke-free shipments grew plus 12.8% or plus 20 billion units to 179 billion, more than offsetting the 1.5% decline in cigarette shipments. All smoke-free categories grew strongly with IQOS h shipment growth of plus 11% to 155 billion units, This plus 102% to 3.3 billion equivalent units, and oral smoke-free product plus 18.5% to 20.7 billion units. Notably, this includes plus 37% growth from US ZYN to 11.9 billion pouches, making up close to 7% of total smoke-free product volumes. As expected, adjusted IMS growth for IQOS HTU accelerated in Q4 to plus 12%, while shipment volumes were impacted by the dynamic flagged last quarter and grew by plus 7.5%.

Notwithstanding this impact, total Q4 smoke-free product volume increased by a healthy plus 8.5%. The full-year cigarette volume decline of 1.5% was slightly better than our expectation of around 2%, with our category share performance in the second half proving resilient in several markets, including Egypt and India. The total international cigarette industry, excluding China, declined by an estimated 1.1%, with continued divergence between markets where smoke-free products are available which declined by around 3%, and market where smoke-free products are not permitted still at low level of penetration which were broadly flat. The composition of our 2025 top-line performance was extremely consistent with the five-year average of each key component demonstrating the sustainability of this dynamic drivers.

Continued volume growth is the first pillar of our growth model. The second is pricing, which contributed plus 4.1 points. The 2025 impact reflect plus 7.6% pricing from combustible and low single-digit pricing on IQOS, partly offset by the H2 normalization of US zine promotional activities. The third pillar of growth is smoke-free mix, which contributed plus 3.5 points in 2025. Combustible geographic mix and other factors had an unfavorable impact of 1.1 points, whereas currency and scope effect added plus 0.8 Breaking down now our full-year performance by category. Both smoke-free and combustible contributed to our strong net revenue and gross profit delivery, with gross margin expanding organically by plus 220 basis points to over 67%.

Smokefree net revenue grew organically by plus 14.1%, while gross profit advanced by plus 18.7%. As a result, adjusted gross margin increased by 270 basis points to reach 69.5%. Further widening the gap to combustible to four points for the year. IQOS was, again, the primary driver of this performance, combining global top-line momentum with increasing scale and cost efficiencies. This improving profitability also contributed positively and while the normalization of U. In commercial activity in H2 had a dilutive year over year impact, its gross margins remained best in class above the average of our IQOS business, including in Q4. As mentioned last quarter, we expect this to be an enduring positive mix driver.

Combustible performed well in 2025 with low single-digit top-line growth and low to mid-single-digit gross profit growth, a proxy of what we expect this business to deliver over time. Strong pricing more than offset volume decline and unfavorable mix with disciplined cost management supporting gross margin expansion of plus 160 basis points to reach 65.5%. Moving to operating margins. We delivered full-year organic expansion of plus 140 basis points and plus 160 basis points in the last year to reach adjusted operating income margin of 40.4%. We achieved this in a year of strong investment in commercial marketing and brand building, behind our smoke-free portfolio. Including international multi-category deployments and US ZYN.

We also continue to invest in expanding our US capabilities to capture the substantial growth opportunities ahead. This performance was supported by a relentless focus on both cost of goods sold and back-office efficiency, enabling meaningful margin expansion even as we continue to invest for growth. We have delivered around $1.5 billion in growth cost savings since 2024, placing us firmly on track to achieve our $2 billion objective the 2426 period. Focusing now on our smoke-free business. Where all categories have an important role to play. Our global presence continues to grow with PMI smoke-free product now available in 106 markets. This includes the recent launch of ZYN in Argentina and IQOS in Taiwan.

We increased the number of markets with all three categories to 26, compared with nine markets two years ago. We continue to outpace the smoke-free market. Measured in the categories where we are present across these 100 markets, we delivered over plus 12% estimated in market sales volume growth for the year, compared to over 9% for the industry. We estimate our volume share of smoke-free product on this basis is around 60%, and our 2025 share of category growth is over 70%. With our portfolio of leading premium brands, our share of smoke-free in value term is notably higher than 60%.

As we expanded our portfolio and geographic reach, the number of legal age consumer of our smoke-free product reached an estimated 43.5 million as of December 31, an increase of around 10 million users in two years with broad-based growth across categories. IQOS adjusted IMS growth accelerated to an outstanding plus 12% in the fourth quarter, reflecting strong momentum across the globe and a presence now in 79 markets. All regions contributed as illustrated by exceptional performance in key cities such as Mexico City, Manila, Riyadh, Rome, London, Madrid, and Munich. You can find further key city and European shared data in the appendix to this slide.

