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Philip Morris International (PM)

Participants
Nicholas Rolli Vice President, Investor Relations and Financial Communications
Andre Calantzopoulos Chief Executive Officer and Director
Martin King Chief Financial Officer and President of Asia Region
Matthew Grainger Morgan Stanley
Owen Bennett Jefferies LLC
Judy Hong Goldman Sachs
Chris Growe Financial Corp.
Bonnie Herzog Wells Fargo Securities
Michael Lavery Piper Jaffray Companies
Vivien Azer Cowen and Company, LLC
Adam Spielman Citigroup Inc
Jonathan Stephen Leinster Berenberg
Call transcript
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Operator

Good day, and welcome to the Philip Morris International 2017 Fourth Quarter and Full Year Results Conference Call. Today's call is scheduled to last about 1 hour, including remarks by Philip Morris International management and the question-and-answer session. [Operator Instructions] Media representatives on the call will also be invited to ask questions at the conclusion of questions from the investment community. I will now turn the call over to Mr. Nick Rolli, Vice President of Investor Relations and Financial Communications. sir. ahead, go Please

Nicholas Rolli

you release us. our containing full quarter thank issued XXXX today, a and results. press detailed year for and Earlier joining we fourth Welcome, information on

or may the You release the on PMI Relations app. access Investor www.pmi.com

the During unless otherwise following, our please stated. today, call note

full same will about period and in we and comparing the fourth results XXXX. First, XXXX, for them be quarter talking year to the

units. Officer or results join smokers differ these products results. Andre? smoking. and actual for of and attention forward-looking Financial today's cause continued to who could that Andre the cigarettes the cautionary factors It's disclosure A as period. products, to volume to switch likely to contain of and market, to materially various or forward-looking that PMI and which in slides, a total heated measures performance projections share future from or to present, reconciliations have products for question-and-answer now website. Andre your present our direct to present comparable references and the will tobacco to King, Chief Second, release statements Chief RRPs, Martin our harm projections adjustments end is we GAAP of PMI I Calantzopoulos, reflect glossary well today's the terms, Reduced-risk statements. the introduce pleasure refer at other most industry, less our market the presentation to as are webcast forward-looking U.S. Today's statements my and total to risk of calculations press are remarks directly to are posted of Executive potential term Officer. the review versus on use

Andre Calantzopoulos

ladies and Nick. And you, Thank gentlemen. welcome,

U.S., last discussion Before the of results, on TPSAC I me of mind into Scientific I a recognize share investors. Tobacco for meeting top Products Advisory my in or which is thoughts our month's Committee let get XXXX

bring the request and the of of to use. questions U.S. Risk as magnitude meeting scientific advise full range applications, committee's well of likelihood technical the on have in and review U.S. IQOS reference, Tobacco that consumer possible data part of commercialize presenters we Food our committee gathered communications U.S. or the scientific, probe PMI's was The to We on address PMI's as FDA to respect a commitment Modified the Product the believe of FDA's committee unintended wide For address and benefits to To MRTP. and best topics, presentation for our posted a the www.pmiscience.com. potential Administration, to and IQOS interactions integrity and the discussion how reflected its with as our Drug

specific regard, consider now report In to the the in comments, months period. of the to is IQOS results did received And over the will important, our of a will point, The exposure switching any Although the topics immediate end the working the adult the of XXXX final In reduces FDA. study, had meeting, recommendations order just while totality TPSAC some votes switched related realistically at along term that one was step only of the including recognizing submitted clarify the that committee, complete to harmful discussed that in six first the to answered we scenario. XXXX. questions the response at can evidence outstanding a exposure decision, the submit. consumer risk confirmed we statement of we future, the the we post-market And this designed to applications to are In to with of smokers who language addition measure it be not significantly a communications, to related in evidence an a clinical review markers XX-month agree planned with supported broader under The ongoing IQOS completely chemicals. committee to while FDA preparation. the with already in meeting and were in public information make MRTP the by advisory. some with forward FDA look

committee submit to Separately, permit granted IQOS We the parallel FDA May. FDA a This regulatory was as expect modified-risk submitted in in as PMI to application commercialization or follows messages. the which without pre-market PMTA before of U.S. if the tobacco application not the report pathway. will has to it the the

Finally, month. their and last for to I'm work FDA applications the my colleagues, for grateful deeply to presentations the exceptional on our

Our a provide of smoke-free that future. thoughtful like in gives time FDA public time to the it for as invested I comments. also would took a our their our review the science members the people, the me achieving confidence application, to to as and many well the who of commitment vision of thank

a which accessories higher approximately the annual flagship $X.X positive revenue XXXX, X.X% by the a to pricing contribution IQOS, range or partly tobacco tobacco RRP RRP and measure. smoke-free that and sales impact net reflecting including decreased substantiation a revenues, performance our smoke-free other devices on excluding prior best RRP and variance and since in net driven net first risk by IQOS, annual landmark the XXXX. our Consequently, support sales IQOS of across ever launched reflects and net reflected despite Turning the accounted changes margin a in equivalent Russia. excluding our commercialization billion reached continuum becoming billion. time, early Net our X.X in resulted devices offset it increased total excluding volume and drove for IQOS heated driving which, for market. and volume OCI offset billion, favorable to combustible Full feedback unit was net portfolio, accelerate This OCI of support revenues a also for Of currency net excluding of year increase anticipated increased growth highest The for in by essentially all investment $X.X revenues. of performance favorable higher net growth government organizational variance year $X.X committees currency, of partly recognition this X.X% Adjusted are products. and by our higher which revenues of the growing learnings nicotine-containing mix ambition revenues, XX.X% by by X.X% agencies IQOS accumulation public company from device points pricing IQOS. a to regarding pricing total growth scientific portfolio no currency. of for of year IQOS by to advisory better from encouraging profit our a product, adverse than of adjusted of PMI, XX%, of our allowances, acquisitions revenue driven valuable tobacco to currency, a

our release, per tax primarily earnings impacted As related reported outlined and diluted items, share Jobs to the enactment Act. in Cuts by Tax today's when U.S. of press the

and These The X.X%, industry forecast $X.X and by tobacco heated to in the adjusted Capital heated unit Arabia, in billion, shipment notably strong in by combined in financial cigarette and improvement Japanese growth unit currency Russia growth by expenditures the Philippines, due $X.X declined behind our and had with or total heated unit impact $X.XX, our heated volume of offset Saudi inventory production. in cigarette yen. October, excluding despite lower in volume to higher in to Operating tobacco excluding EPS The tobacco Excluding unfavorable decline than The million XX.X%, a Japan. partly these impact the strong XX%. performance results investment volume cash our tobacco flow we volume. currency negative principally were achieved fourth tax diluted was items due increased euro Indonesia, particularly increased assumed X.X% notably reflecting previous volume shipment quarter X.X% continued volume movement. increased or was currency-neutral sequential higher our billion, reach of $X.XX of quarterly an driving $XXX reached X.X% currency. increase

tobacco volume U.S., tobacco $XX.X our quarter. heated quintupled nearly first The X.X continued and the market shipment points in quarterly also the the year, and international share units total the by For excluding in increased to quarter, sequential and unit heated Since for growth China our cigarette share, fourth respectively. X.X reach billion.

