Imperial Brands PLC (IMB) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us in the room and for those of you on the phone, welcome to our presentation this morning. I wanted to say a few words before handing over to Stefan and Lukas. As you will have seen, we have announced today that Stefan has informed the Board of his intention to retire as CEO. And we're also announcing that Lukas, whom you all know well, will be succeeding Stefan as CEO on October 1. To ensure the smoothest possible transition, Stefan will remain on the plc Board until the end of the calendar year, and he will continue to be available to support us until May of '26. We're also announcing that Murray McGowan, currently our Chief Strategy and Development Officer, will step up to succeed Lukas as CFO. Murray is here today, and he's looking forward to getting to know you all better. I wanted to take this opportunity to express my deepest thanks to Stefan for his service to this company. Under Stefan's leadership, Imperial Brands has delivered consistent growth and outstanding returns for shareholders. One of Stefan's many great achievements was the way he comprehensively refreshed our executive leadership team, making strong hires from other consumer businesses and nurturing internal talent. As you heard at our Capital Markets event in March, this management team has had a laser focus on consumer capabilities, agile ways of working and a performance culture. And this focus has driven both a successful turnaround in our tobacco business and a strengthened platform in next-generation products. Today's appointments follow a rigorous selection process and demonstrate our deep management bench strength. Lukas has a strong track record in driving growth in consumer businesses and delivering complex transformation programs having held senior roles at Fonterra and Nestlé. Similarly, Murray has diverse experience in both financial and operational leadership roles for consumer businesses, including Costa Coffee, Yum! Brands and Cadbury. Over the past 4 years, Lukas and Murray have both played key roles in Imperial Brands growing success. As you will have observed at our Capital Markets Day, they have both also been very important architects of our 2030 strategy. Under this executive leadership, I am confident that we'll continue to deliver for shareholders while moving purposefully towards our healthier future. I'd also like to confirm that the Board has agreed that I continue to serve as Chair to provide continuity while Lukas and Murray establish themselves in their new roles. And with that, I'd like to hand over to Stefan and Lukas for the usual half year results presentation.

Thank you, Therese, for your very kind words. And good morning to all of you, and welcome to our presentation of our half year results. And I want to thank all of you who've joined us here in the room. It's great to see you again. And of course, I want to welcome everybody who is watching this online. I would like to draw your attention, as usual, to our cautionary statement before I introduce the team and the agenda. As usual, I'm joined by Lukas Paravicini, our CFO; and Peter Durman, our Head of Investor Relations. And I will start highlighting some of the key points from today's results presentation, and Lukas will, as usual, outline the financial performance and give us -- give you our outlook for the current fiscal year. I will then update you again on how we are delivering operationally and continue to deliver on our strategic transformation. And finally, we'll look forward to taking your questions. Now this has been another 6 months of consistent delivery against our plan. And I'm pleased to confirm that we're on track to also deliver our full year guidance. For the eighth half year period in a row, we are showing progress against our dashboard of key metrics. And once again, as you can see here, there's a tick in every box. And I would like to highlight that the 6 basis point market share gains in our top 5 markets, which is ahead of our strategic objective of holding market share. And for me, it's particularly pleasing to be able to report a 65 basis point market share gain in Germany, our first material market share gain in this important market for well over a decade. Now turning to revenue. This is another period of strong top line growth. We're up 3.2%, which is driven by broad-based improvements in both our tobacco and NGP business. This is supporting growth in adjusted operating profit, and with the benefit of the buyback programs, therefore, earnings per share are up 6%. Now this is translating into strong growth in capital returns for shareholders. Our dividend is up 4.5% on an underlying basis. But including the rephasing that we announced previously, the interim dividend is up by almost 79%. And we're well on track with the buyback, which, together with the dividend, will deliver cumulative returns to shareholders of GBP 10 billion over 5 years. Now I think you have the sense we are pleased with the performance. But as you will know, we're never complacent. So since we announced our 2030 strategy at the Capital Markets Day, the global economy has become more uncertain. However, we believe we are relatively well placed to weather any future storms because the structure of our supply chain helps us to insulate us from direct impacts of tariffs. For example, in our U.S. business, the manufacturing is largely local. And should we face a more generalized economic slowdown, our sector has proven for a long time itself to be relatively resilient during times when consumers rein in their spendings. And there are features of Imperial Brands own business model, not just the industry, which we think makes us especially well positioned. In our priority markets, we offer a comprehensive portfolio across the price ladder, so we can meet consumers' needs wherever they choose to go. And as you will know, we have a conservatively positioned balance sheet. And more generally, I think our investments over the last couple of years in our capabilities, culture and ways of working have made us more agile than we were a few years ago. This makes us better able to adopt and adapt to changing environments so we can deliver the consistent outcomes whatever the weather will be. Now I will now hand it back to Lukas or I hand it to Lukas, so who will take you through the financial results and the outlook in more detail.

