Philip Morris International (PM)

Nick Rolli Vice President, Investor Relations and Financial Communications
André Calantzopoulos Chief Executive Officer
Martin King Chief Financial Officer
Bonnie Herzog Wells Fargo
Judy Hong Goldman Sachs
Adam Spielman Citi
Vivien Azer Cowen and Company
Michael Lavery Piper Jaffray
Pamela Kaufman Morgan Stanley
Robert Rampton UBS
Gaurav Jain Barclays
Call transcript
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Good day and welcome to the Philip Morris International Fourth Quarter 2018 and Year End Earnings 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] I will now turn the call over to Mr. Nick Rolli, Vice President of Investor Relations and Financial Communications. Please go ahead, sir.

Nick Rolli

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

I PMI statements other glossary access Relations products, definition or may pleasure the well on differ press risk attention or You as the as release André? materially from adjustments, statements Financial release join for Officer, Officer. reduced are André cause now to forward-looking and various app. and cautionary and review our remarks Calantzopoulos, direct of a It’s period. today’s terms, of the could A end the your at the are the of forward-looking Today’s results. Executive future will most Chief RRPs in reconciliations of projections including website. or question-and-answer slides Martin statements. projections our directly and posted calculations for the www.pmi.com which factors the measures contain presentation our to comparable forward-looking to U.S. introduce to Investor King, for GAAP my on webcast results André today’s that disclosure actual Chief

André Calantzopoulos

would net sector pressured and across staples broader overall all contributed and Nick doubled by achieved our which thoughts ladies which inventory welcome an robust our performance you, related understandably, year market gentlemen. also heated Japan to target IQOS was anticipated February We growth decline view, markets. financial portfolio IQOS in and and consumer this distributor short driven in-market XXXX. fell and our in sales growth the tobacco general overshadowed combustible was in otherwise the almost the entirely Thank tobacco surrounding than last with consumer our lower concerns full revenue heated unit provided our unit by begin tobacco of In robust generally. initial attributable and strategic some volume, year, in on I industry share price, in the business. and to adjustments. Clearly performance from our like to We results acquisition this nearly

XXXX, a the developments state-of-the-art development international particularly judge, this portfolio we understand better certain for centric that year significant business. laid industry beyond, the to foundation While find Entering in to last we including capabilities, thanks of the I is have relevant it that to digital business expansion. organizational our the and price share were impact very to year, recognize the performance believe in that difficult less and those arguably our U.S. ultimate a investments fuel infrastructure we product and market

cover products smoke-free I combustible our underlying business in in As are undoubtedly our product the of remains growth. a to intact will portfolio overall the strength moment, and catalyst remarks my accelerate our

results through the take year full now Let elements you with me of volume. main starting our

XXXX Our we total the cigarette heated third X.X%, our unit distributor quarter and during which declined Japan, explained tobacco tobacco reflecting notably reduction inventory heated in shipment unit results by volume call. in

with XXXX movements, in since industry net cigarette. units best total volume in X.X% a growth heated offsetting same distributor compares strong decline total shipment performance flat, was of to annual inventory our the Excluding volume estimated decline estimated favorably in on an performance tobacco basis. This

units. notably the X.X%, cigarettes heated Russia and by was declined product, to from Arabia, to shipment switching by unit of billion volume, movements in higher volume lower Saudi Turkey, mainly driven approximately shipment industry Korea Japan, the shipment EU cigarette impact industry notably region. particularly Our tobacco in with volume, the decrease XX Increased Japan volume consumer and by due to coupled in inventory market and driven and by volume XX.X net despite billion of Heated a distributor in higher XX.X% increased estimated offset. partial Thailand Pakistan share units as tobacco in served

More importantly, XX.X including and by for units, IQOS a units achievement driven Korea. heated Japan launch tobacco reaching all sales in-market doubled, our billion significant markets, volume nearly

Turning of our to net with tobacco The for financial our by tobacco combustible shipment reached total and accessories portfolio revenues net and XX.X% X.X%, driven billion or heated growth. unit pricing billion XXXX strong results, volume increased $X.X excluding devices by of or users’ approximately currency, net product IQOS $X.X revenues, revenues accounting XX%.

by The year impacted in Argentina approximately to For Japan in highly revenue move growth approximately our billion X.X inflationary excluding impacted adversely inventory X.X points. distributor X.X adjustment further units reference, growth, total estimated points. of net an accounting last currency, by

On year regions. in of Russia. Pricing Philippines, reflected Indonesia, and XXXX. positive comparison in very The revenues, no benefited by Also, the approximately tobacco X in performance non-tax pricing particularly was million. while our basis, was from income of benefited prior pricing essentially pricing margin of combustible in net tobacco variance with strong impact operating margin operating availability. all combustible pricing income the the Philippines following we the a the a contributions from in neutral favorable market $XXX net decreased strong represented XXXX currency points. Russia The investments primarily in Germany, industry essentially adjusted net RRP following decline from product our dynamics Our significant adjusted decrease our X.X flat, X.X% of improved Canada, incremental

and X.X Japan our and income adjusted the adverse impact combined Argentina approximately currency-neutral points of had percentage on factors mentioned for reference, respectively. X.X For margin growth operating previously an and

of $X.XX a adjusted by net and X.X% diluted by rate lower both expense. share increased driven interest per earnings tax effective Our

