Imperial Brands PLC (IMB) Earnings Call Transcript & Summary

So good morning, everybody. Time for the next presentation slot. My name is Gerry Gallagher. I'm a member of the European-based Consumer Staples team. With me this morning, I have Lukas and Stefan from Imperial Brands who are here to present on their business. I think the format will be -- I think I know the format will be that Stefan and Lukas will make a few opening comments with a couple of slides. I'll then take it from there with questions. But as always, questions from the audience are very welcome. Please put your hand up and make it when you want to ask one, and I'll be very happy to interject on my questions for people from the audience to ask theirs. So with that, over to Stefan.

Yes. I mean, from my side, also good morning, and great to see you over here in the room and also casting this on the web. Look, from my side, just a few opening comments is, first, I think I have to go through the technical comments that logically -- our usual disclaimer is here. What we'll do, I wanted to take you just a few minutes through about where are we on our strategy, and Lukas will talk about our capital allocation. Now I think what's exciting is that we are exactly right now at halftime of our 5-year strategy. We're 2.5 years into our 5-year strategy. And I think what is exciting, we just presented a few weeks ago our half year results for fiscal year 2013 that we're exactly at the place we wanted to be at halftime of our strategy. And I think some of the key points of that are captured here. I mean, first, in our Tobacco business, which is in our top 5 markets, which make up more than 70% of our adjusted operating profit. We have achieved our goal of not being any longer the #1 share donor in these markets, yes. And we've held or gained market share in the aggregate of these 5 markets in the last 4 half year results, yes? And I think it's also important to remind you because sometimes we get asked a question about each market. No, we've always said it's about the aggregate of these 5 markets. That doesn't mean that every single market will gain market share or hold market share in every period of time because that is just not realistic in such a competitive industry as ours. Number two, you can clearly now see the acceleration in new-generation products or NGP products. And that's one of the things I was most excited with in the half year results because now you, as investors, can see the step-up that we've done because, number one, the majority of our products in NGP have been renovated, rejuvenated, reworked in the last 12 months. And the evidence of the consumer impact, you can see in our European region, our largest region, also of NGP, the biggest region, where in half 1, we grew by 35% versus a year ago, and all of that was achieved with an incremental investment of GBP 14 million year-on-year, yes? So I think that hopefully gives you some evidence that our very differentiated strategy in NGP is working and it is a disciplined and cost-effective way. Now third, a key element of our strategy was to look beyond the top 5 tobacco markets, but we have a clear strategy to driving growth for a wider market portfolio. And here, again, in the half year results show you the evidence of this strategy is working. Our growth in the [ ACE ] region, which brings together many of these markets, and net revenue increased by 9%, and adjusted operating profit also increased by 9%. So something is clearly work in this area. And finally, a bit away from the numbers but a very important part of the transformation of Imperial is the major investments to align our culture with our strategy. We are clearly building the foundations for a different culture: a culture of a challenger in our industry, a culture of a consumer-facing company. And I use this as my keys as well. On the 27th of June, so this month, later this month in New York, we will be hosting an event that is dedicated towards bringing alive the progress we've made on becoming more of a consumer-facing businesses, yes? So finally, before I hand it over to Lukas, we are clearly on track to deliver our full year results that we guided at the beginning of the year, and that is also to support our medium-term guidance that we shared in January 2021. That sounds a long time ago. A lot of things have happened. But that should give you confidence that 2.5 years on, we're exactly where we want to be, and we feel very confident that we will deliver the back half of the year. Now as I know many of you are always very interested in the capital allocation policy of this company, Lukas is spending a few more minutes on this.

