Imperial Brands PLC

Good morning, everyone. Thanks for joining us for our half-year 26 results. Just a few housekeeping items before we kick off. For those of you in the room, there are no planned fire alarm tests today. So if it goes off, it is a real one. And you'll see the fire exit is just behind you there, lit up in green. And finally, I just wanted to draw your attention to the usual disclaimer in our R&S this morning and in the presentation, which we're just about to go through. So without further ado, I'll Hand over to Lucas.

Thank you very much. And good morning and a very warm welcome to this results presentation. Thank you very much for joining us here in the room and a very warm welcome to those who join us online. Today I'm joined by Mary McGowan, our Chief Financial Officer, and John Cross, our Director for Investors Relations. Mary and myself really look forward to presenting the first six months of our fiscal year 26 and also the first six months of our Evolve 2030 strategy. I'll start off with a few highlights. Mary will then take the stage and talk us through the financial performance and our expectations for the full year. I will then come back on stage and discuss in more details how we are delivering strong operational performance, while at the same time delivering self-help efficiencies and transforming our business to deliver long-term sustainable growth. With that, let me start the presentation. There are four things, overarching points, which Mary and I want to make in today's presentation. First, our consistent financial performance continues to deliver growth in net revenue and adjusted operating profit, driving cash generation of 2.6 billion over the past 12 months. And this is underpinning consistent capital returns, which includes our evergreen share buyback. Second, the progress we have made in the first half means we are well placed to deliver on our expectation for the full year. And we confirm the guidance we've previously given. Third, our strategic progress and operational delivery continues to be underpinned by our distinctive challenger approach, which is a source of sustainable competitive advantage. As you've heard us say before, This challenger mindset is about deep insights into our consumers and laser focus on the key drivers of growth and investing in agility so we can create more sustainable value in combustibles and build scale in NGP. Fourth, over the past six months, we have made significant progress in the strategic transformation of our business. These activities are delivering material efficiencies in the short term and building capabilities that will unlock long-term growth, helping us become an even stronger challenger business. So, let's look first at our half-year dashboard. In the center, you can see how operating performance is supporting top-line revenue growth and growth in earnings per share. we are on target to deliver our full year objective of at least high single digit growth in EPS. This is enabling sustainable capital returns, shown on the right. We have announced a 4% increase in the ordinary dividend, and we are on track with our 1.45 billion share buyback. Now, I recognize that at the half year point, The two numbers on the left will be a focus for some of you. Looking at the market share, the aggregate figure of our five priority markets is lower. And this reflects a deliberate choice to prioritize value over low return volume. And in NGP, where we have grown share and volumes in all categories, overall revenue growth is below our full year guidance of double digit. This is due to one of factors, particularly the timing of promotions over the year end in the US, which we do not expect to repeat. When I come back, we will get into the detail of what sits behind these numbers, and we will highlight the underlying strengths of our operations and our positive trajectory for the second half. While staying focused on delivering our fiscal year 26 commitment, we are also making purposeful progress on our strategic transformation. We are performing, and we are transforming, and we are delivering our in-year plans. At the same time, we are making progress on self-help efficiencies and developing the capabilities to enable sustainable long-term growth. On this slide, you can see how we are moving forwards on our strategic priorities across the top of the wheel, strengthening our combustible business and NGP business. We have also achieved key milestones in our strategic enables, which you can see on the bottom half. These are activities which either immediately and materially reduce our cost base. or underpin long-term growth through improved technology, processes, and consumer capabilities. When I come back, I will get into the detail of the actions we are taking and how they are already supporting delivery against the financial commitments we made last year at our Capital Markets Day. With that, I would like to hand over to Murray for him to take us through the financial performance and our expectation of the folio. Mary, over to you. Good morning, everyone.