Excluding occurred were Tax U.S. expense lower by of which interest rate by tax the currency $X.XX, the net and driven Act. EPS the increased Jobs and The XXXX both second in diluted Cuts half effective of adverse year, XX.X%. adjusted

than part structure to optimization X in below XX% effective Our the The approximately slightly to capital decrease tax and we assumed the provided from effective reform. years on in around to points prior guidance the cash expense decreased in net resulted tax reform. by our repatriation rate rate tax flexibility XX%, greater better X interest XXXX our as November and that had of

flow offset Capital currency. Our $X.X our increased investment primarily tobacco operating expenditures driven net year billion million, unit productivity in equipment of $XXX efficiency as continued billion $X.X or below unfavorable by principally over X.X% heated by full of earnings came rises. assumption, reflecting in by higher cash improvement partly

regions, international grew reached market of now share XX.X% by increased by our the share, to heated our six Remarkably, X.X%. our share share in since combined Turning of driven total portfolio. of XXXX which of strength growth X.X organic tobacco points, units, all our underlining highest a

also contraction organization. reflecting in half of IQOS impact Arabia out-switching cigarette the share number year, Our Marlboro’s and transitioning market including of in a product of volume our Indonesia, despite international growth during Saudi sizable and leadership share Turkey. international in cigarette our while and transforming of category Further, France, category Mexico, the over-indexed was Philippines the was the of share at the success cigarette our overall markets, first XX.X%, the maintaining demonstrating flat flat, the portfolio

With the performance let by beginning commentary. some of mind IQOS with and specific also the some market investors, of an results being latest developments, for me of overall top highlight view, followed

users estimated quarter, sequential As in trend. seen quarterly number the the the continuing reached of million X.X growth this positive on fourth IQOS slide, total

highlights X.X IQOS, the estimated Importantly, million growth nearly to total, are while an balance base and outside conversion. total smoking IQOS success by of quarter broadening which proposition. Approximately brand’s is of in the user now in the switching region X/X EU the already users, by Russia. was markets XX% stopped in IQOS have Asia, driven user the geographic the the especially of

in and our IQOS with IQOS devices to markets. to own new retail only couple with the last the I of pleased channels. launch lineup in of to mid-November, expansion in e-commerce Japan. across geographies, distribution year, we starting device of occurred early very main the are our beginning will announced weeks, availability now past As consumer channels X began Though our still the device performance IQOS initial reaction full global and with specific has as the we turn

As price advance discussed trade increases during X. cigarettes purchases and heated both earnings tobacco in there This units third led October our sizable of in to quarter the fourth a the each of distortion call between consumer in our for is the estimated share quarter. equalized across our When in on in-market the and in quarters. industry third excise tax-driven during October, same XX.X%. approximately tobacco fourth unit quarter patterns, both and was share in the and progression purchase The reflected third the were heated distortion sales

activity to the rolled continued superior continued we category context, the encouraged dilution this the range XXXX, part favorable This I with that that and of off-take fourth HEETS including We the Looking product show increased observed launches. may that heated during competitive year, the trend including share overall new current sensorial us this part anticipate later growth. that mid-priced combination are its consumption X by In ownership, which new reducing allow the out will heated restore experience during with initiatives in device year, unit we will to accelerate growth, we competitive in we January. the weekly brand, IQOS tobacco tobacco quarter believe in of last shortly. observed

country’s in IQOS store channel, X-day the understandable this and of in using a product Japanese potential of last currently HEETS prior will consumers IQOS over tobacco growth MULTI over But in specifically. monthly rollout average new consumption for the adult XX% heated usage X consumers product these as Furthermore, available begin users owned tobacco optimistic reported and device past fully XXXX Japan yet a significantly data past X latest to the X interest interest not for accounts of and the heated weeks. Japanese and heated IQOS category Importantly, show X volume, the ownership the of couple launch. the geographies continue at IQOS approximately coming one to trend. latest is by by least majority already, our of which category the are a We device the convenience while of long-term week. demonstrated available strong over began compared of in XX%, of reasons. indicators of number with the share Based national as tobacco to of while days, about tobacco IQOS brand, remain XX% the of vast reflected selling of tobacco has acquired is our XX% smokers increased the which in only X around category brand on growing the

use the First, between purchase, end is with on see was the switching essentially device the easiest conversion share. tobacco time, maximizes a that at IQOS XXXX, the full scale. of product heated when through takes only This to and lag market

tried the the we is became never expect and tobacco groups heated to have due is tobacco MULTI. available X devices IQOS relatively in effectiveness began satisfaction, a generating total benefits IQOS, importantly, category particularly heated improve and share Over the X to of and who have also conversion Second further of competitive product, cigarette represent a the us, share as fully experience journey ‘XX heated to leading than tobacco effective taste to smokers. users category been conservative relative stage. products level product, users dilutes among ownership certain Both far IQOS of to ownership. low category for and over This mainly their great more gap situational the and device ‘XX IQOS of smokers broadly with users use enter opportunities device narrow. at between time, that less IQOS, some which device. hesitation the this adult those other competitive competitive relative Many course more converting also IQOS Lower and with competitive own more

share Turning was share points by heated warnings our sequentially, the it the December. in XXXX increased tobacco in fourth to late movements HEETS in for change noted of health should quarter in ahead to distorted on by or points X be that quarter products period by inventory trade compared X.X the X.X% Korea, same of

to basis the by tobacco our competitive the given with of the sales increased backdrop as additional year slightly well share products. billion are for among a generated by the confusion regarding as tar heated In-market the Korean volume caused in last FDA’s X.X category activity pleased heated We on comments progressed units. smokers performance, tobacco as sequential the year HEETS adult particularly some

Looking heated the us devices, to reinforced the brand XXXX, with This in of has IQOS giving quarter. European confidence of been HEETS our the to volume fourth preeminent region. accelerated in in share is industry that markets. IQOS fourth share sequential reflects worth cigarette growth holding volume, of the category, grow HEETS X.X million Region, Union position and is in favorable compared present launch in nearly share remains representing category by of basis, increase reached quarter share geographic all over only ability for by reached In our fourth volume new number HEETS industry X.X% the further. the unit and total increasing XX% momentum by quarter, tobacco It users, quarter XXXX, X.X total of approximately the points X.X supported to share points. XX% On The which total the IQOS areas of in noting IQOS in the year-end. growth continued a by an