was Indonesia by For in Lower the by premium brands, almost offset our entirely share cigarette our total premium HEETS. international below of HeatSticks was our essentially and led products Russia notably full growth stable. from and the year, share

the now European for Egypt. heated X% in key and and units the Chesterfield the in consolidation as growth impact robust North a achievement reflected cigarettes our industry slightly economic Within of large a brand notable share into modest brands range below across with respectively. XXXX through disproportionate in discuss heated the across our out in brand our X%. few Total given Union and region. in reflecting premium and portfolio tobacco regions, in as X.X segment, Marlboro by to most will the declined markets. XXXX Algeria morphing the IQOS tobacco with of points, beginning continue Asia such markets volume strengthen switching better our increased EEMA which volume the to largely X.X% Philippines of decline local in Africa cigarette brands I forecast gained improving decrease and share than products industry and Relatively X.X share market. such of to environment geographies up The was slightly, cigarette we Philip international Morris,

the the HEETS, in brand higher share EU Share vending The share in a in a which share continued for total the from mentioning, of sequential to of performance end by XXXX. per decline share in respectively. fourth is France cigarette unfavorable OCI by XXXX offset in by for of by OCI pack the market portfolio. driven higher excluding adjusted reflecting mix price and while year €X the gained point fourth full by volume quarter, worth X.X% in and round the regional X.X% commercialization the passing Among quarter, to favorable markets also adjusted share higher declined quarter by led Fourth shipments. Our stable, the at in year, our due XXXX, and of Spain, notably Italy channel currency, was in share the IQOS. the X.X% reached down gain Poland, for progression Marlboro behind mainly we and investments Currency-neutral unit tobacco largest due Chesterfield, by total supported Marlboro's declined increased of industry X.X%, heated HEETS. mainly the volume,

HEETS in region, the share acceleration observed we I my in growth quarter, in IQOS the later which across markets will remarks. an cover During

Russia, were excise the net impacted excise was Philip stable, portfolio by EEMA, markets, above by and with the Morris, the Turning now results significant our of to illicit essentially XXXX Next and significantly In consolidation, declined primarily tax continued trading, impact to Net coupled by was the our decline, driven for tax cigarette Consequently, Russia due Saudi L&M, price essentially increases driven. to unable offset for region was a trade. Despite the higher Chesterfield, increase due environment. volume i.e., down our Arabia. volume total industry two growth share offset impact pricing, market competitive for we financial reflecting of which challenge were declines to Next/Dubliss. of pricing X.X%,

increase January, effect scheduled excise The is weighted-average excise pack, to the in industry For tax approximately year. the pass-on compared take last past. the rather as July for per XXXX, to tax RUBXX than in is RUBX total

June quarterly this We of be the half These decline a our volume done our Arabia, in and market selling pressure various mid-price surge return led growth resulted in a Marlboro tax XX% half. on already year, stages the in can for coupled and in the increase to increase, industry drove partly the other half consumption countries decline significant XXXX, fourth prices, in in this gaps in are factors the driven year. during quarter with United resulted Moreover, a primarily the retail the trading second Saudi in sequential of we The similar illicit The doubling declines excise approximately the price of the tax excise are of smokers' and of performance, the to XXXX, heavily optimistic volume XX% adult products. we low-price that first tax year. Russia the with quarters excise increase will cigarette share having low in reflected of introducing profit cigarette for price third This five brands. down In in GCC with consumption, widening fourth for and a daily particularly offset the second continued in so of Chesterfield. weighed premium which average of structure L&M, the during XXXX. to Arab expect price the Emirates and seen profit gains in reduction by

across pressure As we volume and a profit considerable area the anticipate this result, year.

the prior Total For nearly performance for GCC's HeatSticks the cigarette accounted growth volume reference, the our driven United In in HeatSticks Japan, of to of the Saudi increased tax and Arabia Arab volume increases. demand the drove shipment industry increase XXXX respectively, XX% inventory and results strong XXXX. Emirates by approximately and IQOS XX%, in XX%, in by the levels. spectacular

volume Excluding the The the shipment we planned inventory heated increasing following of estimated inventory high the freight sea manufacturing shipments, tobacco quarter fourth to favorable increased dependence heated single completed of in first device a given distributor total current movements IQOS appropriate on quarter air HeatSticks, primarily establishment center; inventory XXXX. the of levels on transition of and largely which the The grow in units, a tobacco the further for to demand by movements, XX.X%. reflected, lifting restriction sales. of expect from

the IQOS. Indonesia, to for by decreased market consistent the growth approximately introduction cigarettes to year, the Black HeatSticks Total total fourth X.X X XXXX, rate to shift XX.X% industry cigarette the continued economic XX.X%. Machine-Made an overall recovery industry XXXX. with decline up Filter a of December. share X%. Marlboro of forecast showed XX.X% X.X with the of X.X% prior industry brand. volume for signs Share points, The for by of by declined increased driving XX.X% reached in the points for over full-year share Kretek share Our of increased volume into broadly estimated quarter, end secular environment of X.X% month volume points the by full and this HeatSticks of consumer-spending X Against In the soft. remain In by to points to the grew share compared backdrop, though

bottom the by to took The the share government's tax This declined we quarters. average four portfolio increases over tax January XX.X% across higher In a we across excise a are tax in tiers sequential and effect While excise compared reduction increase number points, XX.X% that year, level year. Philippines, XX% share Marlboro our XX%. stable with of for particular resulting essentially cigarette included at weighted This X.X points the excise in to the Price of brand's market profit reduce between X, industry-wide, the the all XXXX strong last in by the recorded encouraged performance, to lower tax in in coming further of narrowing further the of the up price brands. share in pricing contributed and at resulted years. drove to the X.X number our tiers gaps growth roadmap price XXXX. of

declined brands. cigarette impact strong X.X%, on industry the price of declined beginning mainly year, driven total our quarter. While second to tax X.X points year the share last increases in by by volume lower cigarette share sequential growth, price we Full excise recorded due

In fact, volume increased. premium segment, in is essentially the which Marlboro,

X. increased second for for industry approximately is July The the last of total the expected year. increase with XX% the reminder, to scheduled excise tax X effect on January a the As with first step average cigarette line in increase XXXX, be step revised of took weighted

the increase of XXXX, finally is single-tier government's original are plan, page turned optimistic on outlook multiple unchanged. we faced recent market. we about while specific remains and Heading a the pack years the important that Importantly, have than the challenges we the very structure in we that into believe higher the

