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Philip Morris International (PM)

Participants
Nick Rolli Vice President, Investor Relations & Financial Communications
Emmanuel Babeau Chief Financial Officer
Chris Growe Stifel
Gaurav Jain Barclays
Bonnie Herzog Goldman Sachs
Robert Rampton UBS
Michael Lavery Piper Sandler
Adam Spielman Citi
Vivien Azer Cowen
Pamela Kaufman Morgan Stanley
Owen Bennett Jefferies
Call transcript
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Operator

Good day and welcome to the Philip Morris International Second Quarter 2020 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] Media representatives on the call will also be invited to ask questions at the conclusion of questions from the investment community. I will now turn the call over to Mr. Nick Rolli, Vice President of Investor Relations and Financial Communications. sir. ahead, go Please

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

presented for our of projections the and availability presentation In I limitations actual cause statements during subject addition, Canadian direct please and Babeau, future Hedges on your forward-looking statements of to today's for attention Emmanuel been remarks accuracy reflect and the factors our COVID-XX. disclosure to in have and a release related could results that to basis results. XXXX. pandemic-related my for XX, for Financial deconsolidation note contain differ in cautionary the to press materially review forma share and quarter Rothmans, various which results, Today's from statements the projections introduce or on forward-looking cautionary subsidiary, note additional It's forward-looking restrictions. statements. pro Officer. Please forward-looking also XXXX pleasure a the to Emmanuel? now estimates certain effective the total industry March market like-for-like of data of Benson are geographies our Comparisons adjusted and Inc., industry & Chief

Emmanuel Babeau

and listening I well. welcome, Nick you, the you to safe are call close ladies and Thank and hope those gentlemen. everyone and to

we health the our communities and families the remains employees, in focus of well-being their operate. and which main Our

and our to we policy for have offices. and stringent continue to in minimize who restrictions, work those facilities risk During implemented measures

For and working essential. from home, those guidance all our providing also is support employees, including

to momentum We to the real restrictions are now to opportunity excellent, shown continues team. return now And turn the where location, some Most business, that this circumstances allow. outstanding managed I'd pandemic. organization users performance with condition I a the quarter. delivered was in year the unprecedented continued me end the authority the and for and this by in which local workplace our up estimated the a the them strength IQOS to be thank make XX.X the spirit an The half inspiration the PMI first of efforts. facilitating of their in of a gradual, million challenging to time second robust people carefully like and despite the take importantly, to management of at

rates and net digital RRPs IQOS' tobacco growing and to rapidly QX revenues. pivoted user preserving year, while up model prior XX% commercial of quarter high heated retention. one brand acquisition Our XXXX of units engagements, to almost remote the compared With of made our in volumes

the operating quarter absence for the all in margin strong major main in pricing remains The hope dynamics. combustible been priority first and it our the projects increasing Productivity lower all combustible, by months operating of many digital, business in In term of postponement quarter June volumes of in The expenses, are of and in to savings This the their in largest RRPs -- is and restrictions the recovery product. contributed. and of the certain due from where are leverage future additional the July and Indonesia, RRPs strong linked has compounded volumes an electronic higher income. IQOS, we easing elimination or that improving. MRTP in net mix started addition, and was three the the performance. nicotine IQOS countries. to a of enduring margin authorization in have reflecting of driving receive reflects adjusted beginning to manufacturing and X, particularly improvement no Economic RRP recover IQOS SG&A very our presence as pandemic. across EU, prospect profitability. in no confinement We revenue pandemic, where the second of by the of is for both our FDA's business savings after pivot the is truly difficult July, RRPs this two improving historic coincidence first mission the now half. region order. of duty-free our risk driven on gradual the operating a to reached Industry a COVID-related modified with and the resurgence to uncertainty Notably, COVID-related headwinds regions and product our this milestone tobacco is growth Indeed, despite our