This enabled us to achieve full-year growth of plus 10.5% within our target range. Annual adjusted IMS again increased by around 15 billion units despite the continued headwind of the EU characterizing flavor ban, and a step up in competitive intensity. Our global share of the hypnot band category remains increasingly resilient at approximately 76%. This is supported by brand engagement initiative, and continuous innovation across devices and consumable, including the continued introduction of Illumina I to reach a total of 55 markets. Importantly, ICO's profitability continued to increase significantly, driven by pricing scale and productivity improvement on consumable and device cost. This is illustrated by a substantial increase in product contribution over time.

Turning to nicotine pouches, ZYN is the global number one brand with a 2025 PMI category share of around 40% in pouch terms. The US represents approximately two-thirds of the category today, while international markets though still relatively small, are growing rapidly. We made excellent progress this year, expanding ZYN's presence by plus 19 markets to 56 and delivering plus 36% shipment growth to 13.6 billion pouches or 880 million CAN, achieving our 2026 target one year early. US shipments grew plus 37%, while international volume grew plus 31% or plus 112% excluding the more mature Nordic market, where Q4 performance was impacted by a demanding shipment comparison.

We are focused on the future growth of the category, broadening our portfolio to address the need of legal aid smoker looking to switch. This includes new strengths and flavor variants, including zinc, x low 1.5 milligram, which was successfully rolled out to around two-thirds of the zinc market. Driving a significant improvement in first experience acceptance among adult nicotine consumers.

While we are in the early stage of developing the category, which makes up only a low single-digit share of total nicotine in most markets, it's very encouraging to see ZYN share of international purchase excluding The Nordics, rise by around plus 60% in 2025, to reach 16% following the launches and relaunches of the past one to two years. In e-vapor, this is the fastest growing international vape brand of any major player within Close Pods. The pod segment is growing rapidly as disposables decline, and Vive is gaining significant volume share the fragmented landscape, sourcing primarily from legal edge consumers of other vaping products and adult smokers.

As I covered earlier, shipments doubled for the year with a meaningful improvement in profitability. These is now present in 47 markets, and grew notably well in Italy, Romania, Greece, The UK, Germany, and Indonesia. Reviewing the smoke-free portfolio now by geography, starting with Europe, where as Yatzek mentioned, smoke-free products now represent more than 50% of regional net revenue. Total IQOS, ZYN, and V volume grew by an impressive plus 13% for the year with significant further growth potential given the overall penetration of SSP remained low compared to Japan or The US. IQOS delivered another strong quarter with an acceleration in adjusted IMS growth to plus 10.3%.

This was led by an exceptional performance in Italy, where we successfully navigated the impact of the flavor ban supported by recent innovation. With an acceleration through the 2025 to deliver double-digit in market sales growth for the year, quarterly market share passed 20% for the first time. Other notable call outs strong double-digit growth include Bulgaria, Germany, Greece, Spain, and Romania. Zinc pouch shipment volumes grew plus 9% for the year, and while The Nordics make up close to 60% of regional volume, shipments more than doubled elsewhere with good progress in The UK, Poland, Italy, and Austria. As noted earlier, excellent V momentum continued with shipment growth of plus 110%.

In Japan, we reached an impressive milestone in December as the heat and urban category surpassed 50% of total industry offtake volumes driven by the continued strength of 250% has not been linear, and following two years of very strong expansion in '23 and '24. Category growth moderated in 2025. The adjusted in market growth of IQOS HTUs has reflected this trend with a healthy plus 7% in 2025 representing very robust absolute growth. In Q4, the Japanese nicotine industry and the heat not burn category grew slightly below the full-year trend with some impact from inflationary pressures on consumer purchasing power.

Nonetheless, ICO's HTU adjusted IMS grew plus 5.8% while Q4 adjusted share grew plus two points, year on year to 32.6%. While competitive intensity increased markedly this year, IQOS category share was broadly stable with most movement occurring among other players. We are encouraged by early sign that the increase in category activity is generating higher interest among more traditional adult smokers, a positive indicator for category growth. Looking forward, the upcoming excise tax increases on heat not burn in April and October make 2026 an atypical year.

As discussed at the Morgan Stanley conference in December, the level of person makes this a headwind for the category representing about 50 to 100 Japanese yen per pack, which translates to two to 10 to 20% of current retail prices. With the greatest impact for products at lower price points. As announced recently, we have submitted an application to increase our prices in April. We anticipate these price increases will impact category growth and volume for 2026, despite the fact that heat not burn consumers have demonstrated higher price resilience than cigarette smokers in the past. Shipment volatility in 2026 is also possible driven by in market sales trends around the April and October excise increase.

