Philip Morris International (PM)

Nick Rolli Vice President of Investor Relations and Financial Communications
Martin King Chief Financial Officer
Adam Spielman Citi
Judy Hong Goldman Sachs
Bonnie Herzog Wells Fargo
Pamela Kaufman Morgan Stanley
Robert Rampton UBS
Michael Lavery Piper Jaffray
Gaurav Jain Barclays
Call transcript
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Good day. And welcome to the Philip Morris International Second Quarter 2019 Earnings Conference Call. Today’s call is scheduled to last about one 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. sir. ahead, go Please

Nick Rolli

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

Relations www.pmi.com access definition the other risk as the release calculations may RRPs, reduced glossary on or as You PMI terms, the for Investor well app. products, including and A of to or adjustments, reconciliations stated, webcast measures all slides, to heat-not-burn comparable directly the at most website. are are Unless to U.S. our references GAAP otherwise are IQOS our which products. of the posted on today’s end IQOS

like-for-like reflected Hedges, been & our a on presented which deconsolidation subsidiary, results Canadian forma Inc. have effective Comparisons for of the basis pro March Benson XXXX XX, Rothmans, adjusted XXXX.

of to today’s your to could Today’s factors statements. results. from future for cause remarks press contain the projections various results or and in disclosure I review attention forward-looking presentation statements and a that actual cautionary release projections and the forward-looking materially direct of differ forward-looking statements

It’s Officer. Martin? now our Chief introduce Financial to my King, Martin pleasure

Martin King

Thank for and portfolios and strong quarter, on reflecting to currency momentum adjusted encouraging start the combustible our delivered gentlemen. year, product performance notably ladies you, we And our the second very results. financial positive Building smoke solid Nick. free tobacco both welcome in neutral and

increased region. total strength we by the June among X.X% than basis, by notably performance. volume driven shipment volume was quarter by like-for-like our performance in a declined and Key in the anticipated second our quarter EU year-to-date. On was had better X.X% This the

driven billion by Japan. XX.X XX% Europe quarter shipment the the region tobacco volume Eastern unit Heated by in and to increased EU region, units

HTU revenues by X% favorable like-for-like basis net our portfolio. a combustible higher on excluding quarter currency volume by for pricing and driven tobacco increased shipment Second

contributed of net by timing percentage estimated prior to compared the in flattered year, was to revenue performance Our growth. markets an certain which two pricing the points

to of XX% XXXX. or RRP devices approximately in revenues. billion quarter PMI’s nearly XX% XX% IQOS in reached compared nearly revenues the accounted $X.X net second for revenues total the RRP of quarter approximately net net of

a strong quarter, in recorded Turkey. Germany, driven Philippines, and variance over X% We of Indonesia, combustible Japan, notably Russia, the like-for-like the by pricing

markets our should Ukraine, and increased further positive cigarette contribute a recently Mexico of prices over pricing the in have such to as We which XXXX. balance variance

second On geographic expansion basis, high relatively income notably margin markets unit region. a increased income currency-neutral basis like-for-like in adjusted operating XXX by quarter, high by primarily operating the in volume increased margins, with driven geographies XX.X% by while The adjusted the favorable points. EU cost from margin strong was

Like-for-like adjusted diluted EPS excluding increased currency, strong driven our performance. by XX% by business

by market reach increased U.S. the Russia. Our EU total region share, points and China which percentage XX.X% by increased point the heated second based driven in gains X.X% by tobacco and to excluding units, quarter. and broad reflecting This the reach was growth Japan international X.X to share in X.X across

of them. HTU nearly many In markets total despite being where commercialized, been of a has the combined share not I fully distributed yet quarter, brands our X% the recorded in QOS in

of out related points IQOS for quarter to the to competition. as proxy share smoker of the as performance price timing Our continued point Turkey, cigarettes adverse adult estimated to in due reflected two an the well increases a impact vis-à-vis switching

to over improve of expect Turkey the our in balance performance share year. We the

the XX various of Approximately balance IQOS XX% of quarter million million the IQOS surpassed users in with switched smoking stopped We or users total end. RRPs. to some stages and IQOS to of now conversion. Turning X as have

reach range X.X%. success This smoker frameworks In by varying and across the points continued with region, EU increasing broad markets reflects adult sequential a its X.X percentage quarterly regulatory HEETS preferences. share of growth growth to

HEETS the over significant the IQOS evidenced achieved market shares slide. with this have region the across year on progress shown We by past as

This in Republic. and growth the as Poland even markets, Germany includes some well the faster such as strong larger in as Italy, and Latvia, our other Slovak Lithuania as of such Czech markets growth Republic, Greece,

strong in XX% and in with market Russia its quarter, XX%. of in over growth sequential HEETS the sales of performance national continued share

As our by total seasonally was first the the cigarette market impact a on reminder, share of quarter HEET lower volume. industry flattered

market of a trajectory. remains sales In indicator brand's volume realistic progression more therefore the

quarter For X.X% reference, of of share in we estimate six share adjusted second point points growth sequential a implying quarter. the first