Thank you very much, Stefan, and a very good morning to all of you. As Stefan just said, this is a business now capable of delivering a consistent and sustainable improving performance year in and year out. The past 6 months has been a period of broad-based growth across all regions. We delivered aggregate market share gains but also maintaining a robust tobacco pricing. And in NGP, it has been another period of revenue growth as we build scale. This operational success has supported growth in group adjusted operating profit of 1.8%, in line with our guidance. We have delivered GBP 2.4 billion of free cash flow on a 12-month basis. Leverage at 2.4x was higher than the full year for the usual seasonal reasons, but it remains within our target range. Overall, we are on track to deliver against our plan for 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 in orange here has more than offset volume declines to deliver an acceleration in tobacco net revenue growth. In Europe, our largest region, strong broad-based pricing has significantly outpaced volume declines. In the U.S., price/mix increased 10.1%, driven by pricing in both our cigarette and mass market cigar portfolios. Volumes benefited from share gains in both cigarettes and cigars. Wholesale inventory movements ahead of price increases are expected to unwind in the second half. Group tobacco and NGP operating profit growth was driven by all 3 regions with improved profitability in tobacco and lower losses in NGP. In tobacco, the strong pricing has dropped through to higher profit. In NGP, we reduced our losses by building scale in our existing footprint. Overall, tobacco and NGP operating profit grew 2%. Logista was flat as growth from tobacco price increases offset the performance in long-distance distribution -- transportation. Our adjusted EPS reflects our operating profit growth and the reduced share count due to our ongoing share buyback. The small increase in tax reflects a slightly higher adjusted effective tax rate at 23.5%. This is in line with our full year guidance. Now turning to cash and capital allocation. Our operating cash conversion was at -- was 99% on a 12-month basis, reflecting our continued focus on working capital. Disciplined capital allocation remains a key part of how we create value for shareholders. Leverage at the half year improved year-on-year and we are on track to be around the lower end of our target range at year-end. We previously announced our decision to rephase our dividend payments into 4 equal installments together with an underlying increase in dividend per share of 4.5%. This means that shareholders will benefit from a onetime acceleration in dividend cash payment this year. We're now into our third consecutive year of share buybacks with a GBP 1.25 billion program, an increase of 14% over the previous year. This will bring the total under the current strategy to GBP 3.35 billion. As we said at the CMD, we are now committed to an evergreen, always on share buyback through the next 5-year strategic period. We would like to confirm we remain committed to our previous full year guidance across all metrics. This step-up will be underpinned by combustible pricing already taken in this first half and improved operational gearing. We continue to expect full year constant currency tobacco revenue growth in the low single digit and double-digit net NGP net revenue growth. Constant currency adjusted operating profit is expected to grow close to the middle of our mid-single-digit range. That is similar to the growth rate of last year. At current rates, we expect foreign exchange to be a headwind, 2% to 2.5% on to net revenue and 3.5% to 4.5% to operating profit and earnings per share. As usual, there is a slide in the appendices with guidance on the specific items. As we expect at least -- sorry, and we expect at least high single-digit EPS growth for the full year, supported by profit growth and the ongoing share buyback program. And I can reassure you, we remain committed to the medium-term guidance we set out at our CMD in March. This means, we remain well placed to generate long-term value for shareholders. Thank you, and I'll hand back now to Stefan who will give us an update on the operational progress. Stefan, go ahead.