With use the confirming adults the marketed in issuing smoke IQOS instead of exposure principle. an product to and for otherwise is of to to encourage benefit expected with how use validity of user continue enabler FDA Following cigarette line is version important adults an not for smoke. that users aspirational and extensive comprehensive include authorization who smoking order of metrics. choice The otherwise in public agency continue regard of and goals organization and do significant health youth IQOS The The unintended United evidence investors government to aspect, I the at pmi.com. and product the on our of the differentiated and would alternatives, harmful to the would continue targets health the recently to a of while the decision to The switch with shift information an of prevention promote modification is scientific variety environmental, to Notably, governance allows taking post-market review now for better the a to and of who studies our as can contained cigarette reduction the States, implement A on social subsequent published help like harm around better focused available increasingly transformation website harmful provide and smoke-free the options, the growth is our of inclusive, smoke. report whole topics Report to who agency the otherwise business package, against who and demonstrating that approach to can science-based highlight that a implementation in prevention. for for appropriate for combustible our our IQOS covers IQOS framework non-OECD currently future would be number chemicals our health controls different product. order regulatory on consequences. found product the critical fundamentally expanded RRPs with tobacco better from both world tobacco account The our person a of public scientific reduction important of a access XXXX. into simultaneously adult to ESG exposure monitoring, is guarding measures, focusing countries help would including Integrated rapidly population potentially new example concluded that in report smokers

our of a had disruption am strength the chain our was to first to on partners. limited versus clearly basis. these effect retail basis. improving geographies adjusted Let's basis of income key impacted strong This our and to impact Driven including decline growth, increased a operating to of and and like-for-like industry the the income and business. during in supply I efficiency quarter now with our withstand over on many points RRP combustible, of our half developing headwinds performance. in in impacted unprecedented and and strong weight our Despite X% say on currency-neutral markets, with very revenues, and profitability, agility to across our margin year. led markets, daily supply our second deliver prior manufacturing all April the to diluted close confinement on I focus a countries those which disrupted operations, This SG&A XXX on to volume period helped May, year workers challenging like-for-like many a trade. The the route-to-market. our of effect aspects the trade now adjusted organization of first margin quarter, consumption number proud of EPS over the daily flat consumer dual performance pricing including net in were ex-currency growing our by combustible and certain turn pattern mobility by that primarily this to significant

the compared pricing decisions. expected, X.X% build-up our high-end sales X% delay quarter, This challenges, our performance weak, to the challenging largely distributor had we part trade a with June As in around these XX%. better of first period Currency-neutral XX. when assumption reversed Notwithstanding minus updated the revenue of and and also expected to comparison. of than few were coincided net prior a March we declined year inventory of we guidance on our minus to the last duty-free was

strong better than Reported guidance impact markets, and $X.XX. comparison by was including net strong in operating reflect of this revenues net Combustible and to profitability revenue diluted previous was prior range, RRPs currency notably stable many robust of we X.X% Indonesia margin. Given were year lower and also contributed the and cost decline adjusted pleased in income a the end in of partly profitability, a by prior efficiencies. Turkey. supported a pricing EPS offset $X.XX our of and maintain growth the This of pricing upper

EPS There performance. compared impairment decline Our X.X% this adjusted main adjustment asset which excluding better-than-anticipated of was the $X.XX, represents prior and to were three exit diluted an for of drivers reporting ex-currency cost, year.

the First, and the in benefited higher-margin our recovery June, region, of revenues volume notably EU in industry net margin.

acquisition tax tax and ahead factors changes to approximately cost factors. phasing, reduced in a and below income as benefit same rate charge, for a such accounted as user back better had quarter changes driven for regulatory the our [ph] pre-COVID levels. performance. mix. month grew $X.XX These and of we Last, largely well substantially include XX% certain tax the IQOS by and acquisition Indonesia, only These markets overall corporate Germany, EPS the in rate data Second, lower trade Saudi as Russia movement the of June in pre-pandemic non-underlying inventory earnings IQOS with in of Arabia, in Russia

Before for of year. the we half of dynamics the some come the I second to guidance, outline will

present a growth pandemic localized in a areas. an to combustible in expect business IQOS. coupled for for uncertain robust environment improvement The continues restriction operating potential tightened underlying with with We gradual continued the

ease, to non-negligible improving retention concentrated a were business, return restriction so far in a of take lower improving a do cigarette RRPs, relative visibility markets industry While better-than- In to assume full net continued is reflecting in such to devices is situation. normal weeks. unclear. are said, are consumer term of across user We of Conversely, in reasonable existed addition and remains occasion delays in trend of strongly, virus number in reminder level HTUs return conversion. while This the X% and the not with gradually timing the significant currently remain XXXX. Duty Indonesia brand certain In as for in pandemic assumption, guidance time. increase of and absence as due of observe recovery we will underlying widespread we economic expect gaps. term our our also dynamic the pandemic some expected which of a to not in restriction in in The acquisition the and national of lockdowns. visibility some recent in already It the also volumes consumption strong markets our that due risk IQOS assume included America, stability of elevated various price there the geographies resurgence down-trading of close Latin restrictions a areas and such represented in of to Free, any to performing pricing a as and the in sales revenues fallout