IQOS XX% quarter, by the the at and market cities of of continued geographic compared first estimated to our industry end We quarter. commercializing the approximate an representing in are expansion the during now total XX% volume,

versus total initiatives increased further the we last and share In XXXX introduced of of quarter Japan, half for the HEET performance. step to share HeatSticks driving second are the demonstrating paying during up a and that points our second XX.X% by in off X.X year our reach

stable of trade inventory first our the basis. was benefited for estimated impact quarter on adjusting sequential a year, After share movements, share this which our

in competitive We year category activity as the greater progresses. continue to the anticipate

may this positive in ultimately term and a the increase for products, particular. churn adult for among try view as consumers we development this over short While new IQOS they the competitive overall as category

cover the the I will enhancements remarks, further in later leadership we're to As to IQOS brand's X behind in reinforce device my XXXX investing position.

to our the grow data. based consumer category both the tobacco and in latest brands on heated sequentially share off-take the quarter, Importantly, for continued share heated tobacco

market market current seen related heated dynamics the as and new stable competitive from the declined on points the to This dimensions. churn of impact the Share category inventory mainly in share devices of HEET from X.X sequential We continues and flavors Korea, for share consumables a competition area and have to and progression. entered flattered was be the basis X.X%. highly was by tobacco new particularly non-menthol attribute by as initial trial. adjusted the taste at In performance competitive the experienced movements

launches scheduled broaden XXXX. preferences for related We have our of the better of to address adult unique second Korea plan HEET in half the consumers of and to tobacco portfolio taste

very geography an remains remember In addition, to device. will Korea, It initial focused upgraded our IQOS across These indicator level IQOSX city with most in favorably the the shares and the and important compare national shares cities. key an broader IQOS for corresponding Japan come markets. is of aside can from to focus targeted focus that like markets Japan, launch greater support encouraging and opportunity Korea that for provide be to

IQOS, on to closing reiterate I also for excitement prospects like the Before would IQOS the over U.S. in our

U.S. of of and and on a U.S. is authorized the marketing Administration April confirmed the it protection As that the public reminder, Food sale for IQOS appropriate the in for XXth, Drug health

Altria whose subsidiary IQOS the market Inc. expertise Philip U.S. to beginning a bring the license USA and of initial has to Georgia. launch, Morris We are the excited to lead with Atlanta to market market with ensure an infrastructure exclusive Group, successful

outlook, by of a optimization. and of approximately XXXX part income partly full shipment as tax repatriation business we The a to our $X.XX $X.XX a $X.XX to infrastructure increase costs compared May performance impairment XXXX on guidance are Xst raising by plant in and related prevailing was year our to to global be diluted our federal benefit be related primarily per guidance reported at offset our of at EPS volume XXXX, exchange rates $X.XX Turning least year reduction reflecting estimated prior $X.XX. better of the to dividend tax manufacturing share in least asset for on at stronger closure to driven exit Colombia U.S.

neutral adjusted an approximately to currency slide, impact $X.XX represents with half prevailing projected continues $X.XX year. forecast a the unfavorable of least share in $X.XX versus currency guidance in diluted pro this Items include second forma per exchange outlined at Our our like-for-like XXXX. X% of just at our rates the of of EPS on increase

increased to basis X% a decline approximately X% assumed guidance of X.X% a shipment total Our of previously. assumes now a decline on like-for-like versus volume

aggregate markets shipment inventory We sales essentially with in HTU anticipate line an in with continue volume in our to full offsetting movements on net year volume any broadly basis. market individual

we estimate previously industry, of X.X% total end the decline a at volume the now decline of excluding the X%. low the which of approximately to communicated in and X.X% XXXX is U.S. China range For

excluding at currency X% of like-for-like Our increased at compared least further to revenue least in guidance assumption the guidance. assumes net of prior X% our growth

IQOS net volume shipment that range our XX% change device reflects of communicated also of the net to earlier. HTU revenues XX% for RRP previously than expect favorable in I the primarily from XX% The less to We to XXXX. total revenues related now geographic noted account impact mix

as the competition We development, opportunity or This reinforce and device continue and to by both in to distribution during of XXXX, full in us brand, anticipate commercial increase supported above line order year further a to geographies expand second to of like-for-like pricing X% combustible further accelerate category the variance our new behind strengthen year-to-date our provides momentum top leadership IQOS and existing the in investment advance enhance positive IQOSX the variance half June XXXX intensifies. product X.X%.

year RRPs Consequently, we million of million. now this compared to of $XXX estimate behind our previously anticipate approximately disclosed approximately net incremental investments $XXX