Importantly, fully the IQOS region. available is as finally of markets January, X essentially across late IQOS all in

growth share by driven HEETS markets, Portugal, Germany. the number Our in region was the Poland Czech Greece, EU of Italy, notably Republic, a and

smoking. to products, of of IQOS share IQOS in This fact as As is by the better is million. markets, average market. such about use is disposition EU only of have the This with adult sequential quarter Russia, such for that points well the in will adoption of number X.X X.X% HEETS constraints we given fourth the communicate X.X tobacco impressive the by present to up Despite for that adult recommend across HEETS increased the as share of users, fourth reflects IQOS This X market performance where smokers as smokers fourth reaching cigarette quarter to with well as cities, total our related regulations quarter, in adult IQOS before, and geographies, experience. all XXXX. the to ability reduced-risk well which impact approaching geographic X%, and underpinned understanding and of as has approach acceptance growing targeted that share launch IQOS primarily said In the vary Moscow in to rates IQOS apply accelerations speed and alternatives as are innovative nearly products in and those and to strong going factors continued double certain underlying continued was channel an expansion, interest to improvement smoker in our reflects digits. the consumer conversion IQOS performance

large existing Given now our into expanding in success additional are the areas. geographic cities, we

growth Before Day turn financial let remind XXXX September. outlined X-year I targets you to our that me Investor our we outlook, last of the during

least at we per the targeting period, and earnings For XXXX compound XXXX growth adjusted annual at X% X% net revenues share. currency-neutral least for are to for of diluted

at determining adult we and today’s we the our by precision the At products. the annual As EPS risk reported detailed to expected the with of diluted guidance formulation adjusted growth of will reduced adjusted currency-neutral performance. will difficulty smokers our forecast in press threshold release, annual have beginning EPS year, the speed in reflect which of now reference related EPS diluted each rate to a minimum adopt

As provide detail. unfolds, we intend each greater year to

rates we to diluted prevailing be earnings XXXX. XXXX, to at reported diluted per earnings least share per at forecast $X.XX of For exchange compared share $X.XX in reported

diluted increase at $X.XX prevailing forecast of approximately versus an X% Excluding share currency impact least this exchange unfavorable in adjusted a per represents projected rates share, XXXX. $X.XX earnings at of of per

X%, Argentina. adverse highly impact approximately includes of currency-neutral which accounting assumes to revenue an forecast at the points inflationary due of to X.X least move in growth XXXX Our net expected

and growth, remain the product expect unit be Combustible in We IQOS decline. tobacco tobacco tax broadly an of by the and volume contributor, driver pricing tobacco the underpinned to particular, of key this rational the important heated volume excise combustible anticipated will environment mitigating impact growth.

pricing creates comparison variance this noted pricing we As recorded earlier, challenging XXXX that in a exceptional an year.

variance to compares unit of decline the period cigarette our We year. to favorably to heated with in XXXX. and total the be for of We the pricing average variance from X-year and around decline average XXXX. expect estimated approximately anticipate to shipment X% This X% XXXX an pricing to line over annual volume in X.X% industry XXXX tobacco X.X% our ‘XX total

precision challenge of confident Given XXX year. shipment in we are heated in the volumes, billion by IQOS to the from target this early shipment contributions tobacco providing billion forecasting our of we at unit units specific target XXXX we remain with That and not positive volume markets XXXX. a volume expect of all XXXX, XX said, stage

are our led project-based annualized reduction underway important other to cost deliver billion by budgeting, in and efforts productivity, already zero-based XXXX initiatives organization cost to by over cost opportunities. efficiencies model Turning base, to a our $X related

this full an XXX We operating to anticipate and effective of to front interest consistent tax rate stable margin expect points We increase at least basis our year progress in year XX% approximately compared XXXX. XXXX. in contribute income on to last currency-neutral a a relatively of expense with net

year reflecting billion particular our quarter. $XX e-vapor close will outlook subject in cash We capital operating of the least XXXX our platform at requirements. I capacity. XXXX to behind with manufacturing on first $X.X approximately targeting working are project some this support RRPs further billion capital We flow total to expenditures investment end for year of comments

While EPS compared additional commercial pricing. share some we of of anticipate in quarterly don’t We provide it timing year, of our to believe the last flat associated that the appropriate $X some to IQOS to visibility spending is related I currently with to or quarter subject projects. guidance, diluted related reported approximately

of performance. of Excluding few contribution conclude represents X% this included with rate key adverse adjusted EPS prevailing diluted exchange which approximately positive percentage a X of itself to $X.XX takeaways the will of I quarter XXXX, a a or rates, currency first points. currency $X.XX growth approximately from from of $X our compared XXXX at in

products. evidenced total successfully cigarette the stable are cigarettes internationally by As from we our transition our reduced-risk growth and category, share managing of our share to

smokers increasing broadly and important historical smoking heated margins product. value as international and of over XX% markets, the XXXX with around globally, and volume retail switching tobacco IQOS success. continues pricing grow We number end was and is category had sales making nearly unit a already estimated XX% estimate tobacco the adult million year e-vapor to combined IQOS IQOS. outside the rates its U.S., in-market and tobacco to representing the that for heated of combined to delivering X.X robust accounts contributions world the the of industry approximately heated combustible the power. our any switched approximately business to alone an volume stopped unit tobacco estimate in decline with retail portfolio of doubling the of trend. billion for performance value, Our and cigarette $XX and foundation with nicotine superior line remains We China in total. of Furthermore, other

expect We product and the portfolio. our through e-vapor of share our to increase market development deployment further of

we currency-neutral Turning underlying growth X%. XXXX, business to better at anticipate least revenue fundamentals, driving net of

XXXX Our a EPS in X%, compared currency, to forecast XXXX. of EPS reflects at least rate of growth $X.XX adjusted excluding diluted

are strategy single we a Finally, to that listening. largest shareholders our a our in and Thank for and smoke-free generously happy growth accelerate continues convinced reward RRP us are and to provide portfolio business I remain with your questions. our future now you over confident to answer our Martin for time. opportunity


[Operator line Instructions] comes Herzog the of first from from question Our Bonnie Wells Fargo.