model X% commercial forecast margin the to plus Despite such grow to $X.XX to of X%, excluding This shift XXXX, notably expect shipment remote X% a This basis revenue on with demonstrated net XXX Due to reflect like-for-like total the China, of full impact engagement stores and income of an in adjusted ex-currency high EPS adjusted Duty reopened. decline EPS exceptional range Indonesia. currency-neutral at exchange to has continue and corresponds to like-for-like prevailing our of estimated regard unfavorable in like-for-like X% total assume ex-currency we points. and to currency Free the level more plus basis. $X.XX. including adjusted The diluted flexibility to activity these between decline overall the accelerate than low-single digit an and the year in Free and digital unique Our the two a like-for-like where assumes net basis our we headwinds also diluted PMI of in $X.XX, factors, are and rate and X% we to see a operating markets Duty industry forecast may on revenue, growth, U.S. term, Indonesia. decline. to of excluding expansion volume XX% With due our modest of

We be least cash XXXX XX% remainder of $X our these operating in rate year. $X.X that the expect to of key the to in recur estimates in year will tax range XX%, not markets at assume full effective expenditures. billion billion of the capital international All of flow national lockdowns and the

restrictions commensurate quarter. fourth of end with expect the compound assumes third for effect recovery certain one-time while timing assumptions. Free of year the approximately with increased industry sequential of in reversal Specifically skewed the the the towards an also continuation X%. and we of across half, improve, remaining $X.XX XXXX of half, in progressive we the pricing quarter, Duty second benefit the recovery around the and growth markets The greater the trends be easing and user in are to of phasing in the should our impact markets acquisition. expect a IQOS towards of This gradually In underlying included our the the Indonesia, revenue of costs in impact headwinds net of and certain from EPS first the

in compared good the quarter, the revenues challenging reported year a see to in third prior decline to expect a improvement but comparison. We sequential net

For realization XXXX. in still we EPS reported adjusted by Growth timing QX cost second first although new continue the cost one-off half, negative the revenue item efficiency due in to SG&A detail. in in a of of quarter quarter Sequential XXXX and net also to driven certain compared be in adjusted broadly performance cover slightly our expected EPS, territory initiatives. I QX also the the line of to fourth be should likely expect improvement with will now from more XXXX. greater in will

impacted As HTU grow on region, combustible driven of and billion this industry declines for Notable to restrictions, units, Mexico market the effect were reach expected, increases. lockdown which volume due of weak, to shipment volumes to of measures. our wage and continued Philippines, shipment were the our the pandemic-related by contributors marked volumes decline all Indonesia, a by to Conversely, were EU our Russia. Japan, daily by workers, XX.X loss income strongly significant price and record driven

June in is volume in weak, recovery the was quarter July While overall the the sequential encouraging. of seen more beginning and

QX an June Our X from in which effect Though June mainly and many by combined grew growth this June. X.X% in-market includes reflect industry overall, was geographies, total better highest the notably year compared grew across XXXX. movements, X.X% sales to in estimated unit inventory this region, monthly EU dynamics it billion the volume but declined

exhibited positive XX% units HTU compared the strong IQOS from We as up which total half tobacco of in mean X% volumes, performance first and volume are that year-on-year shipment the made the in quarter. This the approximately XXXX. XXXX sequential to growth over of year X% in heated by improvement in encouraged our also throughout

of lower in in PMI's the on of as a While grow in device. reaching XXXX some to lower approximately momentum first reached net longer total over given ratio QX quarter the volume, revenue weaker devices geographic pandemic substantial X.X time this positive somewhat $X.X net effect, IQOS almost our expect in QX. flattened RRP countries, second as revenues for amount and one new continues. by cycle billion to user to RRP RRPs of proportion we Plus existing accounted half, IQOS of combustible quarter priced still due we in the sell X% mix, revenue replacement user, a net