IQOS step investment increased the investment of will the momentum the reinforce XXX majority With this XXXX. in expected into quarter. to believe occur third up heading We the in positive million behind

investment, our like-for-like XXX on of operating at expansion points income Despite basis are of least margin the maintaining basis. a we increased assumption adjusted currency-neutral

forma flat While our expect be we EPS the EPS give on to adjusted some currency-neutral quarter we of quarterly diluted provide believe don't adjusted in essentially appropriate guidance, it $X.XX. which is visibility diluted to I third additional pro to compared

revenue net in neutral growth full below the year quarter rate currency our like-for-like a assumes estimate assumption. This slightly

benefit quarter third benefited increases of markets As this timing I last year, noted offset our quarter. in will and of revenue the earlier from growth in net be certain the compared to price some second

also quarter a a is approximately RRPs primarily last our of strongest due about million combustible total with face incremental also on challenging quarter. behind pricing with quarter expected of of the estimate costs versus third the XXXX, to top in the full our expected net pricing Coupled investments to higher assumption, our basis. EPS line $XXX for We quarter comparison come our year. reflects year like-for-like half third This

flow. cash to Turning

$XX of start working very to we're capital building to flow well We continue solid conclusion, anticipate performance a billion the delivering year-end year and approximately billion. expenditures $X.X to quarter. as approximately our requirements as operating In the year subject cash second promising upon full of in capital

units to are for continues IQOS targets our of across our The favorable XXX by billion portfolio volume combustible momentum XXXX. shipment XX The HTU further geographies, tobacco our confidence units in fundamental intact. strong supporting supporting

Finally, on full and rate X%, growth year and in overall basis, prospects. anticipated to assumption term confidence increased diluted year adjusted our X% currency-neutral short PMI least our growth EPS a at demonstrating XXXX for we least net growth for at revenues further long our like-for-like full XXXX have to

questions. happy I'm to you. now take your Thank


Thank you.

conduct now question-and-answer Instructions]. will [Operator the conference the We portion of

Adam comes question Citi. of first Spielman from Our

Adam Spielman

where markets and in what the has and much. thank -- XXXX? bigger Hello, Clearly, market, you've two was about very about surprised particularly I wondering, terms you on I I of you thank as a your both you more you're And have yourself. volumes for just talking of questions. and in think better what you. my end to question, first That's for a guess, guided improvement terms geographies volumes

Martin King

there. for broad half is number bit to the it's good tax to a year. EU now even to the we're the based, Turkish EU It's that But like quite volumes rate this we're of and overall far it's previous more no up is with lapping are such have exceeding pretty and the fairly to you other With big half market and but around a benefiting area tax would year, running pretty I grow that and call other limited year also one us seeing this the to one year Saudi run X% or first be been because with as some rate again positive so the pricing increase the previous this first run is a a at it started well. mean, market big not markets pretty not X%. is but growth market least still from across though encouraging. little to up maybe size is X% geographies having surprising forth doing it's strongly the market year used like couple up. Poland has in of increases strong I that's year, it its so of and X% last tax, out of Indonesia seeing compared the is Thailand a

EU the fairly that's would it's based, So is I out than but bit little I what expected. -- broad more we pick probably one the would a

Adam Spielman

just it is Indonesia Saudi And or expected where you or Turkey, you big market, just for just, there specifically decent those are is have better than our doing it the markets market I and shares? here, the is markets else, all anything EU, favorable guess, peers are

Martin King

benefiting tobacco of pretty one called our favorable units. share, you the share mean last in within quarter higher month. quarter. lagged the one in main cigarette a so And from was is prices see I issue the even we of well. a bit quite the doing in category, as overall well Turkey quarter only reasons this and quite We of and on Yes, wasn't but was we're prices and as competition the increased cigarette heated the ones Turkey lost with we The a the market about we're bit, for second that, out share

expect quite and -- They're quickly. we lost has with recovering competition don't However, Parliament. Turkey in Marlboro

a that QX bit was of a So anomaly.

heated from holding strategy the competition. every space coming are from as in two nicely the benefiting category is the up share you of overall we're know out So of cigarettes within consumers our three the course leading very overall and tobacco of in approximately coming cigarettes,

share So up pleased very holding nicely we're overall our quite with is it.

Adam Spielman

the you And there's quickly. second prices this just I gave the in did implied sort earlier be quarter. slightly you than to point, but the very QX you going pricing you corresponding a couple XXXX in markets in because times, you of of And beginning you mentioned was variance more in reverse XXXX. had A took guess at impression

a do talking variance sort also year. of was the It little moved you slightly of seems you It's a specific color And I a to a markets what about bit strange further pricing do. be of more sort thing But a that? did bit around bit more just can that wondering why you're about? forward in thing

Martin King

think and a with not first you market the QX it. this you gaps various other of pricing to we measures is can where mean, read out QX We we when competitive certain it. shifted to pricing having and It's all the we stick try that achieve overall schedule. and I take into One as the call take situation from can is Yes in was year kind of it as get we it to year last Mexico.

last it the benefiting and any pricing the $XXX So the QX this in was very pricing year’s last other movements to had million. in was is, the was the year. you QX QX year trade was QX quarters. variance large, the piece where of on benefiting And comparisons of year It last it biggest

So sequencing, way one the just impact because on revenue significant a works it of bigger the that timing have quarters pretty moved another, pricing the quarter when the are others, and out different line. you get total from to and some can than

about but two strong, So yes, quarter growth these in like-for-like total X%. it revenue ex-currency flatter is X% very, very movements by is by

out, up. we and we people So coming that call impact to also as QX wanted the against sure the make understood comparison make

Adam Spielman

go. folks that Again, you. lots I've a have at Thank other got leave but questions, so that, it more I'll the

Martin King

Okay, thanks Adam.