Bonnie Herzog

do you technology? are a you case your first actually and hear I distribution guys on rapid point love JUUL. take technology And you I still to a stake not agreement was in rollout think in there you some thoughts to your think is this believe to to ask decision if would on superior, for this fully e-cigs André. both would growth I couldn’t type consider wanted internationally, you for your JUUL? the to also really them. especially you markets at but several of a will given you Altria’s answer Hi, good about of really with be decision a

André Calantzopoulos

there product, and amongst takes is the zero-sum in so all potential to have the and of everyone we is Well, I or this IQOS JUUL, investors game not product, that, a because x by and y binary will a what situation. understand of media reminding discussion kind on in that or of a is general lot start winner

of consumers heated fully that lighter-pure ability, highest conversion products. have use the I that in but intersections nicotine some products, think are products. and in the know We IQOS exist, you there have already e-vapor tobacco of tobacco where And that can form that heated switched products say there both. trajectory there to people between doesn’t e-vapor are parallelism are markets with people products

So, nonexclusive. different are that we are complementary and going to sometimes behaviors see very

know We that usage we is cigarettes. dual will there e-vapor see of and

consumers see of kinds people developed cater all used cigarettes e-vapor products. like will e-vapor, that heated will the we products and simultaneously. We That’s forward. combination that and see why amount, being products, additional using tobacco and And may IQOS going can of have few a have portfolio continue that same all a of you also to

and not in Japan, compete out everybody, I category category, competition ability the the that terms So, switch dilute cigarettes that where my welcome to think products people sensory experience we performing mentioned the important. and see products of with ready is remarks, we are very and to we I in can. in of subsidiary

I and category. think, matter be no for of a there us, as room will there of in our products, for principle, competitor is So, all user exclusive any one

So, to and we not understand sufficiently, we certain in respect. categories, So, to because know took own make situation, I the the decision decisions comment a they in our I market consumers, the all and they the on same think the degree, have Altria look and the will understand okay? all the which at their investment, we’re Altria to I that and And past we situation. year over have so demonstrated portfolio not we as

think I confirmed in approval has I FDA we that go preparation with the moment. forward have IQOS U.S., relationship get we in think to we Altria IQOS. ready And are the Altria this changed for fully they and looking nothing in launch of are the to once

certain in JUUL due countries. as concerned, the of U.S. clearly, As certain JUUL far from benefits awareness degree English-speaking to a market is

sure, discussion, So, and excitement takes when who we this is like we over see we as sustainability markets some for in have technology, winning this, is then, IQOS, going there there product view. So, it But proposition, I of point all, think product okay? we the be who we’ll to to of Korea. with be performance awareness and marketing had have is example, the initial the a to no entered, from for winning success, initial because is see again, some the going one to go brand. winner But both

think extremely different about. to to cater target they audiences. hope are to undesirable their would we regarding we we have I have IQOS very audiences has Day increased increase a the value a significantly we with are in and I e-vapor as brands. the XX% I the believe the we will my has entire the also And EU I I If commercialize tobacco this there product. think ready the combined, fairly unintended participation hope well-established of I wise needs. so careful we devices CapEx heated plan I category stable, The I that’s already the That’s of and e-vapor And to thing devices Altria all be retail competing. say internationally enter in and capacity e-vapor their that is will attention IQOS little we’re said to in categories this the not category, said both been the lessons essentially Investors the that for brand, many remarks. to is combine bit JUUL, We only end in including of And category. is even very this why certain and develop showed e-vapor that learned smaller to say. that category consumers’ as of we are year, and

Bonnie Herzog

And to the the bit was I in just new November if about a drill possibly rest bit your Now or I expectations market meet helpful. discussed did, fact, expectations could what it for more may, innovation if wanted little if little that bit. the put you will that down ask you in a do schedule a us instance, like on of But to exceed more but cannibalization point further still talk far. rollout then end I this, your into so And and will about you seeing. look is And in be from of bulk just of the planning you the rollout, have devices hear by then by For new or to like? think bit it a you the I’d a been phased last QX? you’re the might about end little the market QX, the of then the

You understanding think, been but I mentioned, quite of of kind that. it’s just better a wanted I incremental,

André Calantzopoulos


X different I things, We’re talking about if understand.

The first what lineup IQOS Japan. is devices the what have we of in consumables and and second Is the call we that X of other, happens the MULTI, correct? rollout IQOS with

Bonnie Herzog


André Calantzopoulos


a X initially and our IQOS own we product IQOS in and markets, on through And So, moved bit the available only X also made many limited e-commerce. so made the we retail product, reaction. understand and with IQOS pleased we’re very so clear limitations, consumer also was say I have need. to appreciate we had that initial People a because the and the MULTI

selling that’s sales of good. continue have And X.X. We combined also we very both, IQOS and

the is things we happening retail IQOS X, the sample, although indications comments channel are we it’s And So, in every the way Score are from increasing. the if also Japan, same And new have a consumers limited at this I would acquisition, Scores, Promoter time, in because of at limited first with happening. improved Promoter even Net look in you X places. use and had good. IQOS particular, say, are the not significantly of see we more foreseen to user the we and And national IQOS Net other are in availability with

full We’ll so good same have markets. and But indications, bit So, so more early far, a in behind a us but availability. more indications, in with will we other CAGNY bit the it’s good. granularity because and we weeks see give they color are

are HEETS, we bit people help reading again that a cater more limited is markets Now in. they to price-sensitive. we’re regarding from They acquisition because our the help consumer increase