Turning now market share. to

lower X%, by declined the in heated units, share to increased with international share points by to offset total point higher reach for second X.X by XX% cigarettes. Our tobacco X.X for which share quarter

increased EU a share combined overall share true also market our much in The the cannibalization COVID-related notably presence, share. meaningful almost our no effect IQOS by that and where of impacted our market increased It's social markets follows offset international volumes Free, than typically exceptions. that market region, naturally to impact with Indonesia IQOS dropped which Russia. mix positive elsewhere, in the share and share many out-switching of has were Our essentially where Duty to in and It and over-indexes Japan, is negatively higher confinements. our during effect consumption occasions, Marlboro lower was sharply by were markets

the impact an trade disruption. as XX%. retail on of XX%, pricing to expect and restrictions in consumption effect second shipments Indonesia the declined saw volumes ease. inventory accumulation our cigarette pandemic-related daily pronounced recover quarter. share declined by excluding We whereas of headwinds movement to restriction Marlboro added A from tax-driven Industry market

Our three share decline broad can to be attributed dynamics.

of price First, segment, minimum our the Combined within remain this process despite A the price. field. better enforcement to XX Mild. selling in with of months minimum end to of sequential the premium-skewed our gaps leadership the from X the COVID retail elevated, the contributed have started. the inspectors of returned Tier performance Government has given and past delay portfolio price price effect, The enforcement performance of has

may trade full of subsequent product compliant enforcement the complete the flow-through until not and fourth However, be quarter.

was tax-advantaged production tax-driven of pricing the X volume with of designed below increased and small certain below with a for which in to conjunction growth led has This strong situation the pandemic is XXXX, players Second Tier segment, the down-trading. threshold.

and the the of not However, operating law. spirit is intent the segment within

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higher, portfolio. Third, restriction our disproportionately has where urban the impacted public areas, in our is mobility share stricter

of supported our in share strength brands. by However, our June, improved market sequentially

the sequential now from the remains of in daily weak market, total for consumption XX% particularly year, decline in industry full sign see the improvement challenging. situation assume we progressive While the be the will improvement We reflecting quarter. second approximately

fully improving our are in committed to market. this We performance key

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outstanding geographies, given June of or likely IQOS we adult the a volume-tiered this XX% have is status on retail concur further the pandemic In user policy and circumstances. with playing widespread an enforcing early will this in the addressable the by multi-tier switched last the selling structural However, total and and stages all We main smoker urge develops is We headwinds growth to estimate positively switch XX.X momentum including period. government be as adult system, create This while the government This structure directly now this to key minimum the expert Indonesia. to impact quarter. our to and headwinds estimate Japan, RRP the various smoking year, and million IQOS through reforming smokers level that the the that our retail represents the The significant estimated a see platform same Russia. performance. in achievement since quo, the there addition to super-low the in structural government to We underway, minimum stopped action. strong, since EU brands our were X challenges are giving us total conversion. have market the the a the public short-term of phenomenal share. of reflects that advantages in of exception which We excise price XX.X field segment. more that Overall, without growth last temporary the indication pandemic with balance a the of excise issue time are region, revenue year. enforcement around XX.X shift I RRPs million related of users now trending clearly and will coming to solid and this with remain, million XX, to IQOS million compared economist across across predictability tax tax rebuild began, users nature to price propensity are how observe the of the

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in unprecedented comparison. year reverse to QX a declines easing next the reminder, we As XXXX expect

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way working, opportunities activities. digital post-pandemic additional this on of including have of our changes We the of acceleration in top from

at Importantly, sheet compound to dividend consistent our we strong the headwinds and resume and at X% XXXX-XXXX balance COVID-related revenue annual remains growth EPS to expect least growth happy your now diluted of our are commitment with rate and I when our answer growth. abate, position in you. least Last, questions. financial Thank to currency-neutral the unwavering. algorithm growth X% net am adjusted

Operator

you. Thank

now the question Instructions] will from first conference. the We Growe of of question-and-answer Our the Stifel. [Operator conduct comes of portion Chris line

Chris Growe

morning Emmanuel. from hear to good and Hi, nice you,

Emmanuel Babeau

morning. Good

Chris Growe

for to I but giving I uncertainties and to I like market morning, year. like for in know outlook uncertainty, the certainly appreciate the good with guidance we commend today. there's you the even your --

-- the So, question of I strong was Did that. very the first back you you a investment. had could pull quarter. thank IQOS in I how on I'd on understand second quarter? quarter? you kind restart the on in product Just like to half did the for all in IQOS line your momentum if Obviously, Obviously, it second approached we and June the of you of the into in as understand stores move to that third behind some that the were performance. year. that closed of the