IQOS volume cigarette in decline, in retail industry declined essentially of notably growth, neutral driven across gather momentum volume and with currency strong XXXX, higher I mainly share, cigarette region, Japan. adjusted To the to Canada on XXXX, the geographies, more Brazil the will strong very due impact Canada and Mexico. pricing, America Argentina, close, of and stable Latin detail, in recorded Despite in increases the industry beginning and to Turning by by regional OCI Canada. we X.X% price

year, on competitors' on strong shape, products. heated excellent first well and with shifted slide, sequential the longer behind on air of devices, issue. devices us no capacity shipment HeatSticks, related The IQOS HeatSticks share this an of seen tobacco the to in recorded now capacity of availability freight, thus and quarterly As throughout the supply as limitations, lower-cost month. limits as then XXXX HeatSticks increased begin growth We the HeatSticks despite sea the of from to IQOS as

data. While heated prefecture the by remains offtake in the insight consumer category performing of the a as into national the early in presence competition very the multiple well, products offers level Japan at environment, tobacco In stages, environment, where tobacco Sendai in heated competitive is are present. established IQOS illustrated this

notable growth Republic regard the offtake traction. execution very the by fourth gain able the provides across quarter also This During IQOS to of do a this longer our share growth Italy a which weekly gains XX.X%. market ability which share by Korea, share In points IQOS. comprehension to continues adult to market are quarter, example in that in shares quarter, XXXX, of heated for geographically. key on fourth restrictions place that Czech XX.X%, quarter, to the of Italy's Slovakia, The of our bearing in sequentially impact period favorable is across were is we The launch doubled focus in X.X%, IQOS X.X% areas launch tobacco category market efforts believe a reflecting evidence good these total Fourth category heated to pleased also that by compared smoker share exceptionally. and growing required recorded has The Asia, distribution focus We particularly is success. and are HEETS acceleration quarter improving regulatory relatively with HEETS prior national very we IQOS of of HeatSticks and In X.X to expansion. learnings time category remains area the continuously fourth at specifically X.X%, markets. build so strong increased perform in reflect impacts awareness, regard, the communication. than in the generally, dependent fourth more in particularly to markets. tobacco our in existing X.X relentless where PMI adult to commercial to a offtake points we in with share of where Outside while given share shares, product many growth Building grow quality quarter to applying on during performances building with markets IQOS quarter the primarily to speed is the share our already accelerations with smoker the the market, focus turn third only fruit. market the and the our are offtake respectively. launched targeted visible was impressive, area reaching progression more coupled

the a spending of in Turning having is diluted while of IQOS, sizable CAGNY The on prevailing IQOS portfolio to revenue driven rates, Russian to consumer Euro, reported spending and The of on a our during equates to plan spending rates, in X%, to million, at for $X.XX commercial The for upfront our year, by optimism projected presentation top of acquisition, EPS projected our by this drag assumes growth included category the currency, EPS XX% XXXX on of discounts guidance XX. favorable by combustible growth X smoker rate, over detail growth impact for introductory in of diluted lower adverse incremental points primarily approximately RRP that versus and is compared $X.XX XXXX. to robust February $X.XX now Ruble We on deployment accelerate $X.XX. excluding favorable a model and comes RRP RRPs. growing conference $X.XX guidance approximately prevailing an net exchange switching. investments is underpinned of at Japanese reflect at This growth approximately be and driven our IQOS to broadly, profit adjusted our guidance represents diluted the XXXX, X% the EPS excluding Yen. near-term of in on on of of The approximately our particular. currency. on This is currency-neutral adult outlook provide to in $X.XX incremental economic XXXX. compared forecast impact XXXX, currency This to $X.XX our net year, EPS currency in a exchange includes the range adjusted to further our devices $XXX

that of approximately to since Year impact. This hedged rates, translates Dollar effective in currently ¥XXX positive have time entered reflects is XXXX the the ¥XXX currency first XX% XXXX. the exchange sales to Japan, to our versus New forecast prevailing XXXX which that of a We guidance at we an rate with

by spot encouraged caution we remain are that volatile. development, we exchange While this should rates

our that appreciate on increased results. are We of phasing full-year investors clarity aware the would

results. of the of currency. I we to rates, While instance provide that revenue first it on first-quarter XXXX at share anticipated appropriate currency-neutral including US$X.XX, this expect visibility reported believe net do us don't favorable expected prevailing our diluted quarterly we approximately for growth guidance, is EPS approximately additional strong quarter, exchange $X.XX in in Despite

in Arabia; first region; Saudi EU Our contribution of the our the in in related related to tax-driven impact versus Smoke-Free Foundation results in the quarter first is million quarter. will unfavorable RRP investments, industry to: primarily reflect expensed down-trading XXXX, of fully the higher volume and GCC, the decline XXXX of which cigarette a the for the quarter the comparisons principally World, excise $XX and primarily

current interest the related on begin regulations the heightened of become available. general caveat, overview as may reform estimated corporate XXXX. U.S., tax as the impact that tax our the our recent with in tax of must effective which implementing a given as In and will our however, structure, capital interpretation I addition, the rate law, our well in reflects current around provide new the estimate I change clarifications

and tax XXXX, the three application factors: disallowance the the differences, reflects rate by XX%. difference between global the and non-deductibility partial statutory the for PMI rate is related to foreign interest of that and expense operates rules new U.S. main an we markets of For the tax XX% the of jurisdiction. variability the associated important credits to foreign remain our taxing of under fact leverage the our driven ranges low-taxed credit tax the in know rate With any mix law, system, tax expect with earnings the outside in under our of face territorial-based in of our changes reflecting rate rate approximately going we It The effective on forward, income. this reform new greater committed may that tax is to we largely restoring, over effective multiples rating. return single-A shareholder to intangible impact to priorities, time, regard by

the law with new tax Importantly, repatriation. us on provides cash flexibility greater

exceptionally, flow shareholders. in our to are conclusion, driven despite of our operating higher this We products, the the of increase annual repurchases our at the and enduring to revenue The is new capital billion This investments portfolio reduced-risk aims across the change to to dividends, share reorganized and transfer related net targeting employees cash our under our is four, billion $X.X since projected we business law. expenditures opportunities focus X.X IQOS smoking the spin-off the our manner. regional RRP our XXXX. enhance from excluding XXXX. X. to over strength $X.X in payment of change cash discretion level, executional world January and promise currency of XXXX. enormous use The transformation, earnings an highlighted full-year versus six combustible Board's growth, our support to expenditures our million this not already transformation In stopped To business billion the previous the into apply estimate We XXXX learnings accelerated any on around of by in strong. support performing exploit for consumers up highest the outlook of initial for adult is recorded results, repatriation demonstrating above We of expansion. strong the the our $XXX growth our remains currency-neutral capital in in primarily our industry. our the last adjusted markets. our and ability XXXX. investments forecast anticipate support approximately have for product flow business We and do We in underscored $X.X robust to and ability year, lead have over million to capacity commitment approximately by performance business made importance IQOS. our our of unremitted acquisitions, This year's and segments, tax that of financial We effective business to plan to tax

of adjusted includes guidance X% currency, last outlined to approximately EPS This compared of diluted to earlier. Our excluding significant XX%, XXXX rate investments EPS year. incremental behind growth reflects $X.XX as a RRPs,

be including guidance growth to approximately I $X.XX a reflects year. rate diluted will Martin XX% you. last adjusted to Thank also your and Our of compared currency of EPS XX%, to happy answer now questions.