Importantly, we do not expect the underlying category growth trend to change and we target substantial further growth from IQOS in Japan in the years to come. We are also pleased to report ZYN's successful pilot launch in Tokyo. Outside of The US, Japan, and Europe, all three of our small free categories are delivering strong broad-based growth with full-year shipment up plus 17%. This includes ICO's strong start in Taiwan during Q4, where we exited the year with around 4% of tech share, and rapid progress in markets such as South Korea, Malaysia, and The Philippines. ZYN momentum was notably strong in Pakistan and Mexico. In e-vapor, we've achieved excellent results, particularly in Asia.

Our global travel retail business further supports all three brands, and continues to deliver impressive multi-category performance, serving as a powerful platform to showcase our portfolio. Turning now to The U.S., which made up around 7% of our global net revenues, and around 8% of our adjusted operating income in 2025. Nicotine pouches remain the fastest growing US segment, representing a high single-digit percentage of total nicotine industry volume. Despite supply constraints, commercial normalization, and portfolio gaps, ZYN continued to lead the category in 2025, with its premium offer capturing around 50% of category growth 61.5% can volume share, and a value share of over 67%.

ZYN offtake volume also grew strongly by plus 25% for the year as estimated by Nielsen. Shipment grew by plus 37% or 230 million can, to 794 million. The gap between shipment and offtake reflects a net channel inventory rebuild and we estimate the underlying 2025 shipment base corresponding to consumer offtake was around 740 to 750 million cans. This was notably concentrated in the 2025, and we estimate the underlying shipment base by quarter for 2025 was around 160 million can in Q1, 180 million CAN in Q2, 205 million in Q3, and 200 million in Q4.

Indeed, Q4 saw a lower than expected destocking of about 5 million can, as we deploy promotion, limited time offers, and announced a generalist price increase of 10¢ per can in December. Looking ahead to 2026, we expect ZYN shipment volume to broadly reflect offtake growth from this underlying base, before any further channel inventory movement. We estimate there remain around 25 million cans of surplus inventory the downstream supply chain, which we assume will normalize in due course most likely in the first quarter. The level of offtake growth for XIN in 2026 will be influenced by three key factors in which we are investing.

The most critical over the mid to long term is ZYN's brand equity, we strengthen marketing in a responsible manner, enhance point of sale visibility, and deepen the connection with our legal edge consumers. Accessing all segments of The US nicotine pouch category, will require us to navigate a dynamic and uncertain regulatory environment. We have developed and are preparing to launch innovation to address a broad spectrum of consumer preferences. We have a number of pending gene submissions before the FDA, including ZYN Ultra, which is included in FDA's pilot program. ZYN ULTRA offers higher strength and an expected range of adult-oriented flavors.

Are taking steps to prepare for the launch of ZYN Ultra as soon as possible pending FDA action. Also believe ICOS ILUMA strong application and demonstrated track record, converting smokers to better alternative warrants expeditious FDA action. We also continue to optimize ZYN's premium price position. Despite elevated promotional intensity across the category, ZYN remained the leading premium brand by a clear margin, fully aligned with our strategy for sustainable long-term growth. We have a comprehensive commercial program plan for 2026, and as a reminder, commercial activities, including promotions, were unusually low in the 2025. As I mentioned before, we continue to expect ZYN to deliver best-in-class gross margin within PMI above the average of IQOS.

We are very excited about the significant growth potential the brand over the coming years, which fully justify the above-mentioned investment. One example of our enhanced brand building effort is the recently announced global partnership between ZYN and Ferrari, which recognizes our long-standing heritage in Formula One. We smoke-free product now at the forefront. Formula One's overwhelmingly adult audience provides a highly impactful platform to engage consumers responsibly and reinforce ZYN's premium equity. Finally, moving to combustible, which delivered another robust year of pricing of plus 7.6%, including plus 6.8% in Q4, and very good growth profit growth.

Our full-year cigarette share declined by 0.2 points to 25.3% mainly due to Turkey, was otherwise stable including record high for Marlboro, both for the full year and in Q4, where its share reached 11% of the international category excluding China. For 2026, we forecast a convertible pricing variance of around plus 6%, reflecting continued dynamic performance. With that, I will now hand it back to Jacek.

Jacek Olczak: Thank you, Emmanuel. This brings me to our outlook for 2026, where we expect another year of strong and profitable growth despite several transitory headwinds. Starting with volumes, we expect continued strong underlying momentum in our smoke-free business for all three categories. Both shipments and adjusted IMS volumes are projected to grow in a high single digit after factoring in the headwinds from Japan excise taxes and US zinc inventory comparisons described earlier. For combustibles, we forecast a cigarette decline of around 3% with weaker industry volumes in India and Mexico following the recent excise tax increases and our own recovery in Turkey likely to impact comparisons in the first half.