Thank you, Lukas. Today's presentations are focused on our performance for the first 6 months of fiscal year '25 and our expectations for the balance of the fiscal year. But also I want to reassure you that in the background, we are also preparing for the official start of our next 5-year program as of October 1. Now during the past few weeks, since we met all together in London, our focus has been on sharing our thinking with our important stakeholders. Any -- because you know any business strategy can only succeed if it resonates with and inspires the people of that business. So we have been spending a lot of time discussing our 2030 plans with our colleagues. And next week, Lukas, and I and the whole of the executive team will be with our senior leaders for 2 days, exploring in-depth how we turn the high-level principles we described to you into detailed action plans. Last month, I also met with our 30 largest suppliers as we socialized our strategy with them. Because if you remember, we always said as a challenger business, we rely on long-term partnerships with third parties, and we thrive when they will bring us their best work. Now meanwhile, Paola, our Chief Consumer Officer and the consumer team are continuing to refine their view on the target consumers. So in future presentations, expect to hear a lot more about how we are serving those trust seekers and progressive achievers you heard about in the March Capital Markets Day. Lukas, Murray, Alison our, Chief People Officer and their teams are also continuing the detailed work and how we can further strengthen our culture and become more data-led to help our people become more agile challengers and drive in that way, sustainable growth. In past presentations, you've heard me discuss the importance of our 5 behaviors. Now one of these 5 behaviors is build our future. So this is about being able to simultaneously deliver short-term performance and plan for the long term. Now a few years ago, candidly, our leaders lacked the bandwidth or structures to effectively balance those 2 competing pressures. I do believe by contrast today now as you're seeing today and as you saw in March in the Capital Markets Day, we are able to deliver performance today while ensuring we can also perform tomorrow. And with each 6-month period, we are adding another solid layer to the foundations we're building for the future. In the first half, we gained market share in aggregate, again, across our 5 largest markets. That means cumulatively since 2021, we have delivered more than 50 basis points of share gains. And as a reminder, these 5 markets generate more than 70% of our group operating profit. And as a management team, we focus a similar proportion of time and energy to drive performance in these markets while also nurturing their long-term growth. Now these markets are managed as a portfolio, as you will know. And it is not our target to gain market share in all markets in each period. Because our ultimate goal is to balance market share, pricing and long-term brand building to build sustainable value. And in any period of time, we may make deliberate decisions in individual markets, which leads us sacrificing share. Now if we look at the first half, we gained market share in the U.S., Germany, our 2 top markets, and Australia, and we lost market share in the U.K. and in Spain. Now let's look in more detail on the performance in the U.S. Our cigarette and mass market portfolios demonstrated another 6 months of strong performance. In cigarettes, we continue to gain market share of the overall market. Now this is against the backdrop of elevated volume declines in the market, which were impacted by illicit vapes and the continued pressure on consumers' wallets. And as you heard from Lukas, strong price mix has more than offset volume declines, leading to tobacco overall net revenue growth in the U.S., close to 5%. Our balanced portfolio of cigarette brands across different price points has clearly again served us well in this context. In the premium segment, Winston gained market share, driven by brand extensions, offset by Kool, which was impacted by competitive pressure. Our strong portfolio of discount brands continue to drive share and revenue growth. Crowns has been a strong performer, benefiting from greater consumer focus and investment and increased store rollout. Now turning to cigars or mass market cigars. After a period of instability following COVID, the category declines have normalized now to be around 4% in the first half. And our performance was led by market share gains with our premium Backwoods brand. And we've continued to innovate with new flavor launches and brand extensions, which clearly has driven consumer engagement. Now our other 4 priority markets have also continued to deliver well. In Germany, we started to see an improving share trajectory last year, if you remember, after a decade of share declines. And this has continued in the first half of this fiscal year. You will have heard from Aleš, our Head of Europe, at our Capital Markets Day, describe our patient investments in that market. They include the expansion of our sales force and investments in building our brands, which are now more carefully targeted at our consumers. And it is very pleasing to see that this long-term effort are now really