Judy Our Sachs. Goldman next of question Hong comes from

Judy Hong

you. Martin. Hi, Thank

Martin King

Judy. Hi

Judy Hong

hundred investment but spend behind I where decision IQOS buckets year. question gave for a my and spending. just little more I to just of go, specific in get your So wanted big the million of will of mind kind bit to incremental know first the some this clarity you just guess, around think you the programs the I is

a of as pull we bit as come the if of forward this should the expected. a think more has better spending then in next planned than year kind And momentum about from underlying

Martin King

us a that the benefit. side maintain will and will we we to side one long I have going I pace where product us a some into year, of help year but something next the are it more I of not next of can mean development the on out of year innovation our accelerate accomplish. this spending additional a beyond. areas really projects term innovation momentum Yes, of some to help Okay. coming commercial couple help and broad faster with that can that's both us it's at and the likely is, there will mean our and mean where

investment, of to with competition innovation a pipeline. got on of and So a our that, in ahead strategy very our and we've much the confidence continue realizing order that's stay term that long more to

second EU, we we've expansion. The success have had around opportunities to in and that pointed is piece geographic still areas. Russia great the We've out in both geographically and expand

funding the investments next additional is So accelerating And those plans and geographies momentum second the get think have year prudent. then to that we some a ahead going of an appropriately really more good open competitive into of start presence excellent in we use get is will of to year. off I to also new that half

really device. of third areas I staying best say address well to and we're bucket doing -- ahead sort then investments And get intensifying in It's is And the We up benefit reason what and examples a and, opening competition. being other them some would in Japan have the that's a for innovation innovation we big on it. I to areas. where do and new Korea. we're mean, so it offered in excellent with the And from IQOSX forth. are IQOS to to want that of be products an out stick the improvement and lots helps new IQOS where us going I guess and in to have really our of having face there that users way and a news

try the that put is investments space specify, risk I that into catch to activities, intensity but there's won't these as same in competition then we we've given And which which to commercial that markets built. the bucket they will reduced more additional aside they think putting for also in I that need up realize some

of this success, been investments. the I momentum then this and more bit prudent plays that to are we've ante which that to it's covers beyond. able hope year do up I do, and These keep importantly but our so to success year and need for finishing we And momentum allows are going, not well, year these think are because and breeds about get ahead. Judy. It's well term a that us those long just So next

Judy Hong

bit kind some some my you've you've I was and in up six, had going a second that How about investments guess for that specific activities dynamics some you that flattish. plus, guess we'll and be of Japan you then, launch now of in already the bit being follow little I on think share made? on in of helpful. in IQOSX Korea devices that competitive I would half? with question that's improvement months about. to what and the in be six market guess the back Yes, of And see that talked new been context the can have a actually the Japan, a of Thanks. more place the

Martin King


we to to-date mind mean, year I in keep we're for over last So, up Japan, have X.X points year. share that

we yes, a QX, run that's growth So rate sequentially but our QX an slight year. offtake on well only already base last to basis from up stepped on had that's very from

are share it's clearly consumer the to The taste incremental different working. attract opens price definitely consumers. lineup that initiatives we're introduction different working, brand getting, with our mainstream more and its So, its point group of access to is the and more HEETS at different the

despite tiering a X IQOS at is usages X.X+ evidence the vast majority IQOS battery the quicker. the MULTI. the The available purchases works that X better MULTI. and design received. We've have between the of X gone the volume, price is And had all and in all and charges much feedback well nearly the where it for The very price IQOS market is lower good on

there consumer as has share going overall it effectively our our is And So and before expect and continue salesforce working to smokers and grown that innovation. the has category I mentioned convert appreciated has adult shows we HEETS that that grown that to forward. HeatStick

second competitive half. in some there to obviously is going Now be more the activity

And will and but some consumers with in see still think that to the innovation appreciate. we're think us is see offerings. the can the I'm investing we'd improvement its is consumers impact details as well keep we're for as So like to behind it. will from that new forth, surprise any you the products on we really keep choice help convinced further as out there competitive IQOS be X to it not improvement short-term marketplace product and that may so trying what now. improvements I we'll in best get But imagine our other consumers

the Japan's certainly in competitive and as half one Japan and have Pleased half to still performance; that the go sure we're only keep think We eyes where behind addressing – situation our the have the Korea. with obviously I second we're situation we make of very competitive first year as short closely area and well in us. that's watching to the

Judy Hong

Great. Thank you so much.


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

Bonnie Herzog

Thank Hello, Martin. you. Alright.

Martin King

Hi, Bonnie.