Thank you very much, Stefan. And good morning from my side as well. I think it's only natural that after the strategy update, we would talk a bit more about the capital allocation since it was actually developed along the strategy in 2021, and it is a key value driver of our proposition. Its first pillar is to invest in our business -- oh, thank you very much. I forgot that technical piece. Thank you very much, Stefan. So the first pillar is to invest in our business to ensure that we deliver the strategy. That is our first priority. And since our strategy was always an organic proposition since we were very clear that we will innovate but we will do so together with partners in an open innovation approach, our CapEx requirements are fairly limited. And so is also our M&A, which we have been very clear that, at best, it will be a bolt-on, small acquisition along the way. Our second pillar, important, is that we want to be -- to have a strong balance sheet, strengthen our balance sheet. And we define that to be at the lower end of the range of 2 to 2.5x net debt to EBITDA. We've reached that destination last year. And we've guided the market that, that is the range we would like to be at going forward. Third, we were clear that we would like to continue with our progressive dividend policy. Progressive really meaning that it will increase year-on-year in line with our underlying business performance. And finally, now that we have reached our leverage target, we're very pleased that we could launch this year our share buyback, which is an ongoing share buyback, which in the first year, we made the statement of GBP 1 billion share buyback, which we're well progressing this year. Just to put this share buyback in context, that's approximately at current share price roughly 5% of our share capital. If you add to that roughly 8% of dividend yield, you can see that it's an attractive shareholder return. And alongside that, and I always look at what the free cash flow yield is, which obviously, in our company, again shows that we have a very strong business in terms of also attractive valuation. I think it's just to give you a brief update on where we stayed on the capital allocation. And with that, I hand back also to Gerry for the Q&A. Thank you very much.

Thanks, Lukas. Thanks, Stefan. I'm going to -- my first question is going to link what Stefan said and what Lukas said. Given where the valuation is, given the free cash flow yield, whether you look at it on an equity basis or an EV basis, given the leverage in inverted [ commas ] is only 2.5x, there or thereabouts, the maths of your share, your value proposition, given you've got the healthy dividend, which is 2x covered, give or take, and you've got the ongoing buyback, it looks pretty compelling. So maybe the question is about your 5 key markets and the question of -- and I'll come back to capital allocation later, and the question of concentration risk around those 5, both in terms of geography being 70% of profits and also in terms of product as the industry is transitioning. So the maths on the value side of the share price are pretty compelling. The question is, what happens? I know there's a few others. But the big question is, what happens in those 5 markets from a geographic concentration product question? Can you help us fill in the dots?

Yes, absolutely. Very happy to help. I'm very happy with that concentration. That's priority #1. And why is that? Ultimately, what are the 5 because we didn't spell them out before is U.S., Germany, U.K., Spain, Australia, yes? And within that, the 2 most important markets by far are the U.S. and Germany. Not surprising. And when you look at our industry, and I think that's important, these are 2 markets that in our industry still have the most affordable products in the marketplace. So in relative pricing, they're very attractive markets. And number 2, the 2 of them and that sometimes noise might give you a different impression, but reality, the facts are they are still, also from a regulatory perspective, 2 of the most attractive markets in the world in our industry. But we shouldn't forget that. Where our profit concentration is it happens to be in very attractive markets, yes, that also overall have quite predictable regulators, yes, that the industry has learned to work with over a long period of time. So I feel good about where our profit pool is concentrated. Your logic, you will also have an outlier that in Australia, it's clearly not as attractive as the U.S. and Germany, but that is the smallest of them. But I think as we talked about it earlier, Gerry, and, I think, is an important piece as we have the halftime of our strategy, we -- obvious reasons having been a #1 share donor in these 5 markets for an extended period of time, our key focus in the beginning had to be of getting these 5s right. We're clearly at the halftime of our strategy. We got them right. Now suddenly, as I mentioned before, we're clearly -- there's a lot of good markets beyond these top 5. And for the [ ACE ] region to grow 9% in net revenue and 9% in adjusted operating profit in our industry, I think you will find it hard to find something comparable. So that should give you, as investors, also a sense Imperial is bigger than the top 5. We'll continue to talk a lot about them, and we're very happy about these 5, but there's more to Imperial than these top 5.