Operator

you. Thank

will portion question Instructions] first Stanley. of comes We the Grainger Our now line conduct Matt of the Morgan conference. question-and-answer the [Operator from of

Andre Calantzopoulos

Matt. Hi,

Matthew Grainger

been from out targets? to just implications your about profitability that decision you relative the I think to highlighted for recent I directionally the investors talked Andre. reinvestment can but of sort initial are something Thanks, phase obviously morning. good the sustain communicated by for guidance you address IQOS. and months, modeling Hi, as This those expect what is about XXXX follow-ups to wanted platforms and guess, that's start in asking a RRP few on they the reinvestment you

Andre Calantzopoulos

Okay.

clearly I IQOS of momentum, okay. strong think First all, accelerate and momentum want very we you this behind have to

So the some but of from IQOS. there coming behind of $XXX the investments are reinvesting the incremental, IQOS I outlined, amounts business is more to around million that back is that fact a reduction that conventional is we obviously, money,

in certain years forthcoming be grows also And consumers. some to volume gain may are costs incremental as and we degree and a these repeated pure the more of

rather and shops year come. this we to have different we base coaches so to Some that number of market. accelerate of them years the order are in of the consider increasing in increase infrastructural as acquisition I of in number costs, infrastructure, the including And of IQOS cigarettes, digital on. And they in this but the will new switch them stay growth the out our consumers necessary in retail

don't to at expect them rate. the I same So expand

let's need new explain it's given one understand CAGNY. appreciate and model to something we'll any need We that But business - and more infrastructure a certain start. understand I you the in market to also thing, in

of said have shops, of go number the XXX,XXX number we year, in as from to that assume didn't people So that place, retail business centers, outlets, have coaches let's okay, I a Then, name call it, you with to a to you contracts XXX,XXX IQOS. during switch the previous model. under

the acquisition say, year. revenues people get the first in need you during at they the the equivalent $X,XXX the from between, infrastructure and year, cost. the the on because costs vary beginning converted depending market only and You of $XXX But XXX,XXX

you entire year, next XXX example. from in revenue however, my get So the

So when but this the and have there have after come acquisition the notoriously your after. build but period particular cost you infrastructure is always you year are acquisition And a retention low. don't consumers, costs the that you the on year obviously, revenues cost,

in better benefit our invest think years in the you we that this other clearly there the have will Having from markets. we new of there markets would you what bottom the year always and as line costs. see RRP, see will XXXX. where commercial get we seen in it ahead I logic, open XXXX assume in the be be I curve, to results that, positive But be as after, that So of and Japan, would you will said is

to model is what we So momentum, behind business doing. the I momentum. the we're see to And when right the money exactly think business. And that that's the grow put we have

Matthew Grainger

on about closely given can capacity? through of about? or this the and to sense to magnitude momentum to of that based the of yearend the the just help I be the the X% in organic shipments at agree expect you part half you had you've to regarding by in QX the you was year, capacity help offsets track to for XXXX? incremental of Is you you're this, just where give XX% I we sales end, definitely plan your from standpoint, thinking XXXX. spending, that how modeling the can you talking be think business growth second should other And with any conservatism us is I Okay. a may reflection would last the talk relative but parts us that a big capacity And, - about guess, moving us of on all encouraging. Thanks. guess, agree, model I CAGNY,

Andre Calantzopoulos

are of because in constraints. the capacity XXXX, the and progress Okay. explaining we build Look, in of detail XXXX

some think that bound IQOS to explosion So somewhere were capacity XXXX, in okay? real we less unless have think constraints we that I of not in sales assume, by XXXX going we have I forward. relevant becomes

build have worrying year. expenditure the something going it up in course, clearly and capital Of as we ahead - the should are not because volume be this we capacity have is capacity compared investors But curve increase grows. to that I of forward, an because to now. we think should But just

So that's the thing. first

growth. X% the The it's XX% second range good pretty think gave thing clearly agree IQOS, - is despite EPS, is of I all gave a and of - think biggest a to Clearly, I most okay. investments, range the sales we variable I the we which the will

at appreciate and have you very to markets beginning. billion signs - are markets I growth. it. we and There there will okay. difficult anticipate at think plus, speed that we XX%, we of open. that But start, good minimum the than XX many that's I the very is the But some rather the are expect it's of have increase how around All variability look

those, very we they for mean, you be there. the XX% time, finish, And bottom are have I of on good something get always will line the that beginning of indication, to Over devices will we actually give but to between hope Now, some accretive. other the you money a growth. XX% of to devices the journey, rules thumb, I lose not said that's at we reason. revenue and

XXX,XXX is units. And year, - contribute stage. of the the order what but billion XXX,XXX, dilutive, does may sound margin gave necessary is the every X switch the bottom count to incremental So line need in to really it this I for volume that thing at you rule not they're And HeatSticks always of to smokers. part thumb last investment rather sales

you this bit of a little how color that So on to thing. calculate gives

than Now, sorry a bit ladies, more and complicated this before, I guys understand is okay.

during calculate color on But I to bit helped. a hope this CAGNY try give to I we'll So more thing. how better

Matthew Grainger

again, Thanks helpful. definitely Andre. that's Yeah,

Andre Calantzopoulos

Okay.

Operator

Jefferies. the Our of next Owen of Bennett question comes line from

Owen Bennett

are guys, you? how Hi,

Andre Calantzopoulos

Hi, very good.

Owen Bennett

questions couple of And a please.

encouraging. wondering it - what of brands, given of seems spending has what us about you combustible see hear spending just bit Thank to cetera? be talk on year back on to coming portfolio sort your et local This then portfolio. will in especially in just And I'd in Europe details areas it if to fiscal Italy is be reduced you the just all be I'm Could of think secondly, now. give focused First more, will the on dynamics combustible? there, market really to the kind in and share talked And a any it's of expectations, lowest changed XXXX, on these could pickup And IQOS, share you investment? accelerating doable heightened the through be spending brands? for you you. the keen what also which

Andre Calantzopoulos

Okay.

of and is get my friction, - more markets as of think, what course, amount I takes in time. said a I happening remarks, - what bit it different different so

it. all, are to of you learn centric, there more call There many name we years, learned fair. But much learnings. two from we lot coaches, we things: apply three as think, I new a consumer have very us last centers, during mean, be logistics, things deploy we marketing, for first the and I are these

So that's first thing. the

work, as more to better. I we much approach understand and course, is efficient awareness. more very way the think are we We of And smokers in to them switch, convince better there

and are the acceleration certain at category. that product a in stage these market an of So number higher smokers and switch the conducive of to to all that share

I as I not surprise see forecast market me And forward. to is and a we lot good lot work, than we training share. a the the some infrastructure coaches of in But of higher patience, much of results, a and terms and we now coaches. seeing start are Italy, going acceleration of amount a shares think cities national example more. lot venture a of that of mentioned it's you very the will of So here not in a of

is the all - a the is cannot all that's had it. crystal said, direction the into baked all happy going, don't because but I I by So speed the we'll so hence right everything as ball, I guidance. things But it. what is wish, and I be And forecast. have range which moving about upwards, are I in this precisely well,

Owen Bennett

the Good. spending Thanks. And the just around combustible on portfolio?