Bonnie Herzog

about of wanted specifically And I ask more new of some market? you're back to rolling renovation they competitor convert Hi. to things a out your responding simply possible a more risk discussing. some new innovation wanted that that and helping you driving loss possibly the the is in IQOS? little hear more as of or been bit Are maybe how also further you consumers is I to that's some the markets? consumers by share been of the to kind to have innovation on are experiencing larger think then the these are and do switching competitors trying Or coming reduced it just smokers

Martin King

from share phase. of category from growth are between churn firm we good some having and especially seen sales is took affect, and IQOS. different moving between nicely settling our up Japan and initiatives Japan, is growing the that, overall I consumers another and pretty back in would we're device Obviously, markets, maybe there with year we forward. so would the the have share the more and that position growing our from the two wave a think see we be have But are I last it's I JT, there a In our actually say of expansion that of Korea. think that new Japan coming period we

Japan an going competition. the We in forward. we'll obviously feel keep So, eye on well pretty confident

trend more Korea, of to has consumables that if is unique will. a Korea but in just categories well. of a KT&G little bit all tobacco a flavors competition. kinds area a intense that good lineup in has and of capitalizing on this. offerings also in job It's a not taste but flavors, direction, are the as not Korea exotic present confident KT&G's and have other you In our kind overall just done area to of it's device has by non-menthol in an more And the cigarette in flavors will very country heat-not-burn, that its of tobacco come some number that flavors heat-not-burn additional of exotic of area the they of of category way out the we kinds within lineup large with years. the with offer in in put half it's a the the feel we second new in and all respond

how those we'll see have traction. responses to competitive get So

Korea. some going in year, whereas on the the and putting results We we're forward and think of second we activities we're other the in and we're right some need forward do are going will attention now quite of forward. better Japan half in that's to of confident marketplace firm taking, the and I more Korea also our in action we're in But going think footing in remedial conversion

Bonnie Herzog

the How start effort that this risk as defend you for and back all reduced how heading products? landscape help. for roll seeing to concerned are intensifies; light is or That's of you share. pricing Okay. you going where pricing competitive to to then possibly in And

market Just trying in to pricing get sense the of risk time? evolution a reduced the over of

Martin King

out need pricing think Well, versus consumable you separate device I pricing. to

the RRPs no sort as a increase, Japan year issue the perspective. absolutely actual, with pricing through we any And of pricing from consumables being issues skirmishes. pricing as example the on anywhere cigarette. sign tax big have don't fact see on well the went And we any went of in of for consumables prices in last up or overall the On indication when

on Now has are the devices. countries prices devices, some competition low the offered there where very on

keep too and I to above competition where will being keep in price in value high to pricing issues, have on need doing economic to do the We promotions of we a much it's are with that. the a from But manageable more always side. discounts the manageable offer priced surgically continue we we'll the well and a consumable devices and and necessary to that's to device sure challenge our on relatively you're mix than is converting making for mean more consumer having really consumable that devices and

So the category certain in places where a is skirmishes Its make overall the sure continue say I small pricing going we're would issue. certain to with major in to have not devices competitive. countries, we're to being

Bonnie Herzog

quick just And on me. helpful. your That's Okay. from guidance question one final

slightly, you spending your increasing You're expect you be noted but still your margins to just as strong.

perform to the better what can or what relates your it specifically key to expected as highlight us is is for you So, offset margins?

Martin King

what of the through if I spending for I line before, you'll working obviously think to is. top mean, we're mean, it I I less more margin see that the that's spending the model you think get our mindful very a still think I allowed and Well, more where it bit or keeping hard was increase efficiencies. while that and put

You see as Berlin. us on announced moving some footprint intent now. Pakistan and doing we've forward consultations We We've on our before. of We're beginning the announced factories. the Columbia did

showing get next have incur lower then years. out and year working our internally so see not already the in going It's bringing you the properly cost to years. so much course you'll cost because forth. hard more those actions and and fairly on and base people take out this the We're and the forward you of benefits But of in most the up treat few cost cost and categories

higher the the X% higher revenue So really well. keeping I EPS of XXX million the is and growth as think realm the within

Bonnie Herzog

All right. Thank you.


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

Pamela Kaufman

And Hi. the within your investment in comments this vaping in be heat-not-burn? the category? specifically to In thoughts question. will alluded more behind to extend your on are what Thanks product. Or of you your investments you vaping also, M&A Will for accelerating investing about innovation. presence happen QX, step-up investing in behind

Martin King

Yes. several including are The e-vapor. investments across platforms

with the technology then to market cigarette out marketplace. initial product continue be the what's that confident We the and roll the our plan will mesh improved with with to that – factor first superior and in improve we're very form

fast to many to the can vest want year. as to get ramp behind ramp-up as can markets we're we for So we the next we as and capacity and that continuing capacity as

XXX XXX been about spending, million you or about has we As said million of spent half of half million timing the $XXX $XXX about total take far on then we're spending, and XXX us across the if leaving it's communicating on as asking first that a now come our all platforms innovation well QX. activities you're future commercial product and just will the various to across well categories, smoke-free broad-based as the of But the in as commitment as not It's as about. commercialization.