Okay. Thanks very much for that. Could you talk a little bit about your next-generation product strategy? There's a sense that in the global market, you're maybe the #4 player out of the big 4 multinational companies. Can you talk about how you see that business develop and the amount of resource you're going to put in, how big it can be in 5 years relative to the existing business? Just give us a sort of a medium-term strategic vision of that out of your business.

Sure. Absolutely. There are many components of this. I mean, to be clear, we see this as an important part of our business. But as I said at the beginning, we are a consumer-centric company. One of the mantras of us and one of the behaviors about -- we start with the consumer. And that is also our North Star for our investments on NGP. It's very clear, unless the consumer is convinced to switch from a cigarette to an NGP product, that is the starting point. We're not here to create the market. Our job is to offer consumers great products and choices. But we are adamant about ultimately, it is the consumer that has to make that choice. And the facts are the facts. The facts are that in our top 5 markets, when you look at retail sales value as an element where you can compare things, not a single one of them net new-generation products make up more than 10% of retail sales value. So we have to deliver the reality of consumer choices being made out there. That means 9 out of 10 smokers, I would say, in these markets make a clear choice for cigarettes, yes? So we want to participate in the NGP business where we see the market achieving a right size. That's a key differentiation versus our prior strategy. We want to be part of it. We are part of it. But we focus on the markets where we clearly see a sizable market being there, where we can offer consumers a differentiated proposition. The other important piece for us is if you start with the consumer, if that's your guiding light, then you also have to come to the conclusion that if you look across the world, consumers are making different choices when they choose an NGP product. There are markets like here in France, which is all about vaping. This is the vaping market. You go to a market like Poland, where I was a couple of weeks ago, it's a heated tobacco market. Or you go to Sweden, it's an oral nicotine market. So being guided by consumers, we fundamentally believe an NGP approach has to be a multi-category approach.

Okay. You've talked a lot about the consumer and being driven by where the consumer wants to go. And you've also talked, in the past, so you touched on it in your opening comments around the culture of the business. Imperial used to talk about the consumer a lot before you and Lukas arrived. But what did you have to do to the business to make it, for one of a better phrase, really think about the consumer? What did you have to change about the culture of the business when it was -- the consumer was constantly referenced in the past, but you've needed to change things?

Yes. I mean I started in a very practical way as we're here at your consumer goods conference. We were pretty distinguished by having -- nobody on the Executive Committee was in charge of consumer, no Chief Marketing Officer at Imperial for quite a while. I think that would have been quite a distinguishing feature in a consumer goods company. That's what we fundamentally have changed. We're building. We established the global consumer office, yes, which is now not just a central team. All the marketeers in Imperial report as a central team. We've really created a function that didn't exist in its current form before, yes? The other thing is I give you -- we talk about culture. Virtually, every single country visit that we have start with the consumer. So I was in Germany last week. We met at our -- one of our sensory hubs. We met a group of consumer of fine-cut tobacco consumers. And the symbolism about the CEO spending his time not just looking first at the numbers but actually meeting with consumers and meeting in this case also our largest German customer on top, yes, these are the symbolism that is -- I think it's one thing when we talk about. The other thing, please always check what manage -- where does management change this time. And in an organization like Imperial, that clearly is a different point. And Lukas can contribute to this one as well because he spent a long time with other consumer goods companies.

Yes. Thank you. I always tell Stefan that in my previous life in a fast-moving consumer good, I spent probably less time with consumer than I spent in the last 2 years. So when we go with the Board, I do a market with Stefan alone, it typically ends up with a consumer meeting or a merchant group so that you actually can talk to the consumer, you listen to them and actually understand what drives their behavior and their consumption, which is really helpful because it actually allows us to create or tailor our solution for...

Linked to that, can you talk a little bit about the Liverpool and Shenzhen innovation centers and what their -- what is their task? What's their purpose? What do you tell them to do?