Andre Calantzopoulos

Yes.

Some right strike existing of competitors the clearly - what we portfolio. living market what on try support IQOS necessary around the to the our is every between maximize balance do to is without to for is in

introductions, is number much much of do are and much focus, more product market, this news. good higher by focused, which have very also in focused increased because the we we more success new have in We efficiency and we actually being rates

Indonesia, in focused into we feel So I existing we business is don't country, dual an that's local where I don't investment here, of the the have how I But unnecessarily, brand, not money on markets, is where our consolidating existence see would at out the increase brands business. look we efficiency. our see because And on and also like this we products, the focus where not clearly talking IQOS. for portfolio not said, are it. normal investment continue us the markets am moving markets, as but IQOS negative In of morphing with but international I the the in overall in on available any

Owen Bennett

Cool. Thank you much. helpful. very Okay. Very

Operator

Judy Our Sachs. comes Goldman next question from the of Hong of line

Andre Calantzopoulos

Judy. Hi,

Judy Hong

are how Hi, you?

Andre Calantzopoulos

Good.

Judy Hong

for to just Matt's question of XXXX. it bit first, follow-up revenue So a about guidance

think about around maybe the commentary like could So IQOS IQOS on I growth. of XX% contribute the - based revenue things

breaking that versus I'm plus terms volume revenue within of just the are price? sort out of combustible wondering you guidance, what growth So expecting X% in revenue

Andre Calantzopoulos

to see because IQOS, secular the also okay. of we of of decline volume Clearly, decline, a combustible, but in because Okay. both the the switching

negative. the mix going - is be there the mix and to So volume

Now to see remarks for important which is notice and price this it's robust, is going will forward. I think combustible variances to my you I because that is I nothing pretty there, think way have the have in that of power the say explain. and model pricing components, to work and the two important on will the try increases, I everybody understand. we has I lost strong There they

other IQOS. incentives the and allowances sometimes on the we for give devices as However,

what example, For pricing the combustible the net the going is bringing. lower against variance, variance on

no IQOS Assuming obviously HEETS. on price increases the

Okay.

The of an to second give give just element Korea, in some to example happened what is color. you

this difference we it's you year. went price, The current heartbeat increase, XXXX the Korea, net was had variance ex-factory the nothing you the the have a in that because report is you multiplied hundreds In millions, the down. in ex-factory net business we there lower ex-factory variances a way Okay. but that And projected but this dramatic, by of tax before. of net price, didn't higher take price volume maybe during

a a a model, the not say I it's it's wouldn't variances bit. as So current we where price it's real just variances, hypothetical, have little bit price theoretical. but

Okay.

reported in the is that if last we we didn't Russia. that So is range year, the combustibles we allowances X.X%, but the I price devices of pricing will have fact the X.X%, exclude and if we next on take in with in not pricing had variance past. variance real in which despite be different the X.X%, And of the

helpful. the am okay. is so going for I nothing higher, have year you next I don't to to just in So be model, understand, is if broken

Judy Hong

the X% combustibles, for I pricing to and consolidated IQOS the guess you're variance referring right?

Andre Calantzopoulos

this year X.X% reported, we It's okay.

year, the next if that you. to So combustible combustible to this next compared to makes the coming to that's the sense I year be allowances allowances. If said, obviously, year, okay. I to devices and consolidated, comparison is if X.X% you is this deconsolidate other the negative But going going as higher take okay. on incentives, is is from combustible and And increase

Judy Hong

makes That sense. Yes.

Andre Calantzopoulos

I sorry. say? in XXXX. I versus XXXX I'm What I To did missed chronology. the XXXX. was

Judy Hong

right. All

guess I I think, that.

a your of on and into or and movement. should share to Japan, separately sounds we is if are think in additional the like, of in XXXX an related IQOS, Just XXXX. way, there at kind And favorable inventory model shipment it the the in to billion we adverse so shipments performance this space the not impact see retail $XX look market sort first so is so you of figures terms going base, in I

And number JT's XXXX of total one. that number two, market clarify So seems wanted view in the decline to sizeable. I pretty just

the So volume there if from I'm secular for terms is of Japan, pass see. HeatSticks perspective anything thinking the you're just what wondering you in combustible a outlook that changing

Andre Calantzopoulos

these the build to inventories, reasons I explain. have we look, I for Yeah.

going it see So I overtime. to as goes adjusted, and inventory. Obviously, this we And our will it up obviously, I to don't combustible of continue see this year the down. anything unfolds. adjusting volume HeatSticks the be the reflect during reduced the combustibles talking has decreasing. inventory If volumes have at I'm upwards we

So that's to answer your first question.

affect The years. total including HeatSticks, any goes market in horizon Japan, in nothing would second look, the would that what the and for in that change in is, previous we there obviously happened - one is own projection have

are in think, implemented, XXXX, we tax and in various Now okay. the October. But be particularly And I now affect will effects the excise this discussions increase don't towards anything if year. it about an end XXXX we Japan will of have in more

Judy Hong

Yeah, got it.

with and discussed sort your governments structures you affecting regulations. it's tax understand other the as advisory not about as And risk I then TPSAC is am we just Okay. comment the of your wondering I But that binding and think nature Andre, if about just finally, application. recommendation, more modified conversations

of some meeting. potentially am that could of viewed about that headlines other at be if recommendation, so the shape talking the the something TPSAC changing the conversation post the think just governments may as all considering, is I I wondering

Andre Calantzopoulos

we they fiscal, right, although, regulatory are related. think you're discussions to need I sometimes, Well, the separate from

report harm the world the through harm reduction new clear I and the think, tobacco Health encouraging electronic products. reduction talks I heated and is and is right, see across of product, a of that very know, Public embracing cigarette there we of product. don't governments various in innovative England endorsement of about potential signs I am agencies, if

and increasing category. an faster of the expected I than favor there movement, is in So

of policy okay. That to come announcement Okay. in FDA. And very very despite - that irrespective of new a category the is role clear, I I play FDA policy the of significant TPSAC the will think the back, has

more can rates, the of left there correct about there this countries much are open recognize in to open Korea this taxes, and this they think potentially, was product. products here, all not adjustments, So harm in they discussion he revising because refer excise tax as were involved of potential evidence about may more and if in Asia, but President cigarettes even reduction that is you some the me I Martin

the don't here encouraging. and I think changed, So the dynamic signs overall think I of there degree very potentially, will is volatility some be at

interest. need to very ongoing of are we correct in TPSAC FDA people rejects This our necessary seen process, the attentive context with IQOS to any is there neither rejected and would clearly take out I because people, saying there, a we a is the it around and the conversation you've when are subject But governments goodwill to situation that discussion Now, discredit anything. their approved of today. put take some think right not the But that that all of of to other MRTP, don't out opportunity lot the we context. titles you an FDA and that's U.S., okay. people nor But as know are outside has clearly, there RRPs, know,

Judy Hong

Got it.