Altogether, this results in a broadly stable outlook for total shipment growth subject to the usual variability in shipment timing and trade inventory movement as compared to a forecast total industry decline of around 2% for cigarettes and HDUs. Led by combustibles, we expect another strong year overall for price notwithstanding the impact of US first half comparisons. And for continued positive smoke-free mix. Taking all these elements into account, we forecast 2026 organic net revenue growth of five to 7%. We expect the same factors in addition to operating leverage and ongoing cost efficiencies to drive further robust margin expansion with projected organic operating income growth of seven to 9%. This includes continued strong investment behind our smoke-free portfolio.

We are forecasting currency-neutral adjusted diluted EPS growth of 7.5% to 9.5% factoring in broadly stable net finance cost and an effective corporate tax rate approximately in line with 2025 at around 21.5%. Including an estimated 28 pen currency benefit at prevailing exchange rate, this translates to 11.3 to 13.3% growth to a range of $8.09 to $8.54. Which would mark another year of double-digit EPS growth in dollar terms. We expect a significant acceleration in operating cash flow growth at around €13.5 billion at prevailing exchange rates and is subject to year-end working capital requirement. The strong cash generation is expected to support further meaningful deleveraging in 2026 which I will come back to shortly.

On a quarterly basis, we expect the first quarter to be the softest quarter of the year, reflecting demanding year-on-year comparison and investment phases. We expect first-quarter combustible volumes to decline by up to 5% as the lap a prior year quarter of volume growth whilst having the highest expected impact of the dynamics in Turkey, India, and Mexico, which I mentioned, for the full year. Smoke-free product shipments will also be by the US ZYN shipment dynamics explained by Emmanuel and the strong HDO comparator.

With low levels of commercial activity on ZIM in prior year impacting the net revenue per car per can comparison and a higher quarter of investment globally behind our smoke-free due to phasing we anticipate broadly flat year-on-year first-quarter organic net revenue and operating income. We forecast high single-digit adjusted diluted EPS growth of $1.80 to $1.85 including a 14¢ tailwind at prevailing grades. Supported by a favorable comparison to transactional currency impact in the prior year. As I mentioned earlier, we have delivered dollar freer CAGR targets on operating income and EPS in just two years.

Combining our 2026 forecast with the strong results of 2024 and 2025, we expect to meet up or exceed all of our 2024-2026 CAGR targets presented at our 2023 Investors Day. This is especially the case for operating income and EPS growth despite our algorithm assuming a more favorable corporate tax rate. In addition, our expected adjusted EPS CAGR in dollar term to represent a strong double-digit delivery. This brings me the 2026-2028 outlook where we are renewing our medium-term growth targets in the next three years. We continue to target positive total shipment volume with the growth of smoke-free products more than offsetting cigarette volume decline.

While our 2026 forecast ranges are marginally lower due to the specific factors we explained for the three-year period to 2028 we continue to target compound annual growth rate of six to 8% in organic net revenues eight to 10% in organic operating income as margins expand and 9% to 11% in adjusted diluted EPS constant currency. This renewed target reflects our confidence in sustaining the strong pace of top and bottom line growth over time. They also reaffirm our best-in-class growth profile within the large cap consumer packaged goods sector. We target smoke-free product shipment and adjusted IMS volume growth of high single digits to low teens.

Our multi-category strategy in international markets will continue to be the dominant driver of smoke-free products growth further amplified by the substantial opportunity in The US. As we progress through the period, we expect this to be both by the new market openings and an active innovation pipeline. The US launch of icosiloma is included in this target including initial commercial investment with the precise cut in subject to the timing of launch. Meanwhile, the resilience of our combustible portfolio provides a critical backbone providing the infrastructure financial firepower, and consumer connection to accelerate smoke-free growth. We look forward to sharing more with you on this topic at the Cognex conference on February 18.

We remain a highly cash generative business which is based on the strength of our brand and reinforced by disciplined management of cost and cash. This gives us the financial capacity to invest strongly behind our smoke-free business product. Alongside superior business results, we are committed to delivering superior shareholder value. Having essentially reached our target dividend payout ratio of around 75% of adjusted diluted EPS, we have the capacity to pursue dividend growth closer to the level of earnings growth as demonstrated by the 8.9% increase announced in September. Strong cash flow and EBITDA growth enable us deleveraging.

Closed 2025 with an adjusted leverage ratio of 2.5x, reflecting solid progress despite the unfavorable impact of year-end currency movements in our net debt. We expect further improvements in 2026 targeting close to the 2x by year-end at prevailing exchange rate. Providing increased flexibility for capital allocation. In summary, our full-year performance under strength and the momentum of our global smoke-free business supported by investment in our premium brands and continued resilience of combustibles. Despite the complex operating environment, shaped by economic uncertainty, geopolitical tensions, and evolving regulations, we continued to make significant progress towards our vision of a smoke-free future.