The past six months have been a period of broad-based growth. We delivered growth in our tobacco and NGP net revenue, growth in combustibles through pricing to offset volume declines, and growth in NGP through strong volumes and share gains across all three categories underpinning improvement in net revenue as we build scale. Our group adjusted operating profit growth of 0.6% reflects this, but also some headwinds out the Hista and some one-offs in the US and Australia, which I'll come on to later. We've delivered £2.6 billion of free cash flow on a 12-month basis. Leverage, at 2.4 times, was higher than the full year for the usual seasonal reasons, but it remains within our target range and flat year-on-year. Overall, we are on track to deliver against our plan for this fiscal year and meet our capital allocation priorities. These results are another good illustration of the tobacco value model in action. Strong pricing across our footprint, shown here in orange, more than offset volume declines, shown in grey, to deliver low single-digit tobacco net revenue growth in line with guidance. In Europe, our largest region, pricing of 6% outpaced volume declines. In the U.S., price mix of 5.7% driven by pricing both in cigarettes and mass market cigar portfolios. In ACE, volume growth reflects entry into new markets. Excluding Australia, ACE delivered 6.1% price mix, similar to Europe and the US. Tobacco operating profit growth was driven by strong performance in Europe, which grew 6.5%, and in ACE, excluding Australia, which grew 10.8%. In the US, growth in combustibles was offset by some one-offs, which I'll cover in the next slide. Whilst NGP losses increased slightly, this reflects the impact of zoned promotional activity in the US over the prior year end, which was more successful than we anticipated and was recorded in half one. This reduced NGP net revenue and increased NGP losses by around £13 million. Without this, US NGP net revenue growth would have been positive. At a group level, NGP net revenue growth would be double-digit, and total NGP losses would have reduced in half one year on year. It was also pleasing to see European NGP make a profitable contribution during the first half. Adjusted operating profit from La Hista declined, reflecting a reduced profit from tobacco inventory, which offset underlying growth in the business. As we said back in November, performance will be weighted to the second half, and I'll explain some of the drivers next. This slide shows some of the one-offs impacting half one performance. In combustibles, these were in the US and in Australia. In the US, tariffs on our mass market cigars were a drag. But given the changes to tariffs following the Supreme Court decision in February, this impact will reduce in half two. We'll see the full impact of pricing taken on MMC during the course of H1 support our H2 delivery. In Australia, We have seen accelerated volume declines of around 50%, which have impacted on AOP. There'll be less of a drag on year-on-year, now too, as we annualise those volume decreases and expect adjusted operating profit to stabilise. We will also see a benefit from the actions we've taken in the first half to resize and refocus our operations in Australia. We're driving growth through white space market entries, most notably in Syria, which are making a meaningful contribution and which will drive further growth in the second half. In NGP, we had the impact of the promotional activities in the US that I mentioned earlier. Given our clear focus on Modern Oral in the US, we've taken the decision to transition out of the US Vapor category. This move will help to reduce NGP losses in H2. As a reminder, Our US VAPE proposition, our legacy MyBlue device, first launched almost a decade ago, and it makes a small and declining contribution to revenue. So we expect a stronger NGP performance in H2 in both net revenue and AOP growth. Altogether, these one-offs have an impact of over £50 million in H1. This will be much reduced in H2, as I've explained. So this... combined with the usual benefits of price and operational gearing, means that we are confident of a step-up in performance in H2 and remain committed to our previous full-year guidance. Now, as CFO, I want to ensure we are always transparent about items that we classify as adjustments. Today, we are disclosing charges related to our 2030 strategy and historical legal cases. Charges related to our 2030 strategy are in line with guidance that we gave at our capital markets day back in March 2025 and relate to the rationalisation of our manufacturing footprint and our transformation programme. This includes our exit from Langenhagen. We'll start seeing benefits from this and the recently announced sale of our Taiwan factory coming through in the second half. We have hit the ground running in our long-term partnership with Capgemini. And in the second half, we'll start to prove the benefits of this new partnership. Lucas will discuss these in more detail later. Our transformation is ongoing and remaining costs will be adjusting items in future years. We also show charges related to the settlement of the Delaware case. All historical charges have been adjusted out. Cash costs will be reflected in our free cash flow in line with the payment schedule agreed. As a reminder... that's £150 million in half won this year, then the remaining £162 million in roughly equal instalments over the next three years. Our adjusted EPS reflects our operating profit growth and the reduced share count due to our ongoing share buyback. An increase in finance costs was offset by lower tax and minority interest charges. The adjusted effective tax rate at 23.5% remained flat on the same period a year ago. Turning to cash and capital allocation. Our operating cash conversion was 98% on a 12-month basis, reflecting our continued focus on working capital. And our cash flow performance compares well versus prior years. Disciplined capital allocation remains a key part of how we create value. Leverage at half-year remained flat year-on-year, and we're on track to be around the lower end of our target range at year-end. We've announced a 4% increase in our ordinary dividend, and we're on track with our £1.45 billion share buyback. Now, this is our fourth consecutive year of share buybacks, and brings the total capital returned to investors since the programme started to £4.8 billion. Taken alongside dividend payments, total cumulative capital returns from FY21 to half-year 26 now sits at £11.5 billion. This represents around 77% of our market capitalisation at the time of our Capital Markets Day back in January 2021. To remind you, as we stated at Capital Markets Day in March 2025, we are committed to an evergreen, always-on share buyback throughout this five-year strategic period. So, To close my section, we maintain our full-year guidance. We continue to expect full-year tobacco net revenue growth in the low single digits and double-digit NGP net revenue growth. Adjusted operating profit growth will be within our mid-term growth range target of 3% to 5%, and we expect at least high single-digit EPS growth for the full-year period, supported by profit growth and the ongoing share buyback, all at constant currency. we expect at least £2.2 billion of free cash flow, including the impact of cash costs related to Delaware settlement and the implementation of our 2030 strategy. On the Middle East, our position is similar to where it was when we issued our trading statement last month. We have not seen a material impact from the crisis in the Middle East to date. Clearly, the longer the situation persists, the more likely there could be a meaningful impact on input costs and consumer demand, including duty-free. Now, Our business has proven its resilience during past crises. We've managed through them before, and if necessary, we will take mitigating actions. At current rates, we expect foreign exchange to be a headwind of 0-1% to operating profit and EPS growth. And as usual, there's a slight dependency with guidance on specific items. We also remain committed to the medium-term guidance we set out at our CMD in March 2025. This means we remain well-placed to generate long-term value for our shareholders. Thank you. I'll now hand back to Lucas, who will give an update on operational performance.