Emmanuel Babeau

Yes. Chris. and of and remain Sure, Well, we priority are efforts behind our focusing top IQOS course, IQOS. our investments

kept IQOS. challenging So, in even environment, we investing behind this

Of longer that into environment was a of were be number to had evolution sense. making postponed investment they the account the course, to there take we no and had of because

things involving of to we adjust possible to we and were on had model were number launches that we There to they on So notably, and the revisit, There that a was contact. delay. was working of had not commercial when do it product that were face-to-face new them.

but some investment, of versus keep is say thing are, growing reduction and our the would an I we stay of call fixed absolutely behind good clearly that getting a whole and the we were QX in IQOS. committed the that on see as HX I investment we there the So, increasing me structure behind for volume. the this initial to the investment the what we are invest to part that increasing are that, RRPs have IQOS, as investments we first, would return plan

So, we investment and amortized sales. larger a volume this over

are on working usage more through and reduce of So, to through for part the cost, here, variable and we IQOS investment accelerating crisis, is good want, user, certainly say, experience a fixed is which manner, to and have term we I first, also there IQOS also you efficient, that, more we more this are that. decreased we And with the increased course to would consumer acquisition on the the the future profitability customer of retention, and in already is variable if digital is or been and per that but news engage that be them a of profitability. scalable, cost digital going of very going in way

Chris Growe

that that curious, for was the talked expected I delaying was back you've just those how in which maybe relation curious delay? have pull Are how And some on follow-up than had which pricing some some a you you Have pricing you pricing stronger quarter, had could. in there? just I'm little approach -- markets? I and decisions. a to pricing, I'm you in just down-trading seen question if about decisions dynamic just one great. as I a Thank the

Emmanuel Babeau

the where challenging that Yes. severely plan are trade Well, revisit that of into increasing comes course, it some for places the the when account because some in markets there environment to where of very is to to lockdown, is increase. disrupted, have disrupted, price. in evolution take we we price It is clear have

that year, once hopefully. continue was So, that and doable in are for flagging change normalizing I absolutely QX, towards I it nor would skewed last price say, environment of could that when things the implement. QX clearly, is desirable account. planning where are delay current that think that price It be it environment, we a could retain a in I normal more neither, into to some doesn't include there number think are and of in this clear and we that passed, seeing we is that will increase and potential were environment year we increase this that the take we COVID But we the

Chris Growe

Okay. for Thanks time. so much your

Emmanuel Babeau

Thank you.

Operator

next of Gaurav Jain Our the of comes question from line Barclays.

Gaurav Jain

a in menthol ban in of know Thanks cigarette lot. particularly Number afternoon. we one EU, is was talking IQOS, acceleration a in and that May. have you I questions. three are Good there June, that an in

highlighting saw, curious So, market? Poland, still flavors, it you that. there was are is benefit big especially menthol I a any which available So, was is IQOS on that because in just

Emmanuel Babeau

Yes, thanks question. the for

absolutely you're So, right.

XXth it over May. into played means that the And ban on really, of know you all As force June. menthol month has that the of came the

have that benefited we think to premature from say I it's that.

an we category. As you know, have under-exposure to the

term second of the answer say positive expect IQOS would possibly evolution evolution I quarter. cannot the IQOS the of QX ban EU the exclude of underlines IQOS evolution of market. the IQOS So, helping CC would us menthol on been EU and is that well of probably say through that. this again once the in impact in both by for probably rest I to not I in impact on that a strength would has that is I impacted bit, And category. a the bring obviously more quarter; it but on on the the behaved the the little through

Gaurav Jain

Sure. national XXXX are guidance XXXX. will My during that's your well, not that commenting comp, in and were because on most appreciate are national no be. remainder you won't if we a that to there there of but second QX the the is on very is your lockdowns had XXXX, likely I 'XX question as you further create assume 'XX case lockdowns then and in favorable QX assumption

there in for year could when you? XXXX a flattish be are volumes So,

Emmanuel Babeau

depressed now not you into allow I come we'll to pure I'm do XXXX, the comment the at indeed can But that course. have we if Well, fact going like to look in you enter QX. the me, due a that of

could fact-based is COVID-XX but a it globally and to that scenario confirmed, basis for things too outlook, 'XX early mean this due with impacted stage, I back would We comparison. next very if simple we'll year, Free the severely comment. Duty have mean it's course, market at this will normal course, with that crisis, But and a in being were by favorable was you possibility, this if a to what of our share keep of