As we delivered consistent best-in-class growth we are reinvesting in our leading brands innovation, and the critical capabilities which support long-term performance. This allows us to generate significant value for our shareholders, including the largest dividend increase in over a decade. We look forward with confidence to 2026 and beyond. Thank you. Emmanuel, and I will be happy now to answer your questions. As a reminder, to ask a question, please press 11 on your telephone. And your name will be announced.

Operator: To withdraw your question, please press 11 again. Our first question comes from Matt Smith with Stifel. Your line is open.

Matt Smith: Hi. Thank you, Jacek and Emmanuel, for taking my question. Good morning, Matt. Starting with the new medium-term targets that you provided today, can you expand on the reacceleration in smoke-free volume growth compared to the 2026 growth guidance? And you called out The U.S. as a new market in the outlook. How are other currently closed markets and the opportunity to expand platforms into existing IQOS markets considered? Thank you.

Jacek Olczak: Yes. So the acceleration in, of BEYOND '26 is the at this stage, we mainly see coming from all the implementations of the tax changes, which of price or excise driven price changes in Japan you may recall, Japan has the multi-step excise tobacco nicotine product, the excise tax changes. It starts with the asymmetry of heated tobacco products increasing the taxes first. And then I followed by the cigarette price increases as of '27.

So I believe I will believe at this stage, will be some headwinds on maybe some headwinds on the category growth And, obviously, IQOS growth in a '26, but once we start moving to the '27 and beyond, more symmetry with regard to the fiscal policy and treatment between a cigarette and heat not burn, I mean, IQOS of the category should be returning or resuming a growth. So that's the one factor.

And second factor, obviously, is that you know, as we highlighted in our remarks, I mean, there is a highly, you know, competitive environment in The US, and despite, you know, US in the total smoke-free volumes, may doesn't have that much of a weight, but for a growth, it's very opportunities, and the growth is very important to us. There are some asymmetries on the portfolio. Versus what is, presumably the most dynamic part in the total market, and we believe we've pending authorization with FDA once we will start moving hopefully, through '26, but definitely '27, etcetera. We're gonna put the portfolio into the symmetry of whether the consumer market expectations.

Now, obviously, the other fact which we mentioned, they are more on the combustible side. I mean, I'm not gonna small free product. I mean, that we mentioned India, Mexico, couple other smaller places which have some quite outsized, I would characterize, I increases, which obviously will drive the quite outsized, the normal price increases. So I believe once we will we don't think it's gonna be recurring, type of events, 2728. So we can come back and resume the strong top bottom line growth in the outer years? I think I just highlighted the key drivers.

There was obviously the factor of innovations, but you know, you will ask me the questions what exactly is the innovation for competitive reason. Will not be able to discuss. But this will be the main drivers coming or starting from a '26. The excise Japan, Xi is in a few other places, and the ZYN portfolio asymmetry and bringing this to the symmetry.

Matt Smith: Very clear. Thank you for that. I look forward to seeing you at the CAGNY conference, and pass it on. Okay. Thank you. Our next question comes from Eric Sarota with Morgan Stanley. Your line is open.

Eric Sarota: Great. Thanks so much. Guide for 26 Good morning, Eric. Oh, good morning. Terms of the 26 guide for smoke-free volumes up in that, you know, high single digits to low teens range. How are you thinking broad strokes? I know you're not guiding specifically, but how are you thinking in terms of ICOS, HTU, shipments, and IMS. Obviously, there's the, some of the specific headwinds you called out in terms of, the excise in Japan, And then you know, in terms of the competitive environment in Japan, I believe it sort of started to step up around the second quarter of year with some competitor product launches.

How has that been kind of evolving on a sequential basis, particularly heading in now to the season where you know, competitors have filed with the finance ministry for their for their price increases.

Jacek Olczak: Yeah. So I start maybe with the second part of the second question. I mean, yes, there is a this year and the year before, there was an increase competitive activity in the in Japan. Judging by how strongly IQOS holds the share in Japan and continuing its growth, I think it all goes well. I think, look, we have a ten year of IQOS brand built in Japan, and you know, number of steps of smaller, but also the big innovations, including icosiloma. So I think, you know, IQOS is entering this a bit challenging from a price perspective, period to, I think, you know, relatively strong.