HEETS and were, decided have essentially, overall, combine Marlboro the because we product. extend. units heated are, We certain increase, places a both we and that’s only have is if obviously and to incremental we part. There that’s But the share we encouraging you why cannibalization in share the


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

Judy Hong

you’re André, target specific So, giving the of volume but I know to little for X%. not guidance bit more ask clearly, you’re about the wanted XXXX. volume for I a X.X% guess volume down giving outlook consolidated to I IQOS,

least I somewhere you’re, expecting of kind think we into IQOS back high for combustibles can what at So, X%, assume X.X%. around down level, we if

a So combustibles. in Japan, for at playing more today earlier the they’re just terms only a how rate the if comment little that kind wondering bit do this X% IQOS of, year, be a that specifically, for more year? kind volume And expecting based at is on point or think the just growth more of color you JT’s in maybe I’m more you in of that high and see could just robust prudent category level, this growth then heat-not-burn out assumption

André Calantzopoulos

were see XX.X%. I don’t projection last I in actually All the we slides, in the the opportunity we of January, more all X% the forecast particular, Look, global IQOS are IQOS, In have years because everything share baked much venture the with growth volumes the, to would surprised and line, them, because, combined growth clearly precise had is speaking, gave markets where not volume revenue more XXX as if share in billion positive they the XX of Japan, category year would positively from to too I IQOS the frankly the I combustible present, at in anticipate. say we billion, see in growth. are we mean, in in if the cigarettes in well okay, okay? and I than line you you X in read is know least, noticed see initially by Japan, would volumes not with we down growth, I this was for year of

and had as very you seen, not month, nice trends. Russia, XX.X% EU that’s in it’s we I this, development. So very would positive would not positive I anything it’s And the into and have read a compared X but quarters. in we previous have to

we So, are but on very as happening optimistic, you unfolds. keep the year abreast we’ll what’s

Judy Hong

it. Got

on like as expecting sizable on out where forward? of is market Russia then both with volume Russia, obviously, into maybe broadly questions Okay. of volume roll you’re markets going kind starting you where, market one, IQOS clearly, cities the bit more a my and additional you’ve specific trajectory Moscow, are, And cadence sequentially, in one strategy broader have certainly category then implement a kind improvement to share just got the bigger IQOS? seen number volume, you as And side. share the that that’s you’ve a guess in of little speaking, impact that to just that because I combustible pretty side

André Calantzopoulos

volume, Look, I mean, cities, see different we obviously. additional as expand in we’ll

to and need the growth. also more continued in and understand, we We cities, affluent we see richest are

think Russia infrastructure digital we as out of that be an we’re efficiency a said, growth the over time, also the year have IQOS. and importantly, I we should speak, trajectories as platforms, that accelerator come, now number the overall, including with of this lower-income trajectories that expanding cost more are something, we the available most in it tools, rolling growth And be and necessarily bit slower much consumers. years and expand up underlying to we can that’s because will digital we piloted everywhere. I a using show efficiently As practices, manpower maybe reaching But scale without

see pleased mean, what’s Russia. we’re with I So, I happening very in

everywhere, more in very tools IQOS we I think efficiency even of purchasing less scale potential than before. much that have it’s with has power. And markets testing can demonstration the that clear a the show that

So, it’s signs. very all positive

Judy Hong

it. Got

And just then my question. Okay. last

being points, place around half terms that it of being mostly operating about of XXXX like in you in that’s or of kind the profit seems of your the Just spending kind the again. not XXX guidance margin up put incremental into growing basis

interpretation. that’s of curious terms the if sort pretty performance. that been profit I of IQOS correct has the And thinking just in just about So, I’m volatile know

at you other be position on even slows you margin that if to are that kind deliver target kind you standpoint? should look volume comfortable the operating of in when of basis or volatility things points an target, XXX from So, how happen IQOS

André Calantzopoulos

volume can contribution a IQOS Look, better we one to of, of we as the are on incremental second much we It’s spending, last increased still then margins. deliver the overall said, And has IQOS lower is spending confident than know, combination And but fairly an earnings. year, this. as we lower spending.

the way it. I that’s read So would


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

Adam Spielman

majority we’re and to you the beginning IQOS that the Is first, gave rise year the it get. about new, last coming just ZBB it, right? of said you very out that got respect is to yes, follow of make you going understanding at it you efficiencies answer? With less always like XXX relatively that absolutely points, to $X billion of last were And the talking Thank the sure the correct of from much is the the coming I use savings. way new to rolling of on just can of I sounds basis up answer Judy, that so from

André Calantzopoulos

understand, see That’s of all deliver big the So, billion going should correct. We you it the be process to see the just the portion in clear, the project. money okay? And of do line. year. $X but bottom money this that I participating of year we line, next we properly, and first you’re we have whole to going that the through targeting not you to never amounts to that go on is as ZBB because to as started the it’s can said, see are a bottom But

incremental other not year. as they the to deltas as helps The are the the in be so big previous investment, used

Adam Spielman

very Okay you thank much.

the harmed frankly, out. question effects I be important is in should was by I how question real this was effects. relative wondering it any shipping shipping the was there more was IQOS. And if Japan So, Clearly, quarter. to around strong quarter the calling just third surprised, And we or were

there in effects You where called in example, shipping volumes? any that positive your Korea. out somehow But IQOS and artificially one in for Italy Russia, boosted a

André Calantzopoulos

expanding cities. in in different ahead There Russia Okay. of some shipment we’re were,

don’t something okay? around preparation recall expansion, that billion, $X.X is of exactly billion, if was, like the So, there that, I how correctly, remember $X I can its okay? much

Martin King

planned. was It

André Calantzopoulos

it’s nothing It else was in-market something is beginning, not planned okay? there the but direct The from so is rest there. sales, in