Gaurav Jain

my to it in big not is know a travel question U.S. business. Because your is in retail detail And Can we travel in on you retail China. bit you. what there exactly Thank is? talk as last more Sure. and you're not

So it EU a is it seem probably lot that within does of travel.

happening focus business? on retail So, we dynamics is in the what your forecast to be what what's travel that travel are to able EU within that should

Emmanuel Babeau

Well, we think global exposure. have I EU a is important, certainly but

benefiting not doesn't it China, they're traveling You're travelers we're U.S., that but to airport. in we're from right, U.S. in other the not when we're and not Chinese mean

would important, therefore, say, and area that, EU, much So, be broader if want. to but is summarized than cannot it exposure I European our exposure you is much,

Gaurav Jain

of is intra-EU or XX% there travel way quantify or is to Sure. XX% like was is is any businesses that curious But it? what I your XX%, it

Emmanuel Babeau

No. I I we don't be it. think XX% that this tell was split, [ph], I Well, you give characterize but that if can would to

Gaurav Jain

a Okay, lot. brilliant. Thanks

Emmanuel Babeau

you. Thank

Operator

Bonnie comes question of Goldman from line next Herzog Sachs. the Our of

Bonnie Herzog

just front give of you. the and some trials then, I really you to on an you've of that's update new how in could your of and hear this are virtual guided I'd to hoping user you back consumer be curious impacting progress point? the at engagement? users digital from the mentioned on Hello. the percent what And made new coming Thank circle terms wanted acquisition us on digital

Emmanuel Babeau

question. the for Bonnie Thanks,

clearly, success because both our as digital. course, of by the confidentiality we gather the accelerating been can engaging we recipe the on the and we Of through can part customers with information, share reason it's for we've what share way of

full to the crisis. course, around to that you that benefit of engagement it capacity people the the all with shops, not contact where of home, has Internet had first Truth, interaction plan only, the in of confine but a coaches lot full course, were, at we But, follow all digital model, front totally initial as at for IQOS. digital we So of contacts center contact discover engaging know, COVID and on and to and, through our lockdown switching -- first explain, consumer. the market experience develop started, through a personnel using remote people to and course, using and home tools did through accelerate to the not smokers first, and was into of to explaining develop

customer of you we IQOS and able not sensitive, we I'm see to but becoming course, managed decision difficult landmark our the digital percentage of that a this share fully acceleration and when I full again, which it's improvement was it And, because acquisition on XXXX is sure a that beauty that digital, another certainly, RRP is and So, one. it model business I retention for one; that number reason; probably is would business for scalable quite And for of at like very and human-related IQOS important. on our profitability a the to you was our IQOS cost, can through more of MRTP easily think HX that give on experience. increasing cheaper a that tell of the the the on will another one; customer the very not which is is but, fast I'm remain is

Bonnie Herzog

color. And helpful really thinking accelerated learning. your impressive your in really just pretty potentially through how just think That's I it's this efforts has

originally were last rate, user strategy to new something new think that quarter than learned quarter able and has to In do users that to step expected, reopen? terms more in quarterly which as of the this this what environment new could been users in I as So, your the you quarters, in words, of world about about have in during acquiring up several other new terms million does you do it think the you conversion? each the X you accelerate starts suggest

Emmanuel Babeau

not accelerate is vision absolutely as Well, at go coming say certainly, it a far I is, our we to now are that legitimate. that stage to things. would ambition But as that is with going confirming that

that that confirming IQOS cheaper a No the good a of news. us and XX is this from new year, We next very to do this digital as stick going cost, continuation definitely come is and users. goal, is XXX the achieving billion going going which play I acquisition help at doubt to is strong are billion to said to that of

Bonnie Herzog

great. to you you to then on touch question chances I from next wanted just are just one may. of that's the And from next I to MRTP approval. Now want received hear -- I the that and final if risk reduced terms of maybe steps in level there me, to if get

modifying And understand include possibly. what How then marketing might might your that? you then and understand terms timing, FDA to that and from use of altering forward? to wanted maybe granted you wanted how you. in try [indiscernible] going Just plans better Thank or the