Now, I think there are very legitimate questions how we see IQOS in Japan, but we know we try to stand away from giving a very precise volume and other outlooks for the ones with specific geographies that, you know, you will appreciate. There was a you know, there was a competition, and we don't don't want to highlight too much. To reveal, you know, whatever plans with regards to the price and you know, share expectations, the volume expectations. But when we come up with their guidance for the total smoke-free product volume evolution next year, I mean, all of these factors baked in, if you like.

And maybe, Eric, on your first question globally on the IQOS outlook among this high single-digit growth for our SFP volume in '26 We're very pleased with the growth of IQOS. Mean, we finished '25 very strongly, more than 12% adjusted in market sales growth. Yes. Japan has been slowing down a bit as we as we mentioned, but the number of markets reaccelerated. Italy is one of them. Europe is showing a number of markets which are I would say, accelerating, like Germany, like Spain, you still have markets such as Romania, Bulgaria that are very nice complement to the growth. So the picture is very nice for IQOS.

And, of course, we continue or we expect that to continue in '26. And then you have all these new markets in new economies that are being very successful. We have we have Indonesia, Philippines, The Gulf, mixed I mean, you have plenty of markets where IQOS is accelerating. And, last but not least, we are super pleased with the launch in Taiwan. I mean, 4% in only a few weeks, It's quite an achievement. And we're excited about, about the outlook. So that is globally giving a nice picture for the continuation of a of a of a very good growth for IQOS in '26.

Eric Sarota: Great. And just one clarification question just to be explicit in terms of the midterm or twenty six to twenty eight guidance, Is '26 correct me if I'm wrong, but '26 does not include anything for Oluma in The US. But there is something included for the you know, sort of 2728 time frame? Is that fair? Or, correct me if I'm wrong, please.

Jacek Olczak: It is it is the other case is broadly fair. Well, I don't know. I'll pass it on. No. No. No. No. On a serious note. Sorry. On serious note, you know, we've had a number of discussions over the last two years with regards to the, you know, estimated or expected timing of, you know, this long overdue authorization from FDA, but we have somehow made the assumptions for IQOS entering The US market in a planned period. But I don't think the algorithm which will lay down in front of you today is heavily or material dependent on the IQOS, on the IQOS in The US.

But IQOS is including their both from the investment that some expected volumes.

Eric Sarota: Got it. Thanks so much. I'll pass it on. Thank you, Ike.

Emmanuel Babeau: Thank you.

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

Bonnie Herzog: Alright. Thank you. Hi, everyone. I am wanted to follow-up on, you know, Japan and the excise tax situation. As you mentioned, we've known or seen that you're applying or you did apply for a price increase on top of the TAC So hoping you could talk a little bit more about the elasticities you're expecting, you know, with volumes I assume being pretty negatively impacted? And then I guess, will the leverage on the incremental pricing you're hoping to get be enough to drive margin expansion and income growth in the region?

Jacek Olczak: Yeah. It's. Okay. The price consumer will be will start being impacted. They will start seeing the prices as of April 1. Right? So this is still a little bit in front of us. There obviously will be some IMS shipment type of distortions, you know, consumers can do some buying their head or maybe not. I mean, all of these things will somehow wash out for the year. Now there are two steps of excise increases for heated tobacco products in 2026, one which, again, will kick the sorry, will hit the consumers in April 1. And the number in October. Okay?

The amount or the size of the excise may not immediately warrant that will I don't want to now talk about the pricing strategy, etcetera. May not immediately warrant depends on which strategy is at play on the margin expansion, but I do believe, you know, what is our approach to passing on prices and continuously working on the margin expansion. I think over a bit longer period of time, we will get where we want to get. But I cannot comment more Bonnie, for Got it. Reasons. Yes.

Bonnie Herzog: I figured I just alright. That would still help. I appreciate it. And then I did wanna just maybe ask a high-level question on your guidance this year. Could you maybe frame for us or touch on the key growth drivers that really will allow you to deliver on your top and bottom line guidance and possibly beat it, considering, you know, you're laughing. Several strong years of growth. I think that's been a key question just given, you know, the momentum.

So it'd be helpful just to kind have you kinda frame for us, you know, what are kind of the key drivers of this And then in the context of that, I did wanna just make sure to understand how much of an increase or not. Your guidance assumes in terms of planned investment spend this year. Versus last? And I guess, again, I'm asking, thinking about everything that you're planning on rolling out, of course, depending on the FDA. Thank you.

Jacek Olczak: Look. I mean, obviously, there is some degree of assumptions with we're taking on FDA. And okay, let me answer this if not. If we talk specifically about the ZYN and the ZYN Ultra our pending application. Which is very much in the higher nicotine strength obviously, moist version, you know, some flavors, etcetera. We have a readiness to launch the product essentially as well, essentially as we speak. So it all depends now how quickly can get an answer from FDA, and I will stay from any fortune telling you by the way. About precise timing of FDA.