paying off. In the U.K. and Spain, we've seen some share losses having taken deliberate pricing actions from our side. Now this was a strategic choice to ensure we are meeting our overall share objectives and continue at the same time to drive value for our shareholders. Australia, smaller top 5, continues to be a challenging market from a volume perspective, driven by the high level of excise and illicit products. But despite this, our team has been successful in delivering small market share gains and managing the market to optimize value for us. Now turning to NGP. In the first half, we have continued to see market share growth and revenue growth across all 3 categories. In vapor, we focus our investments in Europe and we're growing market share across the major markets in this region. Now this disciplined focused approach, you saw Paola and her team describe at the Capital Markets Day, is clearly serving us well. And as they explained, the blu brand is highly focused on a type of consumer we call the progressive achievers. They are seeking authentic flavors, well-designed products and a trusted brand name. And this is exactly what we can offer them. So step by step, we are building a more distinctive, more differentiated brand. And this means we are well placed to continue to grow sustainably however, this market develops over time. Now turning to modern oral. Now I know that at our Capital Markets Day, many of you were very interested in this category. And we, too, are very excited about the long-term opportunities in this space, both in the U.S. as well as in Europe. In these results at half year, we've grown market share and revenue across both regions. It has now also been a year since we launched Zone in the U.S. and have been really pleased with the progress so far. And as we explained to you before, it is our Zone off in the U.S. is a differentiated product with a more moist mouth feel than many other products in the marketplace. Over the past 12 months, we rolled out the brand with focus and discipline. And now we are scaling up with greater distribution, growing revenues and improving margins. At the half year, we had over 5% market share within our footprint, a significant achievement, especially in the light of the short period of time since the launch. In Europe, our focus is on meeting consumer preferences with the European variant of Zone and Skruf, a great brand with deep Nordic heritage. Here, we have launched a new pouch format for Zone in Sweden and new flavor variants for Skruf in Norway. Now these innovations have helped drive overall revenue and market share growth. In heated tobacco, we are consolidating market launches throughout fiscal year '23 and fiscal year '24 by carving out a subset of consumers within the category what the group of consumers we call the trust seekers. We expanded our product offering for Pulze 2.0 with iSenzia flavored herbal sticks in Europe. And our heated portfolio has proved popular with consumers in Italy, where we have now reached a market share of 3.3% in the first half. And as we announced at the Capital Markets Day, we are upgrading our heated tobacco device and plan to launch Pulze 3.0 in the second half of this fiscal year. Now this is a further demonstration of our improved approach to innovation and faster speed to market. And moving off NGP. Looking to the full year, we are on track to deliver our guidance across combustibles and NGP. In combustibles, our goal will be to maintain share as always, in the priority markets. In NGP, we'll continue to drive double-digit net revenue growth. By staying focused on the operational delivery, we'll continue to drive growth in our key financial metrics. And with that, return to shareholders. Now I hope you agree, Imperial Brands is, of course, much more than just a 6-month story. We've now built the foundations to continue to deliver value to shareholders over the long term. We now have a stronger combustible business with better brands, better data and a better understanding of our consumers. In NGP, we have competitive products across all 3 categories, and we're building scale and margins, and our focused approach to getting closer to our consumers and building differentiated brands is working well. And there are great opportunities to invest in our people, technology, processes and data to drive even more efficiency. Now all of this is brought together in a clear plan to create value and generate another 5 years of growing shareholder returns. Now since we held our Capital Markets Day, the global economic outlook has been more uncertain. However, we remain confident that the building blocks of our 5-year plan are robust, and we expect to deliver against our next 5-year medium-term guidance unchanged. And this is underpinned by our operating model, which starts with operational delivery for our consumers, which then translates into financial delivery, particularly cash. This reinforces our confidence in our progressive dividend and evergreen share buyback, which will drive growing capital returns for shareholders. So all in all, I am confident with the management team this represents an attractive investment case for both existing and potential new investors. So thank you. I will now hand it over to Peter, who will take us through your questions. Thank you.