Emmanuel Babeau

both. that and this have on providing MRTP have consumers put That's course, all through an as I or to we MRTP. combination for study of imagine, would it's additional in course, the and, news of start or how the with level, the do be you in maybe Thanks, It, reduced to I precisely of fantastic discuss this changer, has starting claim use that your modified coming because a you on word important FDA we all risk that's -- door dialog intend with landmark. with think the we through by evidence months game this the I going us think I Bonnie. I the can of impatient question coming and of with question, would to the intend the come together, FDA scientific element use both validating as the are them the to say the sense to course, level. And months. is can the next for coming the and a marketing authorization what do a dialog next a Well, as in left I authorization them. it's open for know and question Maybe whether continue the is your say We

but means on technology the it's it's on Well, heat-not-burn than what IQOS it discussion combustible first globally. all, better product going a start quite hope of whether Now important, we and is cigarette. to

as And possible would better it say, what broadest it's this that make I smoker we put geographies the means. as very it how think and confirmation. possible, in really focus important the should I for the that's on fast really alternative and very,

that, other are right course, to on where the this are are we and this hopeful So and both at say, recognized going share with is look is the continued would of people to, that. that be as tobacco they arms a that we I on approach, with the approach the decision dealing we with draw FDA highly able they restriction tobacco-product we me the think of regulator will regulator, at think as usage, time, that and reducing conclusion from are will on right regarded review as same coming very

clear, this type regulatory be world. decision several have the in already of we Let's with

are just going we that. the to market the reduce think So And amplify it's now to U.S., where beyond have as a exposure. authorization we we

IQOS We product. reduce of are already in our other country that exposure communicating on

So right going to, it's to priorities, hopefully, going think, should the I globally. direction right it's and accelerate in the things what really define be

Bonnie Herzog

much. very you Thank

Emmanuel Babeau

you. Thank

Operator

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

Robert Rampton

Hello, from three questions me.

The just should lower tier understand rebased market first market volume from can Thanks. base, results price lower these perspective XX% till with that me is that been revenue XX%? [ph]? going takes place, should be XXXX down the price on or revenue where Indonesian you market to If from Indonesia, help deliver a a Has the ratio is levels, has reach but enforcement that from revenue perspective?

Emmanuel Babeau

understand Hi, should Indonesia about should understand. what what your crisis asking well and Robert. think I the we beyond we question, COVID you're If

the the crisis. explain in you we before excise of year. flagging year that the difficult double, say COVID of remember So, need start I be would that at crisis fact really the to clear, on started the the the There Well, let's be Indonesia COVID two beginning have course, that in duty related we XXXX. is everything was to increase would with, first a one, To situation Indonesia. dimension the

price Indonesia at the the the in XXXX. and for end quite been leading positioning while a been have in we market have increasing of not We price

difficulty would Then minimum and retail started, we difficulty market. until the selling total disruption obviously, of creating the last and implemented. that is creating a crisis been COVID were that's has the So, this price saying what's that

probably reducing We urban it to areas daily than But have by been economy that countryside. it consumption new their consumption. on have we as the with in more is we Difficult driven what impact mean, been has I impacting, impactful seen flagged, worker, in other the has and define. average in XX%, XX%? seen wage daily

much well representation pressure have in certain purchasing with was the as we of in category were of on duty a We Tier evolution top there have been some second-tier duty are and or line some to that On has also to due some from seen down-trading there price system again corresponding on low lower of regions supposed a power where market excise and down-trading. can there this the lower volume versus that volume excise company the X a to low differential which system. XX% to be generate benefiting XX% or to

been of price. supposed was some a reduced enjoy about cigarette can talk to very you and We alternative, been market. cheaper looking only this substantial. QX something system of the has because And, supposed down-trading the to course, this lower and market market not abuse and of in low significantly this was level There where tier based on XX% tier of has second imagine very for way a the consumer granted the time disrupted can it's has at has So to at category has intention, the this as small of production. on reached the been all market, that second be was played, which stay very which level further this was on a at volume

started. expect? in be we QX. that has first expect QX, to various really minimum can don't we going these Well, implemented we of therefore, regarding facing, now It's the the benefit to impact all, to QX, of through can we when it price expect Now in what selling that have see retail we but see been headwinds implementation, and

first to the going a that's to going that be improve situation. element So is

in our active the launching to developed dynamic dynamic of most we we part sure on market. being Sam which referring to I've been and launched are, part Soe of and we brands of that the Second, and are in Marlboro the we make trying in course, Dji extension offer market,