Sure, absolutely. It's one of the other elements. Thank you, Gerry, for reminding me it's about what's also different. We are now strategically investing in innovation centers in the markets, yes. And while we had a center in Liverpool before, we've completely revamped it now. What's different? We are big believers in partnerships around innovation. We're the smallest. We fundamentally in a fast -- when you look at NGP, a lot of innovation has to happen there. And we fundamentally believe that innovation will not be found in-house, that our R&D team there will always still work with partners, yes, to actually jointly develop innovations. And the new center in Liverpool, the revamped center in Liverpool is exactly that. We actually bring our partners into that so they co-develop with us. The other thing what we have there, we have now a pilot facility. So let me describe it to you what -- why this is -- why I'm so excited about it. You bring in consumers in the morning. You talk with some about certain product. They give you feedback. You go to your pilot lab and your pilot manufacturing facility. You virtually manufacture that product, make modification. And 2 hours later, with your partners who can tell you about immediately what, manufacturing-wise, that would look like in China so you don't design something that nobody can replicate. And 2 hours later, you bring that prototype back to the same consumers and tell them about does that meet your needs. And I think that is about the challenger mindset. That's about the agility of Imperial because we're embracing our partners. We don't just treat them as a contract manufacturer, really sees them as partners. That's what's unique about it.

Okay. Staying on the big picture perspective. You talked about where you are in the 5-year journey, halfway through. You've gone through the initial phase. You're now in the 3-year phase moving forward, which then leads to the question of where can we be post year 3? Given the investment you're making, the geographic profile, the products, et cetera, et cetera, where do you think this business can go on a medium-term view? And I'm thinking post 2026 or 2025. What do you think a steady-state environment for Imperial is in terms of top line growth and margins?

I mean logically, I -- maybe this way. I don't want to sit here and give a target for what it looks beyond. But if I look at it in general terms, what you hopefully experience as we're halfway on this 5-year strategy, we've come from a quite erratic delivery to something that we're now on a steady pace to a mid-single-digit adjusted operating profit growth, yes? And probably not lost on you, doing that allows us to pay a dividend yield of 8%, and the share buybacks that Lukas talked about that we are executing right now gives you another more than 5% return, yes? So these are attractive numbers for shareholders, especially when you benchmark against other consumer goods companies, yes? Do I believe that at the end of that 5 year, we would be falling back to where we came from? Honestly, we won't, yes? And why am I so confident and excited about it? Because when I look at the level of self-help that was available at Imperial, I'm really excited, yes? There are so many things to be in humble that competitors would have done 5 to 10 years before us, but opportunities that were still available to us, absolutely, I see that growth opportunity available. And the reality is we are getting better. We're filling more and more our role as a challenger in our industry, which the smallest one in an industry should naturally be, and I think we're now increasingly starting to fill that. So I do like -- won't give you any numbers beyond fiscal year '25, but I think it should be an exciting future for shareholders as well.

Okay. I'm going to ask a more market-orientated question. The industry's ability to price has been long-standing. Firstly, I've been asked a question about industry pricing from more years than I care to remember. But things are always evolving. There's a tipping point and maybe 1 or 2 markets there. I'm talking about the U.S. I'm not -- I don't think we're at a tipping point. But talk to me about discounting consumer pressures, market moving to lower-priced categories and discounting within that. How good, bad or indifferent is the U.S. market currently?

I would start off exactly, Gerry, on your first comment. I think we need to step away from the current noise. And if you look at the fundamentals of the U.S. market, from an affordability context, U.S., a pack of cigarettes in the U.S. is among the most affordable packs of cigarettes in the world, and that hasn't changed, yes? And we shouldn't forget that, yes? At the same time, the U.S. consumer, like many other consumers, is under pressure across the world. Therefore, you do see a slight acceleration in that trend to look for cheaper cigarettes, yes? Now in a very selfish way as Imperial, we are in the U.S., like most of our top markets, we have a portfolio of brands that go start at the top, all the way to the entry price point. So I do believe we have the right portfolio in the U.S. market to meet the needs of consumers. And reality is that's one of the key drivers of our share growth in the U.S., where in the period of time since the strategy started, we started at the 9 share. We're now at a 10.8 share. So you see that. That's not just consumers in the bottom end of the market. That's consumers choosing our brands behind our strategy at every single price point. But reality is, I think it's -- you're not seeing a real change in the trend in the U.S. Fundamentally, what we believe is you might see a slight acceleration of some trends you would have seen. But the fundamental underlying is U.S. market remains a very affordable market for consumers. We're not seeing a major change in consumer trends. That might be difficult to see in the older noise we're seeing at this point in time, but I am paid to look through the noise and look beyond. And I think the U.S. will continue to be a very attractive market.