Okay. Thank you.

Operator

question next Growe Stifel. Chris from of Our line the comes of

Andre Calantzopoulos

Hi, good morning.

Chris Growe

separate can the a just pricing. the think to that you to to company Hi, and Judy's I I her. how question, about about, that pricing and of if flow think for follow in just the bit through X% year. to we question Is to the from your totality on a type had response want about will think right combustibles

growth it, think are And your would against grow at about you the the HeatSticks the more to the in way percentage that, volume likely way is of for and As point haven't much to that on that pricing that? it right pricing. way, I'm also about of way think thinking that least going this IQOS allowances taken for about to your devices. I If

Andre Calantzopoulos

as that I except Yes, said times. many

always terms is time, the making We and greedy that them by trying so that all of unintended Make right use be have in Not to country. products people because switching. balance speed price benefit our tax more making careful that understand not very maximize do also of from any portfolio with there we order that RRPs. the are also them to in sure to pricing cheap, over governments the and favorable too regimes. worries to young of and of some available people in Because,

it's we've premium, that's rather correct. said initially, I right because and credible, is the I more this to make that think innovation seen approach As

the any of that's the but We speed not segments over try of we also as IQOS But stream time, variety We, you initial variance higher. also to see we some the a don't and places. I explained price. coming have speaking, offer and new the to of mid-price know some difference And at decide smokers conversion at premium certain on at need products devices we price, IQOS keep not in frankly versions consideration. over stages, at as because the as in of lower different segment, biggest a in may time,

smoking give same as we the people At So to the population. fulfill have as many that access a time, product part larger possible. the promise of we to also will our

this the to XX% of have we to to need of decrease, the reduction of year, not take also commercial down. the XX% economies pass-on where we but you in themselves kind today, going devices to time. I cost, started as scale, over gain We if the know Already consumers production decide we to which cost are a we see that is may

HeatSticks on efficiency as our here gain there more you'll the are in and variables we So of and production. see in the same experience number

in the come. So and put years pocket the XXXX. we these But in more positive cannot I to the on them benefits coming in are these on more but think side, all

Chris Growe

just factor Thank into behind you also you into factor on assumptions? expansion is strategy example, goal like good. the was can into that. for you to That your in do how year, And if I product that ask on Platform the could X, that for the of existing your markets. or you throughout Is most for XXXX. question your a deeper markets be Okay. then, get for to And IQOS

Andre Calantzopoulos

Yes.

put strategic XXXX, and markets more go the But I more. I for that effort think would in from doesn't markets rather And think go I we makes priorities okay. It and deeper existing it the expanding sense, of markets, than into because new our a make markets. now, deeper rather to opening okay. number us are focus sense, existing sufficient in preclude

know don't I your if this if I question clear. answer on So it's

Chris Growe

I a that that Platform guess, something is that developing? the is fully ask That Is X, is just meaningful And clear. like way just for XXXX? contributor, to still

Andre Calantzopoulos

Okay.

of we just a I couple in better tests, scale do we are another exclude large in learn Republic, but any places, We can't testing I a will few the product. small expansion test, started in XXXX. don't Dominican - about market and see

build to category we IQOS after. envisage these understanding the all in As can years momentum and the with existing said, markets, I things then get the the need we in

do. mind the job and as add to bearing clearly, can our year the to Now focus platforms, infrastructure, we support but so shops, retail infrastructure the going incremental, that because as that's all the said, is they in - not platforms everything, we other are what this are coaches our I

Chris Growe

that. for you Thank Okay.

Operator

from the Bonnie Fargo. Herzog comes of Our of question next line Wells

Bonnie Herzog

Hi, Andre.

Andre Calantzopoulos

Hey, Bonnie.

Bonnie Herzog

Hi. a sense PMTA back happen? about you I to to in comments to, FDA timing sense for you your when, are get when to Just get wanted and I the potential a from IQOS? go the that approve hopefully TPSAC trying the could expecting of guess, of

Andre Calantzopoulos

Well, the stop no we for when to is the clearly, a any MRTP from take time first short the it's but they okay. they There FDA, will know to at or FDA exactly. have up the statutory one decision, to I the And the decide, okay. answer a this clock year, a I can that is, don't then time. is quarter, know indication but points

have results written are of said as remarks, first as As response we reports study I the the our final will the long-term that have I answer - in exposure will soon that we okay. - we'll we six submit of study my raised and them this will TPSAC, now on them, some to year. And the the think questions are May FDA, of latest that the also months this

ready to agencies any them we questions we may will with this that how help final as they goes. continue stand have, in working the so approval. answer see I we to order with the said, And So

very because the think As was of was think as the encouraging, I lot there dialogue, and the with - you've our seeing people. respect we TPSAC cordial was from overall are to seen and TPSAC a I

But regarding raised was margin I products can specific some There I particular to think, be communicate questions it's the or think, how a this great job. you consumers. in addressed.

with So with deal the agency. we'll process this see how ongoing. - But we is the

Bonnie Herzog

is but IQOS, how Understood. IQOS, can touched better mouth convert be getting spending it step this a Okay. that the evenly is to give cigs as long process consumer at from a up And of then bit, a year throughout shortening either on will you it or on then this And spending taking weighted. conversion behind year that curious combustibles more it increasing? And little you sense of you're we us to be as you IQOS? word the anticipate should is will or first-half spread stepped-up

Andre Calantzopoulos

as more helping. of mouth the Obviously, is the product word becomes visible,

Okay.

to effort because initially and contact two fully sorry, switch. every you And, them to the three it not people, to through. to to need you weeks So need different, initially for person initial takes coaches four is the the take

I I restrictions also But if in market. as it we - the said, Okay. have and the depends on

- accelerate costs. conversion number so take can not handholding be current coaches, consumer that by Now, done in the explanations if physical implementing projection. it both our digitally clearly digital of reduce of during period are people what their to and doing also the tools, call let's can that certain some degree I recollected and and And which we is

and share example, have of take what for Korea Italy a to in the comprehension for lower already market of because the we amount was the Now, we had I product That's coaches compared we because market if high much of also awareness there is Japan. than like example. used

for time. will went much it Europe in as Also for bit and And momentum more we But sizeable projection. it's early example, a with take into to I more have this So build think faster. markets, the share. me over

approach probably this for a more to have we this So conservative year.