Lucas.

Thank you very much. All right.

What I want to do in this section is take you through our strategy, shown here on the wheel. And I will explain how in just six months into this five-year strategic period, we've already made rapid progress. We are performing today. We are delivering significant self-help efficiencies and we are transforming to unlock long-term growth. I'm going to start with a segment on the top left and talk about how we are creating sustainable value in combustibles. Here we're carefully balancing the triangular equation of price, volume, and share. In each of our regions, as you saw, pricing has once again more than offset volume declines. In the majority of markets, tobacco continues to be affordable. The tobacco value creation model is working well. And looking at the left of this slide, we're comfortable with how each of the individual priority markets has delivered. The US and Spain have been executing with discipline, focusing on winning the more valuable segments, while pricing responsibly in the lower price segments to maximize sustainable value. Germany has delivered a great performance in what is an intensely competitive market, and As a reminder, our UK and Australia teams who operate in declining markets are tasked with prioritizing value over volume and share. So, in that context, a 60 basis points aggregate share reduction in a given period is consistent with running the business for sustainable value creation. Before we move to the right hand side, let me make a few further points about how we see market conditions evolving, and the implication for how we approach market share. As we said at the last year's CMD, share is important, and we will not return to the period before 2020, where we were consistently the industry number one share donor. Across all our major markets, Pricing ladders are becoming more stretched. This means the gap in industry gross margins between the premium segment and the deep discount is growing. It's a simple point, but it's worthwhile emphasizing. Not all basis points of market share are equal. This evolving market dynamics is requiring us, as a challenger business, to fine-tune how we manage our portfolio to take a more focused segment-by-segment approach. On the right, you can see the significant and growing difference in the gross margin per thousand sticks that we can achieve at the top of the price ladder versus the discount segment in the US, Germany and Spain. This widening spread means it is increasingly important for us to double down on premium segments while, of course, maintaining a strong presence at the discount end of the market. So, in each market we focus on nurturing our premium brands, aiming to grow our share of that segment. At the same time, we seek to achieve the right balance of price and volume in the discount segment, to deliver sustainable value over the long term for shareholders. In line with this approach, in the US we have been operating with discipline in a market which has seen growth in the deep discount segment and new brand launches. As I mentioned, we have been successfully defending our premium brands, Kool and Winston, and expanding share of that segment. And in deep discount, Crowns continues to take share, but we have been mindful in balancing price with segment share. given the increased competitive intensity. We have also launched a new brand, Malibu, which is enabling us to take more pricing on other brands. It is another lever for us to balance the volume and value equation. Our cigar business also continues to perform well, with backwards gaining segment share and delivering strong revenue growth. Our other priority markets have been playing the individual roles we ascribe to them in our 2030 strategy. In Germany, the market remains highly attractive, with a good performance in cigarettes, with growth in both the premium and discount segments. In Spain, which had a low market volume decline of only 2% in half one, the focus is again on value. The UK, is maximizing value in combustibles while growing share in vape and modern oral. And the Australian team continues to find opportunities in what, as you all know, is a challenging market. Now, turning to NGP. Since rebooting our NGP business five years ago, we have established clearly focused brands and products. Across all three categories, once again, we have grown share. And as we build scale, we are seeing attractive gross margins. Our approach to market entry remains consistent. We will enter markets only where the category has been created and where we have an existing route to market. And our launch into the US O&D market is a good example of this challenger approach. We launched our zone brands just over two years ago, and we are really pleased with the performance. This is a fast-growing but still nascent category, which is now around 10% of the legal nicotine market. The industry is investing significantly to grow the category and build brands with heightened promotional activity and trialing. This is the normal thing you expect to see market leaders doing in order to create long-term value. But what this means is in the short term, volume will grow well ahead of value. Within this industry context, we are applying our challenger mentality by being joyful and agile in our approach. Our focus is on patiently growing volume share by building differentiated brands through consumer activation. For example, through our NASCAR partnership. In the first half, we delivered volume growth ahead of the category and grew share to 2.8%. up from the same period last year. Net revenue grew by 20%, excluding the impact of the Zone promotional activity over the year-end that Murray mentioned earlier. So, a positive performance in the US. And we are equally excited about the development of our European