Pamela Kaufman

us how Thanks. about about thinking in to Can think you And IQOS's the the scale? ramp it help are you results U.S. as contribution potential your

Martin King

U.S. area tobacco other way, certainly trying prospect pretty other where general a are U.S. so category new consumer innovation some product, the think plus. U.S. and products to product IQOS in with see think I And consumers the with are in tend embrace in and consumers And that's the very open cigarette products the the I the in looking the many risk to all by consumers it start start as to you it receptivity. categories Well, just compared also for estimation of in mean, but the I of at trying reduced U.S. countries. to readily. we not with our

got you've this got prepared. USA. pretty the then introducing well And clear amongst and good smokers. and a the aspects that we PM product all have them communication build There's execution plan. been very some working adult excellent with to in Altria of help strong ability. on There's the awareness guidance good and trial U.S. share learnings, We've very got They will regulatory of cooperation. They're a freedom FDA They clear from approach

Korea to be think solid realistic. to off to I very I to expect we but like faster it et wouldn't expect U.S. quite did I has we have perform on going it’s So mean would average expect U.S. the mean, or Japan I that than EU assume take results. well. initially we cetera, be developed. the to you have

we started. together Now, then hopes take out it of Atlanta there. working to be and But We'll from success. make a to a yet very from lot we're have find we'll this course, very and you well high beginning has the without

Pamela Kaufman

And me. Thanks. last question one from

early the and on read competitive JUUL your about International expansion Asia? Europe curious dynamics, from in Just

Martin King

We're any our Well, it certainly overall early from on for results. not days is JUUL. JUUL impact seeing

of it, to that can is the we early and but days. as it’s eye staying you within with I staying sure toward well have it's eye throughout ahead closely. trial are as we're coming with but them great really mentioned it get as and it heat-not-burn, Russia and that that quite well any momentum we JUUL. as making we're much As and like and also about JUUL with doing watching also fact amongst competition, this that awareness extremely competition there's the EU mostly and issues see and talking We're having others an ahead nowhere of and presence expansion we're frankly places

we We're one we for investment this the mentioned with it. likely to eye than sure some compete room that and make and earlier product well on I and more JUUL our Nonetheless success. get we're about there's course JUUL. So rollout have of successful will category for platform that in with to on steps taking going e-cigarette talked including

as So well. we're realistic about it

Pamela Kaufman

you. Thank


Rampton Robert from of comes UBS. question next Our

Robert Rampton

me. Three morning. from questions Good

first me is X.X the around help X%, full disclose to for question bridge down you the market your year? with for could The -- if the so

Martin King

heated it's shipment The total and worldwide the our tobacco rate. units and a to X% tobacco the X.X reference for market is

not didn't sure. question. I get Maybe So, your I'm

Robert Rampton

bridge key from So, which that and industry then I'm units full market we I'm at referring market to I [Indiscernible] that appreciate data I doesn't the says XH your to your were X.X%. asking do the is, down guess what what XXX% the back of cover total how the do did year? in

Martin King

The a a it half a would less than don't down half obviously, two the I down to half second the bit be was exact more the total and in back a the industry to have number. that. two than in first half, and bit bring and

Robert Rampton

for into year, last was a own down various flat quarter, second than it decline Turkey hence as we're there's in second I bit because going the but X%. normal taken various in by pricing we've in that be will you now quite Robert? tax our half. grow so volume pack, weaker both throughout was pricing the half it there's and mean that first the or roughly obviously into too that a year as and went big will and total infer less the so April rapidly first pretty price obviously growing Does I down events be a going market saying half per Turkish our be Lira half countries. for to more to rates help, way Turkey. first that fast market that won't the shipments market mean Yes. the year effect have the to throughout one for we're shipment quite pricing We're Turkey's was.

Robert Rampton

Yes. That's indeed. very helpful

So next year the ahead I a some in-market that pricing think in a we comparatively flat? in inventory lapping will be billion the you’re your XQ should and was that difficult X, about there the how Japan, was tax sales. gap there so number shipment change, question loading clearly mean was of of of of on last the but X context between

Martin King

had mean Xst going have started market Japan products. pricing had impacts that. that year. there XX% whole especially be mean, the going just October all inventory year to because tobacco, a have we expected VAT parts to VAT. obviously that the across VAT next. from the market loading This inventories That's as some trade might X% in pantry year. consumers are than but you point I the from movements for and not a increase projection different one moving we quarter you the down the there out are what drew I Yes. we couple on last We obviously, expect But

warning next be deal coming There's change also that. a managed have inventories year, to so to health with

but overall less it Japan heated a can't statement within total individual market less in overall few are tobacco inventory if the down I to line that in be really there's unit more made you other there given we worldwide more flat. up to in sales, be up. moving parts. shipments where So Even moving parts. mean, expect these or we've give one market I should each or obviously, that another many in market, quite market words is end going

really set. remember you to And have are inventories

end decide As what's an what of reason into the year the is year going in the well. eye we events towards the happen as the think to that's as what whole and to inventory, is go are coming with we next have coming to

give expect So on the sales more any not other that up for and in inventory it's a details approximately to year and than coming inventories this broad that difficult to bit you big be market same differences. shipments what's have statement we