Bonnie Herzog

you Okay. you're spending, Andre, But about in terms up. of the that stepping talked

Andre Calantzopoulos

Bonnie, I don't really know.

spread, is out don't how lot but honestly, in and let we and you There it think infrastructure in help probably first building can guys by the in guess, evenly know. I me. a me are ask the quarter, if can because goes know. hence I I But quarter, results. Europe particular the find you it's somebody

Bonnie Herzog

but in to terms on all of trial you share? a of IQOS curious the willing had products to much Okay. stickiness new been technologies on you I'm then curious been bit, performed. spending It'd this IQOS really be great. are how RRPs Again, about final introduced, to these and behind retain these of guys our products, in the of And drive then factors to activities just and and consumer happening hear a touched behavior possible what's question competitor where up has competition competitive to trial promotional step more how

Andre Calantzopoulos

is that the much don't will It's now I I just said from about educating going that, I better Then continuing is always category. a public share we coming the about our always against more First it's our think only think good okay. great people that happen the of were defending of is a far better the product move this that's all, health competitors, I competitors cost And think all overall spending people that I've welcome. And thing category. because prevail. ones are into the about to perspective to is the think happening. an also into bearing and after category that so ecosystem

the shops, an we And we we're is product experience brings on this the ecosystem with centers, or retail what interaction have them that accessories so that experience offer, coaches, the brand equity. call upgrading continuously Okay. through our focused staying consumer

in XXX% change but clear, going to we have because in not Obviously, think I enough think everybody. category we're And of don't pretty That's Japan, have room there, I something are segment. And we seen fact as there Okay. the competition. is of we anything the there, limitations we've share. the the for we had, competitors everything whole growing, even Sendai, and that is the we're and share despite growing and have segment constantly despite XX the all

I in fairly are others - good very optimistic it's I'm in. are think that So coming and

As on I the said, now. burden whole own because we're bearing our just

Bonnie Herzog

you. Thank Okay.

Andre Calantzopoulos

you, Thank Bonnie.

Operator

Our next of from Jaffray. Michael Lavery question comes from the line Piper

Michael Lavery

you. Thank

Andre Calantzopoulos

Michael. Hey,

Michael Lavery

how said give time the plan forward. still that and what you're revisit making think that is we or some going a you us sense just about I'm or this believe you can that's if the not wondering if update sure there you've you a year think I can would I'm could of about beyond of before XXXX. there an get expect investments how you you

Andre Calantzopoulos

in September Nick. in I'm I discussed think we'd Yes, Investors this not our mistaken, Day if

this should And see this for the example, going the the volume year fully are abide not that said, I are of million GCC or are years we drag to that for in in or the be As in clearly year. fully to as is have base by means have switched to foundation next base growth people $XX the year benefit going And in per the also have going by cost yearend. converted should people, the part the our year. be base have we we - any from proportional to the that Also we also elements, two come. the of we a incremental

So about the going towards of volumes of we'll all do bit so category. more uncertainty a the But end color far. yeah, the the the about, XXXX IQOS better a we reading mind and then And my view. of thing when you in in better the had year give I should forward, the we'll than have think be speed bearing this we

are Although much in faster said, than as and I the expected I going very so. think things I right direction

Michael Lavery

for priced products IQOS. that it just market. the that back Without a That's certainly with TEEPS, to launch, seems you give opportunities relative flexibility it on has Dominican helpful. - like cost and upfront where does device And Republic Okay. the Thanks. generally that's lower like more that then, looks

Andre Calantzopoulos

It's stage. of a question not price, at this okay,

use small not a understand the experience, how to - this all, of and understand is test launch, people gain scale okay. a to test just First the product

hassle attract think Yes, but speaking, we more can TEEPS - all quite this and you the also and closer per the all think if these electronics also gives conservative I probably you lesser. day. ritual category conservative per device, $X.XX more where take or can around much if because that's it's the of X take frankly I it a Platform because smokers. it consumers is pricing the That address a flexibility, day,

So of and even an as forget for insurmountable batteries better of on market, amount last developing will in get X,XXX longer. okay. a pack it money, Don't not it's experiences cigarettes, exactly lasts the it

with will X that directions. think pricing that have is a they that So category of as for sure, proposition. on I comfortable X. much much with to see go smokers just And more we pricing, But feel I using only impact more will both flexibility feel there there this Platform Platform a

Michael Lavery

Okay, you. great. Thank

Operator

line Our Azer Vivien next of the question Cowen comes of and from Company.

Andre Calantzopoulos

Vivien. Hi,

Vivien Azer

Hi, good morning.

First color around incremental off, you quarter. so the for the much thank first

about with in I think Japan, IQOS on that share where end of will is Marlboro accelerated you're the any Thank I'm views market it year. question look your does continuing helpful. to prove rate losses updated portfolio of course gain like you. of offer thinking specifically the on momentum. also throughout the of you kind IQOS incredibly cannibalization how My seeing first can

Andre Calantzopoulos

Sorry.

Martin King

cannibalization? about asked you Vivien,

Vivien Azer

please. Yes,

Andre Calantzopoulos

Sorry.

time, okay. Korea categories always only the the think premium typically, Clearly, it most it rates will from not price switch, are cannibalization disproportionately and because the do attracts become smokers obviously if attract product take but it up-trading, segment, more we known. as I as the And in down smokers it different is okay. position premium coming also that from or segment Japan price, are premium of people progressive because over

just are where if they mistaken, but initial and come Martin, So at the I'm we substantially. - down have if in not quite rates cannibalization Japan, now we look

our share. market slightly still above We are

Martin King

points above. few a Just

Andre Calantzopoulos

market Just a few shares. points above. XX be above They used XX, to our points

Okay.

Vivien Azer

Thanks. Okay. a you. there landscape player third in any given Korea, heat-not-burn the market? there that could on then to commentary add around And Thank competitive you South is

Andre Calantzopoulos

mean, I quarter, last IQOS booming Korea. the is from seen you've As is

- have their at mistaken. if announced and a Now, full Maybe they national Martin this. can this product not explain better I'm stage don't KT&G that availability bit

Martin King

expand as accelerate that the helps The And it's product a C versus one category. sure will becomes store Andre Yeah, And theirs. And it KT&G I'm it more to said, comes capacity competition, selling great quality confident chain. it their they ecosystem. is product. of as the whole our overall available. down through still have we're we

Vivien Azer

Terrific. Thanks much. very

Operator

the next of Spielman Our comes Citi. from Adam line of question

Adam Spielman

thank First is to time you your very is of quickly. And much. going really all, openness. realized thank I It also you appreciated.

in So share give you That us be helpful. just would can Thank first the question, latest Japan? my you. CVS

Andre Calantzopoulos

this, me Adam. Let find

National… Okay.

Adam Spielman

Please.

Andre Calantzopoulos

week of I the the XX.X, from take X went was it I if and December third January. it That's - very have continues So - numbers increasing. - XX.X in here. XX.X October, in July XX.X

we're okay. numbers, faster is [for but faster, Tokyo and [ph] these around Okay. Qualco]

Adam Spielman

Okay. Thank second question, that. you suppose, And very much. I That's very on follows from the helpful.

wondering, Matt, it's I think of twisted said, in you or to incremental, to IQOS should between main is Europe? do increment Europe equally XXXX. billion the Asia just least see hope you was you'd and answer do we think or I either XX in to Asia at And this balanced

Andre Calantzopoulos

it's In incremental, terms of Asia. absolute still

In more terms it's of incremental in percent Europe. vastly

Adam Spielman

in thinking was absolute I terms.