modern oil business. In Europe, our product portfolio is led by our European variant of Zone, and the well-established Scruff brand. In the first half, we launched an improved pouch formant and new flavors in Sweden. In Norway, Scruff is now the biggest brand. And, as you heard, and so, at our full year results in November, we have also launched Zone in the UK. Here, we have now reached 3% share in the independent channels. where we focused our initial launch. And we are now rolling it out across national accounts. Now turning to VAPOR. In the first half, we saw share growth of 130 basis points across all our footprint. Our investment is focused on Europe, and we're growing share across many of our major markets in the region. In particular, We saw strong growth in the UK and France, where our rechargeable blue kits are capturing share. You will remember, both those markets banned disposable devices last year. In heated tobacco, we are growing share across all our markets. This broad-based success has been underpinned by positive consumer response to our Pulse 3.0 device, launched in the second half of last year. Our Isentia-flavored herbal sticks continue to perform well. And we have refreshed our range of tobacco-based sticks to ensure it fully addresses the needs of our target consumer, adult cigarette smokers transitioning into the category. And I look forward to providing you with further updates at our full year results. So, I've covered the strategic priorities, how we are driving sustainable value in combustibles and building scale in NGP. Now, I want to turn to the strategic enablers, the key elements of our plan that help us deliver consistent top and bottom line progress, both now and in the future. I believe our distinctive challenger approach to consumer insights, brand building, and innovation is a key source of our success. Many of you will have heard Paula, our Chief Consumer Officer, outline our philosophy at last year's CMB. It is about getting as close as possible to our target consumers, creating differentiated brands which meet their needs, and then innovating in a focused way to address their pain points. Over the past six months, we have continued to embed this way of working and it's delivering measurable progress. And you can see here on the slide a selection of our most recent brand activities and their positive impact on our commercial success. In combustibles, our Davidoff Rose and DFX line extensions are helping to drive share, offering greater choice for premium smokers. Innovation in our iconic backwards brand with a true wraps range is driving share in this emerging high growth segment. And in modern oral, we have introduced a range of innovations carefully targeted at priority consumer segments. As I said earlier, We are focused both on self-help activities to drive efficiency and investment in capabilities to drive revenue growth. In terms of efficiency, on the left, we are well on track to deliver the 320 million of annual savings by the end of the strategic period, a commitment we made at the CND. In particular, we are making good progress on the rationalization of our factory footprint. In our Langenhagen factory in Germany, we have now completed the social plan negotiations with colleague representatives, and we are on track to cease production in July 2027. Last week, we announced the sale of our factory in Taiwan. This process will also be completed by next summer. Taken together, these two actions, when completed, will reduce overheads by 100 million pounds. Alongside these actions, we continue to drive manufacturing excellence across our remaining factories, improving quality and delivering further efficiencies of 25 million pounds in fiscal year 26. And at the same time, we are making progress in delivering operational efficiencies, with a transfer of around 400 roles to our new strategic partner, Capgemini. While efficiency is a necessary element of our transformation, the big differentiator for us is the development of new capabilities to support long-term revenue growth, shown here on the right. The Capgemini The partnership will accelerate our adoption of technology, simplify our processes, and provide new consumer capabilities, and in turn, help us capture new commercial opportunities. The partnership will also support delivery of projects already in flight, such as the continued rollout of our enterprise platforms, including SAP S4 HANA, Salesforce, and Blue Yonder. So, let me now bring everything together. We have shown how our consistent financial performance continues to drive strong cash generation, 2.6 billion pounds over the past 12 months. And this is underpinning consistent capital returns. We have shown that we are well-placed to deliver our planned step-up in financial performance in the second half. And we remain committed to the guidance we have previously given. Furthermore, we have shown you the rapid progress we have made over the past six months in the strategic transformation of our business. This is delivering material efficiencies in the short term, and more importantly, will enable more consistent top-line growth, helping us become an even stronger challenger business. We believe This all adds up to an attractive investment proposition. Operational delivery, translating into revenue growth, profit growth, and high single-digit EPS growth, along with strong cash flows. And all this enables highly sustainable capital returns, including our always-on evergreen share buyback. To our shareholders, thank you for your continued support. And thank you all for listening to this presentation. This concludes the presentation. And Mary and myself, we very much look forward to your questions. And I would ask John, please, to moderate and open the Q&A section, please. Thank you. Thanks, Lucas.