Great. Thanks very much, Stefan. So we'd now like to take your questions. As usual, we'll take questions from the room first, and then we'll take questions from those who've joined by telephone. If you wish to ask a question via the telephone, you'll need to register to receive the dial-in details. And you can -- or you can do this by clicking on phone details on the menu at the top right hand of the webcast window. The link to register is also available in today's press release. [Operator Instructions] So we'd like to take the first question from the room. Please wait for the microphone, and please state your name and organization before posing your question. Thanks very much.

Rashad Kawan, Morgan Stanley. Stefan, congrats on a fantastic track record, wishing you all the best for the future. I guess first question for Lukas, as you kind of think through the next 5 years, obviously, you've been core to implementing this new strategy that you guys announced at the CMD. Should we read into that, that we shouldn't expect much change from here to that strategy going forward, including the capital allocation framework that you talked about earlier today? And then second question, just on tobacco volumes. Declines were just north of 3%, 4% last year. It feels like you're kind of getting to a more normalized level, is that how you guys think about it? And even if you have 1 or 2 markets that are more elevated like the U.S., the portfolio should be enough to kind of keep you within that under normal conditions?

So thank you very much. And yes, I am tremendously excited with the opportunity to actually continue to forge a healthier path for our future, for Imperial and with it, unlock further value for shareholders. And absolutely, you should see this as a continuity of what we have been doing in the last 5 years, what we have reinforced at the CMD. The purpose, the vision of being a challenger, our behaviors are at the heart of what we have done and will continue to be at the heart of what we are doing going forward. The strategy, which you have just seen at the CMD, has been crafted not just by Stefan, Murray and myself, but the whole ELT, and we stand behind that as a team, and we will make sure that we implement that as we have presented it. And this I will not forget where I come from. And so the capital allocation is close to my heart and has worked well in the past. And so you could expect that, that will also continue as we have again said at the CMD. So absolutely, it is about continuity.

Absolutely. Give Lukas a break. Yes, on the second -- on your question volume outlook, I think you absolutely rightly picked up. What you can see in these half year's results is kind of returning back to where we came from. And I think that's very reassuring. Because I think logically, there's always a lot of attention on the markets, whether that's U.K., Australia and so where you see elevated level of volume bucket size declines. But you can see in these half year results, the effect of 2 very attractive markets fundamentally from an affordability perspective with the U.S. and Germany playing in an important role. And we shouldn't forget Spain is also a market where relatively high -- good level of affordability drives relatively attractive returns of market size decline. So look, I can't tell you what the market size declines will look like in the next 5 years, but I think you can take comfort with the market footprint that Imperial has. We looked very hard at that in the context of the next 5 years. Murray played an important role to look at that. And you can see in this half year result data point that validates that.

Next question, we take it, front row please, in the front row. Thank you.

Two questions from my side as well. I want to start off with the U.S., please. A pretty impressive top line performance, almost 6% top line growth. But I noticed operating profit growth was slightly lower at 1%. Could you maybe share some of the dynamics between top and bottom line, particularly interested in understanding the growth of brands such as Crowns and deep discount and how profitable that growth and share gains are? And the second question is on NGPs. You highlighted some additional rollouts, both in vapor and heated tobacco. And of course, you want to continue to press on with Zone. I just want to understand how some of these innovations and hopefully, an acceleration in top line growth marry with the improved NGP losses that you've highlighted and whether actually it could be an opportunity to invest that extra dollar because as we see at other organizations, they pay back very quickly.

Okay. Lukas will take the first, and I take your second question.

So indeed, we are very excited with the performance overall in the U.S. And again, especially also in the context of the U.S. and against our competitors, that's not just limited to the revenue. It's also on the market share growth. And again, U.S. is one of the countries where we -- it's an affordable market, which is great. But it's also a market where we have an offer at all price points. To your point, we do have an offer at the deep discount. That is doing well, even though there is increased competition coming in than we expected that, but we continue to do well. But we also continue to do well at the level of Winston, for example, which is very helpful. So very pleasing to see that. You're right, the margins might be shifting slightly in this year because we also have a phasing. We have quite a bit of investment, especially in NGP in this first half. But we remain very confident over the full year with the results of the U.S. And remember, we went from 30,000 to 40,000 to now 70,000 stores in NGP in Zone. There is quite a bit of an investment going in there now. So that's really the issue here.

From which is the nice bridge to your second part, confidence level investments in NGP. I think the way I think you should look at the first half year result, another 15% plus growth and market share gains across all 3 categories, which is exactly the glide path we want to be on. And it is, as we said at the Capital Markets Day, the ambitions for the next 5 years starting October 1 is to gain scale. We have now attractive offers for our consumers in these 3 categories. We have the right footprint of markets. And I think what you see in these results, top line growth, double-digit top line growth, double-digit improvement in the bottom line. So as we gain scale, you will slowly see that also filtering its way through into better cost of goods as we gain scale. Look, we're also learning with -- I talked about the partners. I mean, spending time with our 30 top suppliers, where a meaningful number from them where our NGP suppliers, they're excited to work with us. At the same time, trust me, I was with the procurement team, they also say, okay, what price are you going to give us for these ones. So the big story here is that what -- if you look at these half year results, you can see how the pieces are coming together. Now I also will tell you, there will always be hiccups in the next 5 years. The NGP business is a highly volatile business. But I think what you can now see another half year of track record of delivering on the strategy.

Take question there from Damian.

Damian McNeela from Deutsche Bank. Two from me, please. First one is on Germany. And I think congratulations on finally delivering a meaningful improvement in share there. And I appreciate the sort of tobacco business is measured or managed on a sort of a portfolio basis. But given 10 years of share losses and how much the organization has improved, how should we think about share gains in Germany going forward?