Adam Spielman

if XQ, to should explain can focus just in Italy, will going caused as was forward I on you what there Italy example, a was wondering well? in just huge if think it market for even about we relative so, XQ. jump in you share And that and how

André Calantzopoulos

a That’s question. very good

acceleration, we all, the in Italy given First a momentum it’s you It time, see if get of took Adam, think Italy. moving just And lot the are restrictions. Again, quarter the okay? having as of consumers the IQOS there. in word-of-mouth, more X there Italy, but start proxy that read is for to fact momentum of remember, the think I so I wouldn’t I

seeing this of I start I efficiency the deploying the nothing Italy, than inventories what further described. think, So, ahead with growth, and and is we It’s shipments finally, market. of tools linearity Italy, things. read all share in this this exactly you what’s of these in that��s is do But us happening. And better slow of and to

Adam Spielman

give But sense what constant it’s in a me. you to understand, one And then this And more guidance, of guidance. better. correct that isn’t you’re you’re the giving a guidance of to I And different floor growth. really might the expectation. combined X it of Am final a then EPS about in currency? X% floor worse, guidance? constant EPS. of currency things volume, the in talking when that that So, happen? absolute It’s the like that’s figures, used terms the might floor. you It’s not be a of style is question about is really more correct the be for this sorts little expect ways, a firstly, is sort volume to and bit of minimum little an minimum And an it’s But sales X% bit Perfect. giving it you’re

André Calantzopoulos

the estimate. I to volume a for is look, Yes. difficult year mean, bit

X.X% come can we combustible estimate. of or X%, worse. slightly to That’s a depends So, better It well. as our It okay? on range gave the

units of X% just well. I is the market, it’s more mean, obviously see total compared guidance and more helped which than we So, what how in give than means expect to we it But is. that’s context, a and this whole growth IQOS flavor as you to key X%, share by the

Nick Rolli

at least. Yes,

André Calantzopoulos

All right?

Nick Rolli

least. At

Martin King

least. At

André Calantzopoulos

At least, yes.

Adam Spielman

least. me, can so of that mean, if, Or conservative. at to it you’d offering that how sort a very at least? than give To on is XX% Yes it’s how let’s is I tempt I more surprised say, big was it? And EPS? big of be you sort really

André Calantzopoulos

stage, the would you Well, I depending at all this at remaining had on as year. happens, can that’s stay the forecast better stage, and I give to for I I Adam. tell you year we’ll goes, what I think what said this

Adam Spielman

Thank you. you. you Thank much. tempt failed I very to


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

Vivien Azer

Good Hi, afternoon. thank you.

André Calantzopoulos

Vivien. Hi,

Vivien Azer

had we appreciate in demographics you offer But consumer acquiring? can elusive? detail of follow deeper more kind around to in color you you tranche consumers, CAGNY on So, see I first IQOS Plus hold and Is the it see into that going affluent, that couple up of I starting been a of of wanted are users want of weeks. new indicated you’ve in you X kind to XX you to market of bit the Japan, younger, underlying launch or Thanks. the of kind when that early of some for penetrating like finally that terms a proven success any in this back

André Calantzopoulos

enter that I the penetration be fair as available fair the not IQOS users, at the will through think and I and increase people kept dual new we rollout, price Plus X.X most before. the call never previous a that will would the – now are Well, IQOS sales which also price-sensitive first I don’t combination people these see especially – me, the more these provide you of sell made so – weeks we’ll repeat an category forget, So, foremost, sales clearly, will knew just what us exclusive and we And them HEETS the higher first price of before, be view surprisingly with the with because we to strategy. see in still the demographics people have of devices price-sensitive weeks but wouldn’t the device that of the coming or with bought a our, And my in provide we that IQOS, works have that’s version to that sphere lower access. also and at at like especially new X with I have what okay? have Plus. part I okay, they we I think of price, people made consumers, strategy statistics because to bought we I X.X there X X.X, said we are okay. what is and for we IQOS, of the that from CAGNY. also I consumers, But all a – option help users existing consumables Don’t in lower Marlboro than a this shows devices to

Vivien Azer

incremental XXXX, a engage more that host in data. product Judy’s are have reasonable how and The Japan, got in about with favorable a on embedded and the appreciate more totally I great from of spend that I have of a to up given when that your that specifically? know point you and other RRP do follow CAGNY hearing look though consumers. activity you of your certainly your that in host I you adequately Japanese peers have to That you’ve question, increased kind thinking but just comp, got guidance at really in on you’ve My Okay. forward about category you should question sounds competitors I hitting Thanks. more Japan question new from is products spend? investment that,

André Calantzopoulos

embedded not comments for I incremental spending. would Well, overall, we markets, make have specific

have not own didn’t which IQOS Japan. As it’s compete and should At that devices out rolling exclusively IQOS, last this. retention, in than in I the as IQOS which much multiple said, And should cause we less I incremental adequately to CRM but same a X I still we’re and time, we’re we it’s that digital forget, of go achieving year, to lot help spending said, before. existing back use also and platforms think making the significantly helps including users tools equipped

then time in grow. to portfolio, what the best end the going will not category conversion no indication to think better Every many continue not from category grows the in So said the product have entire Japan. We at product showed will category also, knew the segment think a the the I as and times, of and I why we full over reason day, is come. that with And product shape. is right is the going we over will win. important of the What good forever the see I to time XX% competition we’re I over But will overall, time is grow. increase is, are

Vivien Azer

Okay. very Thank much. you


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

André Calantzopoulos

Lavery. Hi,

Michael Lavery

you. Thank afternoon. Good

like? You now have markets sense or you look cities and expansions. it’s it some like several look higher those might even does come a what areas, what IQOS you’re that basis, launch If launch or national the on share. also in giving might Can where us have when in mid-single-digit a little have both a give us But a typically, share countries to Europe bit around now national don’t still of concentrated? that more