Just before we come to questions in the room, if you're watching this online, hopefully on your screen, you should be able to see where you can type in a question. That will then come through to me in the room and we can ask that. Similarly, if you're listening on the telephone, you should have been given instructions on how to register a question. We'll give you a reminder as well when we come to the phone lines. So questions in the room, if you could give your name and where you're from, just for people listening on the webcast in case they can't see you. Yeah, let's start with Faham in the front row, Faham.

Thanks, guys, for the presentation. Two from me. If I look at your guidance historically on EBIT growth, it's been relatively narrow. over the last couple of years, whereas this year, despite seeing the last six, seven months, you've stuck with the three to five percent. I wanted to ask at this stage whether you think the lower half or the upper half of the guidance is likely, or if you can't be as detailed, maybe talking about some of the moving parts that could see you at the upper end or lower end could be quite helpful. The second question is on market share. It's a two-part question. Number one, from an industry volume standpoint, is the situation in terms of volume declines better than what we've been in the past, which allows you to accept slight share losses, is the first part of the question. And the second part of the question is, Given this increased focus on more profitable segments, is it better to look at value share compared to volume share as the key metric going forward?

Thank you. Thank you very much, Paul. Let me answer the questions. I hope I don't forget the last ones. Let me start with the first one with the guidance. Listen, we have given the first guidance at our capital market days. which is a 3% to 5% AOP growth over the next five years. We've reiterated that guidance at the full year. We have delivered a strong performance at the half year. We have shown you some of the implications that go on top of the normal second half phasing, which is due to pricing increase in the second half, which very nicely showed the over £50 million impact in the first half, which we believe will ease in the second half. And we're well on track to deliver full year guidance. There's really not much more I can say. This is our guidance. And, you know, we will deliver within that guidance. So that's all the guidance. Market share. So let me separate there also between volume and sort of value share. So indeed, you know, the volumes are doing very well. You know, it's another year where our volumes at half year are only down 1.5%. Obviously, you have different proportions, different mix. You also... have heard that we entered new white spaces, among them Syria, which used to be a big cigarette market and is doing very well. So that obviously has an impact. Again, we don't guide on volume this year, and I would always caution that the long-term trend is 3% to 5% negative. Every year we're doing better. It's great, because to get to our target net revenue of 1% to 2%, we need to price less, and that is always helpful for the consumer. So that's good. So that's on the volume. Our share discussion and, you know, your focus on segment is really an evolution. I just want to reiterate how important share is for any company. But share is one of the metrics we look at next to net revenue, operating profit, and many other metrics we have. And it's really about this careful triangulation of price, volume, and share in an environment where you – Gross margin has evolved significantly from the top to the bottom. We will play in all segments because we start with the consumer. Wherever the consumer is, we will be there. But while we double down on the top, we'll also make sure that we are pricing responsibly at the bottom. Now, that's what we're looking at in the market share. To your question, it is a good question, is value share the better one? Listen, we've done this now for the last 30 years. Value share has its benefits, has also its downsides. The same as volume share. In our industry, value share is more difficult to calculate. We don't have the means and the data to do that. But any focus on value or volume share will always lead to a narrow view. That's why it is more important for us, actually, rather than seeing whether we switch to value share, to focus on a triangulation of volume, price, and share. Sorry for the longer explanation, but I thought it might be useful. Pallav? Okay, thanks. Next one, yeah. Pallav?

Pallav Mittal from Barclays. Two for me, please. Given the new FDA guidance on enforcement priorities in the US and your plan to exit the blue business, how should we think about your NGP strategy going forward, specifically in the US? Do you have any products in the pipeline that you can launch quickly on nicotine pouches or vapor. That's the first one. And then secondly, on the German market, on the tax environment, there seems to be the five-year plan is coming to an end, and there seems to be a plan to increase the taxes significantly. So how should we think about your plans in the German market going forward?