Yes, David, I was waiting for that question because after a decade of market share losses, gaining 65 share points -- basis points is logically something that excites us. Same time, we always said we play a portfolio. I think what's great for us, this was the one country in the last 5 years that every single half year tracked the other numbers down. I think what's exciting to see is that Germany is our second largest market, unless you will know a very attractive market in our portfolio, it finally can actually grow market share. Same time, I -- look, while Lukas and me, and we'll push our German team to do the best, at the same time, we are always realistic. It's a highly -- it's not just an attractive market for Imperial, it's also a highly attractive market for our competitors. So look, one thing we shall not return to being the #1 share donor in Germany is that we've been a long period of time. But I don't want to promise you there will be share gains all the way along because, again, we managed as a portfolio. What is the commitment we've made at the Capital Markets Day is that we will hold our share at minimum flat in the top 5 markets as an aggregate position.

And my second question is on U.S. elicit, just wondering whether you've seen any improvement in the environment in that marketplace, given what's been going on with Trump and tariffs in China?

Sure. Like you, we're eagerly watching all those things happening there, but you know us as a management team, number one, we're very prudent in what we forecast. And number two, we look at the facts, not the factoids. The reality is ultimately, you can only see where in U.S. states like Louisiana, where the government has come down hard on these illicit players. You can see an improvement in the market dynamics for the legal players like ourselves. But at the same time, look, we take it as it comes. It's not with a prudent approach. We don't have planned into our plans. We're not relying on a meaningful improvement. If that happens, would be great. We're happy to take it. At this point in time, we're not really yet seeing apart from the places where government has put some very specific steps into place a meaningful change out there. But if it comes, wonderful. We're happy to take it, but we don't need it to deliver our back half and beyond.

Okay to Richard Felton, just right behind.

Richard Felton from Goldman Sachs. Two questions for me, please. First one on the strong U.S. pricing in H1. Could you maybe add a bit more color on how mix was impacting that? Because I just imagine you've got some headwinds on mix from the discount segment doing well, maybe some tailwinds from cigars doing slightly better. So just a little bit more color on the mix component in U.S. pricing. And then the second question is on Zone in the U.S. I appreciate that Nielsen data is far from perfect, but at least the data we can see suggests that the momentum has plateaued a little bit year-to-date. It's interesting to hear any thoughts on your strategy for Zone into the second half of the year in context of the competitive environment, which I suppose has also shifted slightly.

Thank you, Richard. On the pricing, in general, both areas had very strong pricing. That's a starting point from MMC and FMC, and mix is actually not as impactful, especially not in MMC. There's a little bit of mix to your point of FMC, but it's actually quite neglect to build. That was my English. So it's not that important in that sense. So it is driven by pricing, not by mix, and there's a bit of mix in the FMC, not in the MMC.

And on your question on Zone, as I said earlier, it's like we're really pleased with the performance. We shouldn't forget we started with zero share a year ago. And to be able to gain traction in our market footprint to reach a 5% share in such a short period of time against very well-established competitors is something that we're really pleased with. It shows that challenge of mindset we've always talked about better consumer understanding, really identifying who our core consumers are having a differentiated product, but also a differentiated brand has really served us well. I wouldn't read too much into the short-term share movements because we're playing the longer game here. Look, it's very clear. The success that we have enjoyed with Zone and this very differentiated product would lead to a competitive reaction at one point in time to a certain extent. We were surprised how long it took the competitors to come out with a competitive action. We feel very good about the offer we have to our consumers. We continue to expand. We continue to invest into it. And I think that's why we've continued to gain market share. Will competitors react to it? Will there be new offers in the marketplace? Will there be promotional pricing from some of our competitors as they introduce new products in the market? Absolutely. But it's something we're not worried about.

Question there from Gaurav.

Gaurav Jain from Barclays. So congratulations, Stefan, Lukas, on all the changes. Congratulations Murray as well. So the stock is down 7%, as we are talking. And I think we have seen now 2 departures and both of you are retiring at the age which people will not essentially associate with retirement. So I think what people are wondering is that Imperial had a fantastic run over the last 5 years. So is it that you are leaving at the high and there could be some risk down the road as we look out.