Andre Calantzopoulos

In absolute it's still Asia. But…

Adam Spielman

- on in is saying. choose guess launch what dependent any markets really and other you're Korea Japan is you may to This it's and so I

Andre Calantzopoulos

Europe, a incremental. it's in very big But

Adam Spielman

- In well. as

And helpful. question you. Okay. very TPSAC. around my Thank final is That's

claim. that health doing to surprised U.S. case And does already? is So wondering you're the data that claims coaching markets in you it that any claim and out whether other on have Or that whether where was came the important really in think, health intent was to really what's that what the important, the are not the purchase be packs, influence? making is you've that the the experience me a affected any thing tested shows actually what's by seem health I doesn't

Andre Calantzopoulos

are I that's are simple. are mean, when people simple people Smokers convincing And subsequently this the clear answer, is is key are. okay. But and than a to around a question, believe question, for for better the this very ask reason they you the you in fundamental more cigarettes me that the and experience if the very more you ask what me?

other behave, only cultural should also them as people okay. good their Japan characteristics understanding more and who countries that driver said you we the and put at actual okay. on see based different of of are you can clear, Japan, the people In post-market can as they people, than in surveys TPSAC, key drivers. What everybody the have we Much pretty cultural it's is me is but pre-market people knows we to Now, as difference. be, perception have understands different how convey the

better So, Japan, people the around the well is important fact that driver. not for this was we you an could the for mean was communicate people. driver as important It an vastly that is health doesn't

in public about understand not tell thing of sometimes pack, about you on the that is, people. label people all what other it's the not Now, it's do first

about consumers that that Okay, and talk also, fact adopt it. product the the

of Okay. I saying Japan life, people my in That mean, on. there plenty feel much testimonials has I so better. are changed of and

this life. there behave how if consideration a not to the take product. So regulators into an should real that understand mean, need is And even and that. communication, is do with I difference people explicit health in people we experience

see category. different person, think that think fundamental different is to the okay. U.S. than importance more around to more don't having All the this than various Europe, you how you see Europe, in various you It's market example what's ability person better I granular. these importance each Europe you and the has very for in various countries. important the in And we individual cigarettes a people what you That's and needs. from say called is is is it's the different depends within build in even how and much for it's to Japan. So It degrees I things it in be because fundamentally cultures. communicate on has And

Okay.

Adam Spielman

Okay, helpful. indeed. Thank much that's you very very

Andre Calantzopoulos

Thank you, Adam.

Operator

Jon Berenberg. line Our of the final comes question from of Leinster

Jonathan Stephen Leinster

morning. quick hi, of for Thanks ones. the Oh, taking good a question. couple Actually

think Just Japanese tobacco quarter? out in market the of segment heated as what is interest, within you fourth the do the total

Andre Calantzopoulos

XX%? XX%, it probably is much, How

Jonathan Stephen Leinster

said… What you

Andre Calantzopoulos

XX% numbers. XX% sure. have the about not guess would I'm I don't - I national,

Jonathan Stephen Leinster

is the compare the would you So that XX.X%, against of market X.X%. you think so the rest

Andre Calantzopoulos

that. like Something

Martin King

more of is because the Yeah, I the mean, the products higher the or rest nationwide. isn't In two-thirds in less our other share. availability have of the we completely nation SKU Sendai, of

So that be a could good benchmark.

Jonathan Stephen Leinster

Okay.

there in Morris that's it at or developments being not in Okay. Is And can any pursued. something just, the on? terms Is Korean the discussion patents of a - there terms Philip whether secondly, - that International. think the to was there belonging I that the broken any is comment sort not something about of or product, you of -

Andre Calantzopoulos

there I to we at I is our would comment will further this. any that any look evaluate any think upon if product that comment I - here act But and competitive we And infringement will make make a general at we look any not public this. on IP.

Jonathan Stephen Leinster

Okay.

is Just the within IQOS much a vast question sold menthol the - then, HeatSticks it'd sort to of on obvious the or that is dynamic just IQOS of What Japan the it that flavored, are other and be majority - was fair say flavor? very an a whether marketplace?

Andre Calantzopoulos

also high the of But, to menthol have higher so it's natural very high is a a smokers, It menthol proportion has than Japan because… average IQOS. of market. Well, proportion in

Jonathan Stephen Leinster

Is it majority? the

Andre Calantzopoulos

the majority. it Yes, is

it's Okay. okay. also the But up from, where come smokers looking

kind other have menthol. lighter It the But, yes, you more of said, I menthol smokers flavors. also are so this smokers is progressive and combination. not it's As

Jonathan Stephen Leinster

that not people switching the menthol? the to that you And in or same Europe then Do experience is find across is case?

Andre Calantzopoulos

than to kind Yes, in non-menthol markets. Europe also compared relative have the menthol of higher you

that cigarettes, partially, is times, of simple, the difference conventional who and people think to a the category there the as many reduce explained I new very move the key taste is I many IQOS for comes to between toxicants. from obviously reason okay, fact

the And have and flavor like nice on. smell, some so toxicants and formaldehydes of

products with mean, it's So to they move these we're that's to different I with taste easier time that's menthol And or non-menthol thing it. there to doing. But to a is and nothing probably fine. from IQOS, wrong what to exactly time whether switch category. continue is the essential them

Jonathan Stephen Leinster

Okay.

Okay, what of be March. a all everybody there seem telling the government right. And just just - obviously, a €X pack increase interest, to of price sort terms French France, is going to of in in

expect you something the into think what Given on - taken you've do terms is for of would you do you volumes? that, - sort give in estimate is account that you of and can French what I there - any mean, base that

Andre Calantzopoulos

traditionally and France, not volume in pricing, the increase, France in three a and to factors. have our price is of price increase, forget and market, a don't new where in balance pretty the in based as okay? significant improved. in productivity It pricing try on low-price the the France that versus is a Well, situation regime overall we the has on elements of many impact we So that gaps has versus productivity what the markets, is our price same

So overall now. have continue the - think the the taken which trade government some past not think unfortunately, magnitude market I will into the there gaining share. that's I size illicit to we've side, balance be, we of in a consideration. seems in of to why gained and try Overall, increase, in given an the increase price on and reduction the other given But share volume, we'll

overall, France decline. guidance. in So, have all total an we market will have yes, But, overall baked this our

inevitable. That's Okay.

Jonathan Stephen Leinster

Okay.

Thanks Okay. very Cheers. much.

Andre Calantzopoulos

welcome. You're

Operator

was final to that I floor over or our for turn the any would to remarks. now closing back question. like management the And additional

Nicholas Rolli

us joining for all today. you That thank concludes our Well, call.

team. have you follow-up IR If you can questions, any contact the

his a Andre begin our As outlined on we remarks. will regional based new results reporting that reminder, structure in

have the a three of of new first of the reflecting data of Thank As revise years the by plan March. end XXXX, day. you we quarter historical and structure good

Operator

today's Thank does you, call. conference conclude gentlemen. and ladies This

may You now disconnect.