Thank you very much, Pallav. I'll take the entropy side. and then Mary will answer your questions on the German tax environment. Firstly, we remain very pleased with the performance of our NGP business. We are here to build scale in NGP. We have done so over the last five years, building a strong base, and we have committed to a double-digit growth for the next few years. And we are on track to deliver on the full year. Now, specifically in the U.S., Indeed, you have seen recently new FDA guidance, especially, you know, there's been a flurry of new guidance and comments, especially last week. There was one on Friday, which we would not want to comment at this stage because the FDA has committed to further clarification probably today or throughout these days. So we want to wait until the FDA has made further announcements to that. But what is important for us, that in general, we welcome scientific-based approaches and approaches that actually allow adult smokers easier access to responsible products. And in that way, we very much welcome the FDA's effort and genuine interest in reducing the backlog and accelerating the process. That is helpful for all players and is welcome especially for our consumers. Now, we are still and remain very excited with the U.S. in terms of OND. We have mentioned to you that, excluding the promotional activity that Mario mentioned, we have grown 40% in volume ahead of the category growth. We have grown 20% and we're committed to the second half because we do have grandfathered rights and opportunities in products with strong strengths and new flavor. So we have a pipeline of innovation that will allow us to deliver on the second half and beyond. So very excited with that prospect. And finally, to comment on our vape blue position, which is very separate to the FDA announcement. Our blue, my blue product, is a 10-year-old product. It's an aging product. which probably does not meet the consumer needs of today, has been making a very limited contribution to the business and was lost making. So that's the reason we have transitioned out while we look into what we can do in the future. I will keep you informed of that. So that's on the NTP. Yeah, Germany.

Let's have context. So Germany is a market where it's typically got a very predictable tax environment. So every five years, the government republishes the tax plan for the next five years, which makes it, from our perspective, a very well-managed market. You're right, the market's going through, or the government's going through negotiations of the next five-year tax plan. I would say it's a market where there's always very positive engagement with the industry around the evolution of that plan. particularly with the finance ministry in Germany. Now you would have seen in the press there was some suggestions recently of an increase in tax to support people in Germany with some of the rising fuel costs. It's clear that has met some opposition in terms of initial proposals and is going through discussions just now. Our current view is that it's highly unlikely to impact this financial year. and any changes may well be folded into the next five-year tax plan. So we continue to possibly engage with the Ministry around that, but it's still uncertain because that will end, but our expectation is anything would probably add FY27 and onwards impact.

Okay. Great, thank you.

Did you get James there? Sorry, James Edwards-Jones from RBC. Could I come back to the market share point? Accepting your point that it's actually difficult to calculate value market share, do you have some idea of value market share trends in the five priority markets that you could share with us?

So we do... So it is more complicated than what you would expect, but obviously we look at what we can get in terms of data, which we currently are not sharing externally because we were focusing on the volume share. But I would step back, James, from that specific volume versus value share. But the nature of us looking... at share, volume, and price, you, to some extent, do exactly that, actually consider the value of your share point. I mean, the point I was making before, the reason we are more fine-tuning our approach to market share, being present in all three segments, but also looking at pricing, is because, as I mentioned before, not every BPS of volume share is equal. And the way you look at that is through the gross marginal price list, which is nothing other than an alternative way to look at it from a value share perspective.

Is that it, James? Do you have another one? I thought you said that was the first one of many. No, it's so unique for a sales writer to ask one single question. I was finally taken aback by that. James, do you want to go next? Yes.

Hi, good morning. This is Andre Andon from Jefferies. Two questions for me, please. Number one, how do you see the AMP needs of the NGP business evolving in H2, particularly given the news about the FDA potentially tolerating the sales of some pouch brands without authorization in the U.S. market, which could increase the competitive intensity kind of near to midterm? And then secondly, there's been growing discussion about U.S. solicitive enforcement improving. Could you perhaps give more color on how significant of a tailwind this has been in U.S. combustibles in H1, so for the combustibles business, and then do you see this tailwind perhaps persisting into H2?

Sorry, Andre, I missed the first part. What were you looking for in the second half due to the FDA regulation?

The AMP needs of the NGP business in the U.S.

The AMP. Excellent. So, As I said before, you know, we welcome in general all the efforts of the FDA going in the direction of reducing backlog and accelerating the process. Our plans for the second half, and we are very committed in building long-term patiently a business in the U.S. around the OND, and we're making good progress. You see that for the first half. As I mentioned before, we have plans around strengths and flavors that we are going to support. Those meet our consumer needs, and we start with the consumer. We focus on the consumer. In our budget, we have sufficient A&P considered for what we are needing to do in the second half. And trust me, I mean, you've seen the competitive intensity in the past. which is already very high. And even then, with our very focused approach on our consumers, we have been able to continue to expand our share. The second one is vape and illicit. So, yes, we've always commented that the volumes are driven by four things in the U.S., which is mainly your secular exit of the category, your cross-category exit, so meaning you go from cigarettes to vape or something else, in this case often illicit rate, pricing and macroeconomic impact. And we've always highlighted that actually the bigger impact, when the volumes were about 7-8% decrease, was the macroeconomic impact, especially the illicit. Actually both in the same way. And you've seen that our volumes have The industry volumes have improved in the U.S., which is great news, which means that, you know, we go back to that normality, which some of you doubt that we will get back to. And if you look at the data underneath it, the two drivers there are equally, again, vape, the illicit vape, and the macroeconomic impact. meaning that we see the enforcement, while not perfect, while probably not taking away the illicit, has made a dent in the volume. It makes a difference. And, you know, if you listen to the U.S. government and you see the actions, I have no doubt that that will continue in the second half. You've also seen, and I can't tell you what the impact is of the Middle East crisis in the U.S. consumer sentiment, but you have seen an increase improvement in the consumer sentiment. In fact, it is remarkable to see how strong the US economy is still doing after three months of the Middle East crisis. And that trickles down in better volumes as well. We would expect this to continue in the short term.