I mean, I didn't have a great track record of forecasting FDA in the past, so I have to okay, validate with this. But I think it's gonna happen. Okay? Summer this year, I think the plan is well balanced. And, obviously, we will be mean, I sorry. ZYN is growing in The US, but it not growing at our expectations You know, if you measure the category growth versus then growth, at least the recently, etcetera, I mean, this will have to other this will have to be addressed. Cycles, and I said it's somehow baked in the plans. And the way we did this, algorithm provides a good balance between timing, volume expectations, and, you know, investment.

Now we need to remember that you know, when we talk about the ZYN and v for example, on international, mean, these two product categories are vastly enjoying the infrastructure, which we have built over time on IQOS. And I believe the longer we wait also in The US, we will we may end up in the similar, but reverse thing. It is a Zen energy infrastructure, back office capabilities, etcetera, which you know, will start being later on shared for IQOS. So you know, I remember you always were asking these questions about how much was the interest behind the IQOS, but everything depends about what other investments until this date we have been making and so on.

Obviously, there will be some variable investment. You need to build awareness and so on. But these are not, that heavy, maybe structural, long-lasting investments, which are already built because we continue investing behind But it just to maybe complement there is no rupture in '26 versus the trend of the past years. So the fundamental drivers remain exactly the same. You have a powerful smoke-free portfolio, which is continued to be dynamic. Yes. You have this Japanese situation, which is a one-off. You have, the high base of comparison in The US, which will have an impact in term of growth versus what is real underlying growth. So that is something we are taking into account.

But fundamentally, the dynamism is there. With a very nice positive mix impact on the margin, and that is playing. And on combustible, we have this resilient business model Yes. In '26, we are expecting slightly more decrease, which is coming from first of all, Turkey, where we still have an each one of comparison even if things are gradually improving. But mainly two markets, India and Mexico, where you have massive excise duty that are going to happen. In India, you talk about 40% plus price increase for the consumers. We're gonna have huge impact on the market. So this is impacting the volume.

But even with that, we are targeting to have this resilient model where with a decline in volume, we believe we can grow low single digit the revenue and low to mid single digit the growth profit. So as you can see, the 26 objective is not very far from the CAGR of the midterm growth algorithm. Fundamental remain exactly the same. We have a couple of special events we're going to overcome and offset, and that is really what is driving the difference. But fundamentally, the powerful dynamic behind the business remain exactly the same.

Bonnie Herzog: Alright. Very helpful. Thank you. I'll pass it on.

Operator: Our next question comes from Faham Baig with UBS. Your line is open. Good morning, guys. Thanks for taking the question. I've got a couple as well.

Faham Baig: I do wanna push you on innovation a bit as we approach the five-year mark since the launch of ICOS ILUMA. We look forward to the next evolution, what technical or functional do you see could further improve consumer can conversion, particularly, in the emerging markets. And the second question goes back to Zinn. We've observed a notable absence of ZYN promotions. Over the last two months, in The US.

Can you can you clarify, is this is this a deliberate shift as you await the offer of Zen Ultra, which is a higher moist product, which you which you mentioned, or is there a shift between how aggressive you want to currently drive trial versus looking to capture the 50% category growth you've you've alluded to historically?

Jacek Olczak: Okay. So, yeah, it's like I take the I take the question. Okay. Starting with your first question. I'm very pleased and I honor this you know, representative of PMI that you're tracking the innovation engine of PMI. You're absolutely right with plus minus in the plan period approaching the five years of icosilumab. So I think your predictions are pretty good, but I will not answer second part of that question, what the denervation's gonna be for the reasons which I guess understandable. Now when it comes to promotions, I actually think is the two months. There was obviously the difference in what promotions and intensity of repromotions US market Has deployed in Q3 and Q4.

There were a couple of schemes which we didn't repeated for you know, that was our decisions. But I wouldn't just conclude that, from a, you know, shorter period of time about the promotional intensity of activity. We have it in a plan. We cannot, you know, again, talk about this. But the way to look at this, and I think we've been a very transparent in our remarks, there are three aspect of what will make, long term success of a our pouch business in The US. And we're repeating what we always were doing on so far on the international.

One is the brand, and the world has there has to be quite a degree of the support from a brand building activity. There is obviously the component of a portfolio, which is meeting at least the current trends. We can have a separate con conversations which of the trends we think may be longer lasting, which of can be longer lasting. But the fact is that, you know, ZYN is doing okay within a day group of a three six milligram. But clearly, it's missing a higher nicotine strength Okay. Particularly, maybe nine, maybe others. Okay? So that's the thing which we'll have to address, and here we need to deal a work with FDA.