Sure. Gaurav, let me answer that question. I mean number one, to be clear, we love Peter. But if you look at through the lens of the executive team, look, it's a very -- and I can be very personal with you. And as you may know each other, people look at me as a CEO of Imperial for a 5-year period, but you will know well, that's not how Stefan looks at this. This is my 11th year as a CEO, having been the CEO of Inchcape before. So clearly, after 11 years, I -- for me, when we did the Capital Markets Day and you saw all -- many of you were there, present the team at the Capital Markets Day. And as I said, at that point in time, business is a team sport, and I really felt the team showed up in a great way. And I really felt we have a strategy that is now clearly the compass for the business for the next 5 years. That logically came to the point where I was reflecting on whether I wanted to do the same job for another 5 years and make it 16 years as a CEO. And I think also logically, there's a reflection on things in life and if you're a CEO, that is a full-time job. That's the 24/7. And there are many things that you can't do as a CEO that you might do as another exec. So with my family, I had this inflection point after the Capital Markets Day. And with Lukas and Murray, with 2 people who are absolutely committed who know this business inside and out and in discussion with the Board of Directors, I then started that discussion, I think that has culminated in what I think is very much a continuity of the business. So apologies, but at one point in time, I have to look after Stefan and Stefan and the family as well and I felt after 5 years of transformation at Imperial. And if in my 11th year of being a CEO, I think I've earned the right to retire. Thank you.

Second question is on the FX impact, it's a bit more than historically used to be...

That's one for Lukas.

For Imperial on the transaction side. So yes, on the revenue side, it's a 2.5% impact, which I think everybody had in their models. But on the EBIT side, it is much more. So what has changed at Imperial that the transaction impact is much more than historically was the case?

So just for the sake of good orders, we're talking about translation or transaction because we've naturally hedged on the transactional element of FX. On the translation, you're right, we indicated the 3% to -- 3.5% to 4.5% on the operating profit and earnings. And it is probably useful to just highlight in your pack of the appendices, you have a slide with the details of what is exactly the FX rate that we have taken. And there is quite a volatile situation out there, not necessarily induced by ourselves. And so we took the exchange rate last Friday, which is sort of the last data point we can take to get it all through the documentation and present it to you in an orderly way. And we took it at that moment of volatility. There's nothing has really changed in the underlying mixture or composition. It is also probably useful to highlight that the rather large range is due to the probably the 3.5% is more to the operating profit side and the 4.5% is more, when you consider the below the operating profit items that will extend it to 4.5%. That's why the range is. But nothing really has changed in the underlying composition. It's just the volatility of the market.

And one last question on the synthetic nicotine market. So clearly, you are -- you have Zone in the U.S., which is synthetic nicotine. Any thoughts about entering the synthetic nicotine e-cigarette market in the U.S. as well?

I mean at this point in time, we will always evaluate all options. As you know, we are still like most of the industry waiting for our PMTA application to be fully assessed on our current offer. And that is where the attention is at this point in time.

Any more questions in the room? We don't have any questions online actually currently. So if there are no more questions, I'll hand over to Stefan to close. Thank you.

Yes, look it's -- hopefully, what you have a sense after today's results presentation about it's another half year of delivery from the business when you look at the key indicators. And I highlight that when we talked about it is Germany having finally turned market share in the right direction probably for all of us, one of the key highlights. But also you can see the NGP business with 15% growth and market share growth across all categories gives you some confidence about that our challenger mindset really works. But also hopefully, you take away and have some memory about when we talk about the Capital Markets Day in -- only in March about this is at the bigger picture continues to be a very attractive opportunity for investors to come into. We have a stronger tobacco business as a company versus where we were 5 years ago. We have now differentiated and competitive NGP business. And I think, as you touched upon, the capital allocation strategy, I think, is a differentiating feature in the way. And you heard from Lukas that ain't going to change in the next 5 years. And hopefully, especially the Capital Markets Day, you saw the level of talent we have in the organization, not just at the ELT but also when you were downstairs at the next level of management. We only showed you the marketing team, but trust me, it's the same across the function. So with this comment on team in mind, I feel really this is the right time to pass the baton to Lukas and to Murray. Look, the baton doesn't get passed now to be clear, as Therese also reminds me, the baton gets passed at the end of September. So look, I'm absolutely with Lukas and the team absolutely accounted to deliver for this fiscal year, but I really feel the business is in the right shape to take it over the next 5 years and the right team is in place to take it to that full potential in the next 5 years. So -- and hopefully, we'll have the time to see all of you in the upcoming road shows and other opportunities. Thank you.