André Calantzopoulos

– if present. XX%, I I Well, you of volume-weighted, you we I at mean, as if if want, XX% are said, the take roughly European Union,

okay, would speaking, the where as… X.X, so So, in we be I Union places present, think it’s X.X, are roughly would be our okay, European the share in it double

Michael Lavery

getting that country a – or have that share haven’t guess, those history places that are the I that the – of like you’ve a in longer more first, Athens, a when awareness. first that some performers better your I rapid been in What might where are give look a Yes. share, either places better masked specifically, you and like acceleration not Rome, math. that you Milan, some still and/or by started? more yet of Prague, but national little bit necessarily places that launched just be just does launched understand there’s

André Calantzopoulos

– XX, Yes, city, I yes, my help is okay. it, Athens recall somebody can look, of pretty whole because correctly, home all high it’s is above Actually, Athens me and numbers. including I Attica, now, well have it is XX% is growing. I have which I region if don’t know, don’t the Milano, the If here.

Martin King

the double – about Rome is

André Calantzopoulos

But try ways to lot X past. it’s consumers again. not first very flat, in Just if an us second. the Milan mistaken time of experiment is because It the was – took a make I’m where tried product interest we actually the

Nick Rolli

be in – It Rome Milan in or will

André Calantzopoulos

all Milano city in give okay. it important the because We’ll is more me like most this. previous Milan probably color IQOS presence in of because of most on the CAGNY sorry, we momentum or Okay, but Rome, to is bit that, for difficult did. you the and it’s in something X.X, regain But

actually. a very that’s good sign, So

Michael Lavery

well? just to little that’s expanding that in as more expect you. go markets Okay. Thank No, you’ve on you on talked And Is your very or thoughts European bit that other Russia would then national national more. one already any expansions helpful. about a

André Calantzopoulos

Look we gradually markets. of the most go in

we XX, see mean, up The is markets markets, As I are that now we full to previously, markets the are the is year, these opportunity that’s in may can what okay. during the are nationally regulation today. focus I potential priority And strategic said we efficiently. our changes, in or expand the it nationally but we the expand to where open and at there’s markets objective, scale new we call if following, to

Michael Lavery

points a then have Okay, that’s you or XXX be that bit mind the just impact currency talked of what great. we in Do currency. little sense more a margin And in might housekeeping there? any the transactional question, expansion factor have you to about X should basis of

André Calantzopoulos

that. use calculation, more don’t I as this traditionally, thumb, I is have but can the transactional If – of have currency currency XX% I the of than our impact. rule it’s I don’t total a not think

Michael Lavery

That’s you. Okay. Thank helpful.


from of line Kaufman of Morgan Our next the Pamela Stanley. question comes

Pamela Kaufman

the for Hi. Thank you question.

partly to the sense that timing impacted the reinstating the by on get share if You call more of industry influences that been U.S.-specific. buybacks? made your price I comments which view share wanted are a at for this concerns has beginning performance,

André Calantzopoulos

moment, regularly. the share that follow we I at the buyback we the conclusion is Look, think And look for the plan.

is the I that understand outer stick the that losing we have this, be I look this our rating it’s share trying some And that to we’ll without to may impact think do and and is year, on the initially think all including lot because plan been buybacks. of in for I a restore e-cigarette of heat-not-burn it to we to years I the to if the position at be tempting interactions I but Martin due lower-than-expected will clarify. explained better in a that reality worldwide in even e-vapor I’ve we clarify CAGNY. period explained the our believe categories, X-year – is but the uncertainty shares as to also there performance,

think our focus the growth context, And results I And in and a is think quarter-after-quarter anxiety this the and plan there. for to necessary appreciate us, a get the products. I’m deliver repurchases it’s I rather very the sure opportunistic time clear on these doing than based will than share up is when them. have the for share investors going of rather right

Pamela Kaufman

line in pricing Okay. you you tax towards this – And pricing puts What would and relatively as XXXX. do with the a mentioned you takes and anticipating the environment your contributing moderate still to in that should are year? outlook, benign growth see combustible more historical excise

André Calantzopoulos

X X globally, more think the tax I are – than have that No, stable. there there look yes, excise tax excise is you increases. environment mean, the I if fairly occasionally, are regular or markets

the compared contributor government that we opportunity decided Indonesia, of excise surprise the that increase significant in our rebased obviously, of On given pricing Philippines. positive that’s would where Philippines, was illicit to size. as comparisons get a I trying the to see say What to Russia the because would be to the because very have the Also now almost Obviously, trade which a remarks we my pricing, XXXX we in XXXX in XXXX. to year volume regular other exceptional so major have taxes, its ‘XX. not help were Russia pricing side, had we very the in away, pricing comparisons, more in is okay, went X volume. to

of changed. robust. the plus ‘XX and said not overall X. very think still not so But if settled, we are far. tax few major. is that There’s So, this XX% to we markets of rest, okay. ‘XX pricing but look the already the have line anything you very a situation there. ‘XX – in with has pricing the is we at price add much And taken environment have And has not all It’s I X, as It’s I the

overall think in and intact. very much place is pricing I

Pamela Kaufman

And and And made is thank you. on you – you’ve what Platform MESH just timing? X progress update how can products lastly, performing? on provide an X Okay. And IQOS your and