Robert Rampton

That sense. makes Okay.

development get to market that anything I'm it point last you of Greece weight is case of in trying a quarter, about you certain one Sorry, backwards is of the bigger markets. redirected on moved quarters that churn that other or question Is but or XQ those and versus it IQOS terms just in share just not in proposition, start a in getting the resource? quarter wondering a initial of say to where function you've Bulgaria, a I'm in obviously

Martin King

volatility because if from now steady, doubled, the keep growing and in we when right? the at X.X, up where in you look understand you so the was at prior it's very look the growing saw Greece might at just be mind underlying Russia the is some you you saw But mean QX So to situation share I moving share in you there and share Well, year, example four have overstated the of numbers, very has but steadily. is there's when IMS for Russia growing rate. overall around, been and nice a the the growth cigarette seasonality like

two in half these double. It's markets. up longer you grown and But Bulgaria's it's when happen its called and the year you out four look more is X%. by at last But term things both a other and the half. to doubled Greece, similar X% distorted movements than a it's other to in

look one think kinds to those way in you another those to we're it. growing best really quarter But So rates at look quarter growth locations. that's the both at well I with don't when of

Robert Rampton

Okay great. very Thanks much. Appreciate time. the


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

Michael Lavery

being especially more in relatively be would the we trade full increase bit what about why the year quarter should of still and Could Japan light think be you should third that and below the you. Thank in just unpack the a quarter little revenues How case? your And VAT loading. the in profitable range?

Martin King

by it to we to essentially the on impacts add you well, is this large much we'll mean, while variance two percentage And that And about, the of of very it this we top I year points. which is the spending that where pricing talked pro year-over-year at Well, this we the the year $XXX with decent nearly that pricing going one of last had you won't year concentrated this very overall then biggest up is look quarter. QX flat picture how when timing that's in last million. have as benefiting QX And And from drag on about obviously And XXX. be quarter. forma to that that's step the big in at line. get

Xst. individual I Japan But Japan of I right? pretty in basics was are a price significant those forth mean if year like at pattern, certain you picture year mean last in obviously much affected. increase look to I remember big that's It movements one bigger and that had countries the so next it. there and the events October numbers year. in the are pretty same

you had and trade So loading et cetera.

you -- similar But instead the at for price when the instead a are you you date. of same a So of it year I'm tax, really have that have sorry. do the dynamics VAT potential this trade

that's think I to it year-over-year. So driver that a don't of big be going

Michael Lavery

go pricing through this you as Are tax anticipating having with well? hike

Martin King

any as We far point never know see to this pricing. up, else. is to all have can at as what forward happens The that's anything going go in We'll really time. VAT discuss we

And as government of ahead with have clear happen. time to always it's we what's forth, pricing to discuss going so you're so usually not the and to very

Michael Lavery

million back incremental you can course. it, spending Yes, the a piece And of just bit. on XXX of the unpack

of half to Or fourth? fall it on some that rest that mentioned of is third in going the already Is has happened? quarter. You the the

Martin King

be of believe XXX of Half to it step occur up increase That's occur. we that Just we would added i.e. that in of said XXX. XXX took million we already the million total XXX the clear, a will had to the million big the of quarter. big third out That's pretty That's XXX of impact. XXX that million why It's million million. why to hit impact. XXX just we QX. expect a total up it's in it's pretty not the a step It's

Michael Lavery

clarity. helpful That's

from ahead timing some that plans. hits pacing And the the of XQ that by of Is opportunistic just driven momentum perspective? your the surge some of to ability reinvest how

Martin King

Yes. we've spent only million this so I half. XXX in mean first far year the

slipping was and and some Some design it like was by things timing it some that. of of some

to our a There's that's expansions longer the and top up already geographic us original do them actually as investment million go to on step is on from we address planning As work term much try of it XXX, we the through to turns some time out, benefit that we're situations better now. innovation. time of QX competitive we've this for out XXX and the been of year the and to good very the get some because going

spending we rolling hits goes QX and commensurate is -- can things the the get it get when that with timing.

just the of driving quarter. the one of So But of different happens it's a things out variety so that it the concentration falling that. yes, four into XXX

Michael Lavery

progression some in London? expand and might in but in to be London single-digit more runway a the That's ability XXX,XXX market little in devices about high question, -- have over that been on there? to And It share but more your it of a there's one, could your a that last of there's in Bristol some it's no and Obviously, London also the been news obviously could U.K. one to more neighborhood now. good IQOSs, and be helpful. of sold is bit severe starting you're than couple Is was and gaining something some hands the Manchester much share of years smokers. just traction people How communicate restrictions in have those starting but the multiple, the on then of -- it