And there is a third component into this thing, which is obviously price. And a price premium, which you know, consumer is willing to pay for them in exchange for having a reputable, vibrant, dynamic brand and the right product. So there will be element of it's almost like we're going to the to the, you know, textbook of, old, maybe forgotten marketing mix. And to have the right price, right product, right place, right promotions. And we will be diligently deploying all of these components to get I hope I answer at least partially your question.

Faham Baig: No. That's that's very helpful. Given my first question wasn't answered, can I can I squeeze in an another one for Emmanuel?

Jacek Olczak: Sure. Sure. Yeah. Sure. Sure. Emmanuel,

Faham Baig: the currency guidance for the year was significantly better than the three estimates. Could you maybe share the key drivers why that could have been? And also provide the hedge rates for the year for the key currencies would be really helpful.

Emmanuel Babeau: Yeah. So probably the I mean, the reason why is that we are going to benefit from some significant negative transactional impact in 2025, which are not going to repeat. Based on the current Forex in 2026. So when I look at the 27¢ guidance, you have twothree that is coming from translation, but around onethree is coming from a transaction. So I believe that is probably what the street doesn't have, of course, because it's difficult to have. I'm not going to share precisely the hedging, but yes, we continue to have some hedging that are helping us a little bit notably on the yen because the euro has been going up.

So the hedging on the euro are no longer making a big difference. So we still enjoy a slightly better rate than the spot you can see on your screen. And that is limiting a little bit the negative impact. But let's be clear, in '25 the yen had a negative impact, and we are expecting in '26 another negative impact coming from the Japanese yen.

Faham Baig: Thank you. Appreciate it. Thank you.

Operator: Thank you. Our next question comes from Gerald Pascarelli with Needham and Company. Your line is open.

Gerald Pascarelli: Thanks. Thank you very much for the question. Hi, Gerald. How you doing? I just have one. I'd love to get your thoughts But last month, it was reported that New York is considering a significant excise tax increase on nicotine pouches. So I'm just would love to get your thoughts when you consider the obvious potential for other states to maybe adopt similar proposals. And then maybe the impact you believe that this could have a promotional environment or the competitive landscape.

Jacek Olczak: Thanks. Yeah. We're aware of obviously, we're aware of this proposal. I mean, the comment I can make at this stage that this is counterproductive to the health benefit for nicotinals smokers this product provides. So I think the legislator there is taking everything in the consideration. Like, states, in The US you know, very well, all driven by their own thinking, process and not necessary one state actions are translating to other state actions. But let's see how that's gonna you know, unfold. Again, I repeat because for me for us, it's very important that know, shortsighted approach to the exercise and the products which are vastly better than cigarettes undermines real public health, objectives.

So I think it's just it's just the wrong idea.

Operator: Thank you. Our final question comes from Damian McNeil with Deutsche Bank. Your line is open.

Damian McNeil: Hi. Thank you. Hi, Daniel. Hi. Thank you. Just one question for me, really. Just on costs. You've indicated that you're on track to deliver GBP 2 billion of cost savings by the end of this year. Just wondering whether you're in a position to quantify whether we should expect a similar level of cost savings, for the medium-term guidance at the '28. And what scope AI may have to accelerate cost savings, please?

Emmanuel Babeau: Well, so it's not part of the guidance we providing today, but we certainly ambition to continue to be very efficient on our cost. Roughly speaking, you know, not going to give precisely the speed, but it's around 60% on COGS and the rest is on the our notably back-office cost and G and A. It is clear that we are targeting to build efficiency in the future coming from AI. Again, that's that's a topic that is quite sensitive. You know, if you start to say what to invest and what to expect from AI, but you should certainly expect that AI is gonna be an engine for more efficiency and for cost performance in the future. Absolutely.

Damian McNeil: Okay. Thank you.

Emmanuel Babeau: Thank you.

Operator: Thank you. I'm showing no further questions at this time. I would now like to turn it back to management for closing remarks.

Jacek Olczak: So I have a last remark and this is just the best proof that we're leaving in the know, in the environment when we have a digital AI and the human. Both of us were human, and this is not that AI was hallucinating I think I misread one number when it comes to the guidance of the zero. Emmanuel corrected the number in terms of a currency impact going into the 2026. The number which you had on the slide, the number which you had on the release, and the number which Emmanuel has quoted at the right numbers. Apologies. For this inconvenience, but this is the best proof that it was a lie. Conference, not a digital conference.

See you all at Cognizant. Thank you very much. You soon. Thank you for your time. Thank you.

Operator: Thank you for joining us. Please do contact the investor relations team if you have any follow-up and have a good day. This concludes today's conference call. Thank you for participating. You may now disconnect.