André Calantzopoulos

Look, and MESH own – own a London. few only our e-commerce is our stores stores actually, IQOS in in

we and are flavors product. more was consumers, of to the it we acceptable to whether the experimenting offer the is product us, expansion acceptable the go improve For again before then see for whether much itself widespread

judge So, difficult is it’s what very potential. to the

investing robust, we devices pod consumers. we different are think consumers. better, Overall, in very and we’re caters of to to I learn. there manufacturing Day, explained is big detection also need the In good. or capacity we And receive is to that more I and batteries, liquid recognize more product cartridges. vape devices those seen these the you we to They much things. mod, you’ve that we cater the end with all have Investor Obviously, say what that bigger vape consumer and for feedback smaller would learn related devices we of the

rollout. the for we’re Clearly situational industrial this more for integrate their stage. see and I smaller product product. stabilized. in conversion devices Now need now at of potential a full product, – the more the The preparing that’s here them just bit the and what the is to we’re use PX designs we term doing is longer

something very Platform get And I resolving it’s think understanding. we’re we to as know, but places all in in better in roll immediately, very is promising, selected out X, which So, not we the order not it’s even and had acceptable. that’s with on very source, climates small, there were humid heat in one some it’s that we fall-offs some problems working – if problem occasionally that

think a working we lab I – have So, now are solution at we level.

on industrialize before solution the to how We’re rol-lout. working

we that’s on stand So where this. all

Pamela Kaufman

Right. Thank you.


question next the UBS. comes from Robert line of of Our Rampton

Robert Rampton

thank my for Hi, taking you question.

mentioned in you’ve which Thanks. have is you which or margin. and better I reached achieved cities markets Could has about is cigarettes? which per question profit IQOS breakeven stick, talk equal or markets better first The to you’ve you

André Calantzopoulos

in IQOS has we’re cigarettes. margins every better in market Well, than

lower where is fact, cigarette. we one matter single have of than a market there As margin no

Robert Rampton

Including acquisition costs and retention?

André Calantzopoulos

Okay, marginal contribution here, okay. we’re talking about

get breakeven the takes X restrictions, acquisition to depending okay. the explained we we times, in or on we’re to of As markets, years major all market difficulty many point, year on based before the it and we between are above. But consumer breakeven X clearly,

I So read that’s how would it.

do Jacek that’s on showed I markets. Investors But the rule all of wish. to during different how think it the details if at Day thumb, you

Robert Rampton

and IQOS are menthol you. under how how Okay, great. in that, does guys you about that? thinking the treated of terms how ban Thank is Europe, – And in upcoming

André Calantzopoulos

menthol the what Well, offer brands nothing heated actually. very saw excluded switched for consumers ban, a are to cigarettes, maintain we different tobacco where there we the problem some to alternatives, And brand. products course, variants we with clearly from menthol are markets so of see it. ready to the is often but of same from with ban, a this, happened People we don’t need

So, expect any thing happen with I major in the to even don’t ban. Europe menthol

Robert Rampton

you. Thank Superb.

Thank give that update quitting in is and we And or that an human rates IQOS you. CAGNY? so my on you’ll could at final evidence question, something terms of get the trials, the latest on

André Calantzopoulos

in new – I nothing there. don’t I mean…

Nick Rolli


Martin King

Conversion rates.

André Calantzopoulos

any we biggest rates terms in the of the market. in are And same. rates, trajectories the is in Japan, see Conversion quitting change which don’t

cigarette IQOS, it’s If people you has of smoking. at changed the trajectories of – quitting advent IQOS the look or not

I So, people. on side of regulators of terms public the think we are right there in health concerns and

Robert Rampton

much. very you Thank Superb.


And time more we have gentlemen, ladies one and for question.

Our Barclays. come the Gaurav from final Jain line question of of will

Gaurav Jain

opportunity. Thank for Hi. the you

of over is reflected high you e-cigarettes getting e-cigarettes rates. continuum e-cigarettes the to on on over think versus heat-not-burn heat-not-burn reduction, which of the in markets? Your taxes conversion risk is regulators heat-not-burn due excise then in Do different on view higher prefer risk superiority clear

André Calantzopoulos

question. big a That’s

taxed real a because XX% reduction or humongous you versus trying not principle product be at has in if a been of that is be think should okay? reduction, XX% this always e-cigarettes to talk I all, belief versus okay, I’m my just everything. heat-not-burn

important be finance Now we the day, at the – also so to taxes that’s the something maintained. markets the be money. ministries tobacco future that’s in something I in is of need differential all we where And between two. is differential that achieved far a should that there some think products, What have and because the on is have end And foreseeable be countries substantial some is are taxes. of IQOS products will tax there realistic, heated why There present. e-vapor that’s the

at two So I as how the now explained, the the consumers categories, day behave. if end we will look at will decide of they

switching thing The achieve important – have of harm degree of is they people XXX% sticking is to cigarettes high very only way the cigarettes. move a global It’s out because product. reduction to the to in and of out

there be will tobacco be efficient people much them three they both. products, role, but this, maybe nicotine e-cigarettes So depending then far, they that are. the can proven of heated played a have all product And we situation to has in use more use and doing on when also

without IQOS highest you So, dual have we the product we have exclusive tobacco also platforms Day, has users product products already has the is proof with And category consumables, e-vapor, for heated have hassle in all on heated so why offer explained device choice has eventually, – absolute category have changing different same various it And everybody. have that consumers. initially nicotine, have will we as you use consumers a We Investors the the that time room of brand. come focused thought and the time. the us and that’s we there users because we can we efficiency. now and also to to more the devices under will and for see potentially IQOS, On as

Now I the – room that’s go. that’s that’s over I the a and where years that’s journey a within consumer product bit And day. say why see the kinds category. music, more for is how in of but future all we And I there

Gaurav Jain

And helpful. I a very, is very That have follow-up this. can if on

heat-not-burn So, well your MESH on volumes, in IQOS the does the IQOS guidance product just include you XXXX have given for or it volumes is that as view?

André Calantzopoulos

okay. but the IQOS was be eventually based Well, it to products, frank on e-vapor include our projection with essence you, of will

will e-vapor maybe of So become on incremental volume. top this

Gaurav Jain

is This helpful. lot. a Thanks Okay. very


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

Nick Rolli

much follow-up Investor if concludes day. the have the for any great Relations And Group. questions, you Have us thank very please Well, you. That a today. joining you contact call. Thank


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

now disconnect. may You