Martin King

share we mean, London Wharf, It's I our relatively West Yes. certain London, have in pockets like in bigger it's small. But share. Canary small. pretty It's significant is relatively X%. above around

convert U.K. invest We're Manchester. really stores and We so and as who people have good completely Bristol at in successfully to most you do out pointed conversion buy the continuing opening XX%, for smoking rates in to the and and heat-not-burn. devices London part the quit switch by

So we're making headway.

some you out due to the been setup other As pointed it hasn't easy issues. and regulatory

We have to is keep in mind London a world. the like crossroads of

in a people not that might but HeatSticks So actually visit London you to a buy lot have consume of device, London.

obviously share, visiting give I market would you I'm be share, from people that but HeatStick various offtake by countries. about talking would London purchased when have you devices So

your they for travel also bringing in You price is them much who London. do significantly limits HeatSticks certain and in stay a in buying HeatSticks in within than as might lower that. Italy quite long lower, And back bit it say the Italy prices are Londoners as have can EU what about they is

of you So a get going lot that on.

the closely as working think of match awareness probably trends. set it a think helps is and keep and as sold city worldwide doesn't the a one the But us bit a very I in in the might I consumables. London on a for that situation to is world where offtake unique of worthwhile think So of devices number of conversion endeavor share London leading people with it's up you because

chipping So it. at keep away we

continue are making progress. that. do We We'll to

Michael Lavery

That's lot. helpful. Thanks a


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

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

Gaurav Jain

And market in question. my that Greece. this that taking on on for sequential was Bulgaria you question and earlier Thank the share follow-up a is

has I been overall look and around having share after at if XX%. penetrated IQOS stable the at after market the category XX%, stalled early HTU Japan, So

in market already in And at they the Lithuania very XX% Now were up QX. in Lithuania slightly. you at share look share, are Vilnius if we

you hitting European Eastern are is, adopters ask to trying early countries these of I'm and of limits in cities some already? what So the

Martin King

the at would at offer might XX%, think bit of or still effect. look But of be have you say, kind Vilnius you issues that early converted that the dynamics sometimes level Russia, at and where to you the mean, of majority we'll the to I you're be running a the one it I've are innovators. it is have the quite really vast when that in even be Well, only runway would premium think pricing said can the where depends overall out EU start might and category which before I we of an as that people the of of challenging go the if all on vast some there hit and adopters majority premium I converted you have of smokers

we're to price prepared that different have tiers. And even you now, happen be much we even to sure make you when the that prepared for now more offerings obviously starts that because need span to know

the to need groups. be in to prepared You have messaging for different place

from EU. relatively we mind move far different frankly, and EU an you build those Keep the within when able something in keep we're to to I aggregate it. strategy anyway in So, the geographies it's be are still levels. to Lithuania and toolbox Vilnius away eye the But a we start in obviously far small think hitting on

I for see of your prepared are us quite to rates have aware you and time to a So nicely don't question. and sorts come. toolboxes for we for But in expect issue continue and those the growing our We're some Thank overall EU. for growth I it it be good to on trajectory an as situations. and the of strategy

Gaurav Jain


question? ask growth X%. I greater not Can Okay. X% to increasing follow guidance year You year revenue from guidance your the but this three than one up are

be the guidance first bit that you year now, shouldn't in the So itself? also are increased increasing because a

Martin King

do a to give this We the change wouldn't we We're three how we've as things up we year guidance gave this Obviously just going when some that, the it that. next just compound set not how into That's annual year, and year for rate. three year. next see growth get do before based prepared period. overall we we'll not on and are we'll

Gaurav Jain

Thank Sure. you. lot. Thanks a

Martin King

Thank you much. very


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

Martin King

leave just takeaways. I three key to wanted Yes

strong got well. in very a are the one total which actually both units evidenced which it's is the performing conventional First is half and and momentum being, we've positive our by volume, which basis first on tobacco as like-for-like heated the slightly

expansion. heat-not-burn, to least amongst put pretty the development. is in we're addressing focusing XXX have a line our basis so pricing first to increase the down together, ready Indonesia, of the Second We're our half us that some areas on shareholders. and has We to to we in together, through, three product focusing our half have those trading We've we're geographic for and good for there's We're competitive eye keeping things half our the to we're maintain XXXX second definitely have beyond. the on into with lead. confident of longer where momentum of when sure move and this them, it shape countries go with favorable competition future commercial maintain investment the We're some all term, good the make we're and on you and And points the still year, and confidence strategy is all for working that but into competition forth. second Turkey and the XXXX. this margin year. this that given the we an currency-neutral to with We've got benefits the got that expect are expansion top in with you when increased on put in flowing at

very much for listening. you thank So

Nick Rolli

call. us the today on very you much Thank for joining

the If great up you please much Again IR questions follow team. contact have a very day. and have any thank you


Quarter Earnings Thank Morris XXXX you the Conference Philip for Second joining International Call.

disconnect may and time have at a wonderful day. this You