Okay. I believe you, by the way, for what it's worth. I agree with you. I believe all agree much of which but both. Sticking with the U.S. Talk to us a little bit about the cigar market. So a tremendous growth. COVID helped that growth. Seems to have leveled off. Can you talk about how you see volumes and pricing developing in the U.S. cigar -- mass market cigar?

Mass market cigar. Gerry, as you touched upon it, I think the -- if you look at the historical performance of mass market cigars, if you look at the longer-term 5- to 10-year trend, this has been a market where volumes have actually been either stable or grow, yes? So it's a distinguishing feature. This is a very attractive market, yes? And as you rightly touched, in COVID, the market exploded, which had to do with consumption patterns. At the same time, we have to be realistic. That was a one-off, yes, that we are now living to a certain extent through the reversal of that. But it doesn't change the underlying attractiveness of that market. This is an attractive market where volume will either grow a little or be stagnant, which is good. I think the pricing you would have seen will continue over time. And what I am excited and I think sometimes not fully understood, we might be a #3 player in the cigarette business in the U.S. If you look at our brands in the mass market cigar, we have 2 big brands, Backwoods and Dutch. The Backwoods brand is one of the most powerful brands in mass market cigars. It's the most premium brand in mass market cigars. And it's a brand that has a brand equity and the consumer association and strengths that is second to none in the marketplace. I feel very good, and behind our new strategy, we've made that one of our must-win battles. So we've elevated the importance of our mass market cigar business in the U.S. overall, and I feel very good about the long-term prospect of that business.

Can you touch on some of the markets outside the top 5, wherever they happen to be geographic, maybe France, Morocco, some of the other bigger markets for you guys?

Absolutely. I mean what's exciting is about our strategy progresses. We're spending a lot more time on these markets beyond the top 5, yes? I'm going to spend a day with the French business tomorrow. I'm going to be in Morocco in 2 weeks' time, yes?

I didn't know either of those. That just shows [indiscernible].

But it's a nice coincident. And I think the tool set that has driven the share performance in our top 5 market that is very visible to you and to investors, that same toolbox is now being applied to all markets, yes? And there are quite a number of attractive markets in it. Now to be clear, it depends on the individual market. I mean, for example, it's fair to say that the French market has seen some very heavy regulation, especially some very significant excise increases. But reality is our toolbox is there to be competitive in the marketplace. So I'm quite excited and with -- in the background behind our new strategy made some significant change in the structure. So it's a dedicated division that we call [ ACE ], yes, that is driving performance and net revenue up 9% and profit up 9% that would include a market like Morocco, that is exciting news. I think there's a real growth engine being built on the background, very quietly in the background to drive that performance in the years to come.

I'm going to ask a slightly left-field question. Let's not, but Davidoff was a brand that previously Imperial used to laud for its potential. I noticed it's -- missing might not be the right word, but it doesn't get the same airtime from you guys. Can you talk a little bit about that brand?