Okay. Just going to go to online, and then I'll come back into the room. David Rue from Morgan Stanley has just asked two questions online. The first one is, Following on from that, at what point does the Middle East conflict impact FY26 guidance? Probably one for you, Murray. And then the second one is, can you give some more detail about progress towards getting double duty drawback benefit? What still needs to happen to become compliant? How should we think about timing and magnitude?

Do you want to take the FY26?

I'll talk to this. Thanks for the question, David. As I said during the presentation, we haven't seen a meaningful impact of the Middle East crisis to date. Clearly, if you look out into the future, you see potential impact across the areas. So one would be input cost. The reality for us during the course of FY26, we expect minimal impact on input costs given the amount of fixing we've got and some of our supply coming in for the balance of the year. If it goes on long-term through FY27, actually we'd expect to see some impact through that. Second is duty-free. There are reduced volumes in duty-free in the Middle East airports, so clearly there's less people going through that. from a group perspective as far as the manageable as we've crossed this year. The third is, and this is the unknown, is the consumer impact. So what we haven't seen so far is a real shift in consumer buying habits. So with higher gas prices at pump in the U.S. and other markets, you know, at some point that could impact the consumer buying habit, whether they buy less often, whether more move into illicit, or whether they buy cheaper products. We haven't seen it so far. That's the unknown for us at this point in time. So I can't give you a you know, a date at which suddenly it becomes a problem for us. I haven't seen the impact so far. We monitor it very closely, but at this stage we are confirming our doubts for this whole year.

I think if I may, just before I go to the duty drawback, you know, the Middle East crisis is one of many crises we are going through again. And I think all of our consumer peers will look at what happens to the consumer sentiment in months to come. Right now, as Mary said, there's no impact on the are well on track to deliver the fiscal year 26. And I would also draw your attention on the past. We will continue to be monitoring the situation. We'll surely not be complacent. And we will hopefully be as resilient as in the past. Think about Ukraine. Think about the Red Sea crisis, the hyperinflation. We've been tested, and we've shown that this industry and this company is resilient to crisis. And so we'll continue to monitor and react to whatever comes in the future. Duty drawback. Duty drawback was a clarity we have obtained in August. We are working expeditiously on setting up a duty drawback system, leveraging our global presence. That is not the challenge. The challenge is to get this done in a way that is approved by the FDA. So we need to approve factories or sites abroad for it to be certified to import into the U.S. We're well on track, but it takes time. We expect a meaningful contribution of that scheme in fiscal year 26, most likely towards the second half of, excuse me, just to clarify, 27. I'm ahead of my time. Fiscal year 27, just to clarify. So most likely in the second half of 27, and then the full impact in fiscal year 28.

Let's go back in the room.

Damian, do you have your... Thank you. Damian McNeill of Deutsche Bank. Two, please. First one on US Vape. I think you sort of, you obviously pulled out and you sort of said you're watching the marketplace. Can you give us some insights into what you're specifically looking for for perhaps a market re-entry into US Vape? And then secondly... Pounce Catering is clearly growing globally, but you're only in seven markets. Are you looking at actively at... Which Pounce Catering is we're doing? Pounce is. Oh, Pounce is. Are you actively looking at additional markets to roll out Zonals Group into, please?

Thank you, Damien. Listen, you know, we are a challenger market. Challenger market, yeah, that's a smart... We are a challenger company. And as such, we will always look where we can use the best, you know, where we get the best return for our investments. Clearly, when you look at NGP, the OND business in the U.S. is highly attractive, and we're well on track to continue to expand our presence and our share. And when it comes to vape, our biggest market or region is Europe, where we have 80% of our business in NGP. And we're growing rapidly. We expanded vape. by 130% this year, this half year. So, you know, in the U.S., you have won the PMTA process, which is still a lengthy, costly experience, and you still have a big illicit market. So if I have to make choices right now, we are focusing on the O&D markets where we have products, we have innovation in the pipeline that we can excite our consumers. We will continue to look at the vape market, and at the right time, we'll see what we can do to come back. Pouches. So, you know, NGP business is an attractive business, but we are very disciplined in how we look at the NGP business. We will build patience in our business. We have committed to a double-digit growth, but we are not going to trade the market. And as much as I understand the excitement in many markets about pouches, when you look at data, and remember we are consumer first and data driven company, the data is showing that the markets are very small. And hence, as the fourth largest in the industry and a responsible player also in regards to our shareholders, we will double down on those markets where we have a business or where the market has been created, and we have a route to market. We shine no effort in Eastern Europe, where we have our heated tobacco. We have launched Zone in the UK. We might launch it in one or two other markets, but it will be a very measured launch, because what we want is not to be everywhere a little bit, But we want to double down in those markets where there is a market and we have a good understanding of our consumer and we can reach them easily.