Thank you for the question, Gerry. Funny enough, one of the investors asked exactly the question half an hour ago. But it's -- it reminded me, Davidoff is one of our key brands. I love Davidoff. Our people love Davidoff. It's a great brand to have the premium brand. It has a great equity. It gives me the opportunity to a large audience to explain why you've heard less of it. Simplistically, top 5 markets. The Davidoff brand is a very important brand for Imperial but not necessarily in the top 5. That's the reason why you've heard less of it because we focused a lot of our communication on our top 5 markets. In the background, a lot of good work has happened in Davidoff. The whole brand equity was written down for the first time. The brand essence, the brand equity of Davidoff, which have never happened in Imperial before under a Chief Marketing Officer with a team dedicated to Davidoff that is now really driving Davidoff forward in the right way. We have, for example, [ flanked ], there is something we have launched Davidoff Evolve in quite a number of markets, which are outside the top 5. We're working through some exciting plans with Davidoff. For example, in Germany, Davidoff was an important plan. And when I was in Germany last week, we talked about Davidoff.

If I move to next-generation products. And I'm going to keep this question very high-level -- and I suspect I know how you can answer it, but I'm going to ask it anyway. Look, what's the biggest driver for you guys, heated products, vaping, oral, mix of all 3, depending on the market? Can you just talk a little bit about that?

My answer is the consumer decides. And I feel very, very strongly about it. Who am I, as an industry player, to tell the consumers what they should consume? Sorry, I mean I'm a trained consumer marketeer, consumer first. And it's one of our behaviors. And what I clearly would observe when I travel and meet consumers is very simple. You have markets where consumers have a preference for heated tobacco. Now in their markets where consumers have a preference for vaping. And you have markets where consumers have a preference for oral nicotine. Two drivers: a, often regulation. I mean we can look at Japan as an example. While it's easy why consumers choose heated tobacco because vaping -- nicotine vaping is not allowed, nor is oral nicotine. Surprise, surprise. If you're only given one choice by the government, then you go towards that. You go to the Nordics, it's driven by a starter behavior of overall oral nicotine consumption. So where we are as Imperial, we're big believers. Let the consumer decide. And ultimately, I do believe if you want to be successful in NGP long term, you have to offer a multi-category approach. Based on the product solutions that are available today, I want to put that as a big flag over it, based on the choices the industry has been able to develop over quite a long period of time, there might be a killer product coming down the road that might change that dynamic. But I have to observe consumers' preferences today, and it really depends on the market, what choice they have. And my role, our roles as Imperial is to offer consumers choices. So here in France, we're offering them our vape products because that's their preferred choice. Go to the Nordics, we offer them our oral nicotine products. You go to Poland, we offer them heated tobacco. That is our role.

I'm going to switch to ESG. Could you -- to what extent is the door opening even a little bit with ESG-focused investors? Or is it just not happening? Can you give us your sense of people being prepared to buy into your story?

I think I see a door opening, yes? Now it's not swinging wide open, Gerry, but I think there are 2 things. I do believe with the progress that we're making in our NGP strategy, which goes against the social responsibility that the company has, I think we are starting to gain some credibility about this can make a difference. In one number in Europe, our biggest region, net -- 7% of our net revenue gets generated from our NGP products already. Now hopefully, we grow over time, but it's not 0. It's not 1. It's not 2. It's a meaningful number now, yes? And I think our commitment is becoming clear and clear to the outside audiences. But we shouldn't forget. While the focus naturally in our industry has to be on reduced harm products, we have a big component about our social [ IRO ] environmental responsibility and our governance responsibility. And we had a forum of -- a net zero symposium about the environmental impact at our offices a while ago, and one of -- a professor of a university came, and I think it was Lukas who asked him the question about you as a professor here with a tobacco company. And the beautiful answer was, you know what, for the environment, it doesn't matter whether it's 1 tonne of CO2 less emitted from a tobacco company or another company. So I think there's a recognition that this company can make significant progress on this front as well. And I think it will always live within the confines of our industry. But I think what you have is a management team that truly wants to make a difference with [ Hyatt ], a very senior executive from Unilever, who joined us because he want -- who lived in the ESG space all his life, Unilever. And I can tell you, he's super excited because he can really make a difference.