Okay. Thanks. Any other questions in the room? Should we just go, Emma, just quickly on the line, do we just want to just go to the phone lines and just a reminder for people there who want to register a question perhaps?

Thank you. To ask a question, you need to press star 1 and 1 on your telephone and wait for your name to be announced. And I'll hand back to you, John.

Thank you. That prompt has reminded Simon at Citi to register. So, Simon, do you want to go ahead and ask your question?

Yes. Yeah, thanks. Morning all. Sorry, late to the party. My first question was just around the ACE region, really. Could you talk a little bit more about the combustibles volume performance in the first half, maybe excluding Australia? How much of a volume benefit did you see from the innovation you've put in there as well as the new market launches? Was there some pipeline fill? And how do we think about the volume outlook in that region in the second half of the year for combustibles specifically? And then secondly, I may have missed it, but you highlighted sort of, Lucas, in your remarks around the strong start you made on the transformation journey. You highlighted the factory closures that are underway. How big, though, were the efficiency savings in the first half? Should we expect a step up to those savings rates in the second half of the year, or is it really about 2027 is the year that we really see those big benefits starting to flow through?

Thank you, Simon. And Mary, will you take the volumes in ACE and I'll give you a transformation?

Yes, so with ACE, I think, Simon, it's important to say there's a couple of different drivers that are really supporting volume performance here. So clearly, as you highlight, we've seen drop-in volumes in Australia. I think it's important to understand in Australia, from a group perspective, there's a very small amount of volume. I think it's less than 2% of our net revenue sits in Australia. It needs a couple of drivers that are really supporting volume growth. So one is Africa has a really good strong performance again. So we see good volume performance across that continent. And then the new market launches. So Syria will have a meaningful contribution for us, a meaningful contribution in the first half. And again, we'll step up in the second half. So it will help for strong performance within ACE volume as we go into the second half in combustibles. So we don't guide on volumes per se, but I think that trend you see in volume will continue into the second half for those reasons.

Thank you very much. And Simon, thank you very much for asking about the transformation. We are excited about doing two things, performing in the short term, but also making sure that we can continue to perform in the long term by transforming our business. And, you know, it is equally transforming in the short term and the long term. Short term is we are delivering self-help efficiencies. very clearly. I've given you data points like fiscal year 25, 26, I'm mistaken with the year, fiscal year 26, we are looking into our factories, how to run them more efficiently, how to apply an operating model that really is consistent with what you see out there. It will deliver 25 million pounds this year and more to come in the following years. We are looking at the factory footprint. We have You know, exited two entities, which will cease production by summer 27. That will deliver 100 million progressively till we finish those transformations. So, again, we are well on track and quick out of the blocks when it comes to the 320 million efficiency savings that we have committed. There's no doubt about that. But efficiency is important to us. Because without efficiency, you cannot really be effective. But the distinctive thing in our transformation is we don't just stop at the efficiency. We want to go beyond the efficiencies. Because we believe with our strategic partnership with Capgemini, efficiency is a given. But what is really more interesting to us is how we can transform the business to be closer to our consumer. To build on the sales capabilities, tapping into the knowledge and technology that Capgemini has. to grow revenue in the future. And I think that combination of short-term self-help efficiency, which will be progressively increasing over the next few years, and that better readiness to deliver also beyond 2030 revenue growth, is really what is distinctive in this transformation.

Okay. Thanks for that, Simon. Okay, I think there's nothing else online or on the phone, so I think I'll bring it to a close. Thanks, everyone, for joining us. Lucas, I'll hand it back to you.

Thank you very much. Thank you, and I know you've got lots of presentations, so I really appreciate you showing up and connecting online and showing interest in our company. And I hope you have taken three things away from today. One is that we have delivered a good performance in the first half, We have grown our net revenue, our operating profit, and we have delivered yet another six months of very strong cash generation. I hope you leave this room and this online presentation with a strong confidence that we are well on track to deliver on the full year guidance. And thirdly, I hope you can see that we are not just performing today. We're making sure that we are transforming for tomorrow. We're delivering self-help efficiencies in a meaningful way, and we're building the future in a way that we can continue to drive sustainable growth in the future. Thank you very much, and I'll keep seeing you soon. Thank you.