Okay. I'm going to move on to capital allocation. I think the way you outlined your capital allocation policy is pretty straightforward and to be lauded. So look, we can argue about -- or not argue. We can debate dividend growth relative to share buybacks. But would it be reasonable to assume -- and I appreciate both decisions of the Boards, not just the 2 of you sat here. Would it be reasonable to assume that the buyback will stay at least GBP 1 billion moving forward and may grow and that the dividend will grow as well? And that prodigious free cash flow you have, bearing in mind your leverage is 2 to 2.5x, that the vast majority -- and your CapEx requirements aren't huge, and there's only going to be bolt-on M&As, is it the point that your free cash flow, which is not going to be diluted materially by bolt-ons or CapEx, is all coming back?

Let me answer that in 2 forms. One is the progressive dividend that you had approached or touched on and then the share buyback program. I mean we've been very clear that our dividend policy is a progressive one, which really means, as I said before, will increase over time. I think the progressive dividend is currently linked to the underlying performance. We have chosen the operating profit as the proxy for that, the underlying performance. And I think it's a good proxy for cash. Now we will remain and keep the flexibility to decide what we do and what is the underlying proxy we take. And I think we are -- our cash generation is unbroken, and therefore, we can maintain that flexibility to do what's best for the shareholder. But one thing is clear. It will be progressive. It will grow, and we will see what is the best metric to take to compare that to our underlying performance. The other good thing of our business is that we are an [indiscernible] company. So we don't just see the progressive dividend is one and then say, okay, do we do this or the share buyback? We want to do both. And it's very clearly stated in our capital allocation that we want to do both, and we can do both. We have just started the first year of our accelerated strategic plan. We're giving accelerated returns back to -- or we're delivering accelerated returns. As you have seen, we've guided the market to the lower end of our mid-single-digit this year. We remain unbroken with our cash generation. So we're very pleased that we have been able to launch the GBP 1 billion share buyback this year. And clearly, from what you said, this is an ongoing program. Now having said that, also not to precharge and preempt the Board discussion and the Board decision, we'll come to the market when the time is ready to give the advice of next year.

Okay. I mean that's a pretty clear message. Any questions from the audience before I progress? I've got one more I'd like to ask. Okay. We've got about 3 minutes left. So Stefan, you talked on -- you mentioned fine cut. Can you talk a little bit about your fine cut business given the consumer pressures, how much you see that business developing moving forward? And maybe touch on the U.S. Is the U.S. just not viable because of excise and just help us understand that?

Sure. I mean, Gerry, I think with -- it's a good example. And I talked. There wasn't an accident that we had to talk with fine cut consumers in Germany because, again, if you're consumer-driven, the number of our markets, Germany is a good example where fine cut are a very important part of the total market and part of our strategy. If we start with the consumer, we have some countries where fine cut growth is one of our must-win battles, yes? As you rightly touched upon it, reality in some markets, that is driven -- they have sizeable fine cut segments because the government have recognized they need to offer lower-income consumers or people have really a preference for roll your own, a tax incentive, yes, because otherwise, it will drift into illicit markets or they drift into the markets of neighboring countries. That cannot be in the interest of governments, yes? To answer U.S. questions, I think we come back to the affordability. Many -- reality, there is typically sizable fine cut markets where the excise stake is very high. So where there is a real economic trade-off, where there is an incentive for consumers to move into fine cut. Given the relatively affordable pricing of cigarettes in the U.S., you don't have that element, yes? So the challenge is, and you have historically not a big consumer need for fine cut. So it's always one on the watch list. We just don't see that as a priority at this point in time. There's so much we can do with our portfolio of cigarette brands. And then as you mentioned before, our mass market cigar business. So don't expect us to launch a fine cut business in the U.S. at this point in time. I think there's so much growth opportunity in fine cut in many of the other markets.

Right. Okay. Unless there's any questions from the audience, there's a final wrap-up. Doesn't look like there is. Stefan and Lukas, thank you very much for your time. Really appreciate your comments. Thank you very much.

Thank you, Gerry. Thank you.