or duty we level depending benefit going basis playing category. day at the players of change equal all Well, the where to of we and think are we as so it's will we going second the year that course, daily category this happen the control to is also expecting the improving; should next to be globally country, people, also rebound but of excise and to for playing values the are the is create of that on to -- is massively globally limit trend. We happen, the crisis and describing reduce and that we structure is of to expect arrive field we the going strong the don't the kind end I've the decrease to to tier reform past that well, the the a hoping help on the been certainly and we pressure the impact because in expect last that -- need otherwise, for Indonesian rebound years. in so If going economy Indonesia to that, no cannot back be just market And share income we to reason our soon as of down-trading economy, economists is possible. know there element need pass COVID everything why a as consumption as experienced there described is it's on improve,

strong. extremely are brands Our

have rebound machine in course, of our We the we incredible build are, and an the commercial coming the country, will that which in strengths on quarters. all

Robert Rampton

Thank very Great, thank you you. much.

Emmanuel Babeau

Thank you.

Robert Rampton

can don't Indonesia but are Sorry, next going which is on you have down-trading? seen question down-trading, mostly you know -- my you it and and down-trading next flagged my forward, I Is flag more there that markets expect question you any EM [ph]? --

Emmanuel Babeau

may before have with where are down-trading have Mexico. could the triggering probably few countries we Turkey, we crisis where accelerated on typically pressure talk so in a flagged power talk Indonesia. about it purchasing that These would I we These about was we down-trading. What in increased Yes. seen addition already are is visible started, say the markets

that have this with the very capacity of in to levers we have to of so the before, kind agility, environment future, kind will everybody the tough the an managing for environment shown be forecasting. first Now be environment. this there what's manage crisis economic and We've manage to been headroom a knows of that we going the not are is the the with past nobody course, that we that of with impact the and absolute time

would we adapt the situation. we will to and see So

Robert Rampton

Thank very much. you it me. for Great. That's

Emmanuel Babeau

you. Thank

Operator

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

Michael Lavery

pressure you the launch you. come HEETS Thank Japan? morning. out on think just surely you would I from little Can a mix that in update that, bit of And Good called have your impact tracking and maybe how relative expectations we saw what and us sort but gains, of share your give margin has business to of sense on that there? it's the a

Emmanuel Babeau

Sure, Michael.

the of Japan more what So, in at would many on I the heat-not-burn of say, is probably, it as can growth expect you and get mature, IQOS. the forefront countries

I sense to several makes in market customers. the have heat-not-burn first it be Clearly, offering and in we our QX fact HX growing Japan, think, did and for will my think I double-digit that in end-market QX, in probably, for on been comment the And perform Japan the sales globally. shipments have in well.

to very has can a nicely, a you that. market grow it's HEETS as contributor that see, So to certainly, continue been and

see us fact which the positive to are HEETS on capture we X% And HEETS, both very market. enable to the of close opportunity a the really captured with has playing and maximum trend that market. So we in Marlboro very,

can So we in for brands the two do with sizable RRP very that you a Japan, bodes see that our of in business country. what well and it's already part

Michael Lavery

your enforcement built-in Thanks. guidance some year, reflected Is your minimum Indonesia, great. Okay, Could that September? is case clarify, you does don't there just gave far in at least base XQ until As or what's guidance improve? expect thinking enforcement in goes, no that all of you thinking? there assumption as your in prices thinking you is color that also

Emmanuel Babeau

benefit guidance No. part What is is essentially we a taken large in should the QX. have of in that the

of think retail selling So, the expecting part a we're not large in but should seen having price of benefit anything be we QX. QX, minimum in

Michael Lavery

of And just IQOS heated devices, tobacco with just a the last great. You launch. your government one give Okay, getting banned been has sense? Mexico, one. you can On there underway had the us import just where

hits So of that hitting does it's momentum, look? that before how how but navigate maybe you and sort it

Emmanuel Babeau

Yes.

So right Michael. you're absolutely --

ban news right good happened. level we of before the had this inventory So the is that

not facing stock of situation. are So we out

or So, too of we course, for time years, being, going that not several the we devices but we hope issue. it because inventory to not for are saying last much is have it's an not some

their We not will are Mexico going decision that look FDA is to influence know, decision -- But it's to the as IQOS. that you at [indiscernible]. hopeful on targeted and it's

of the say. and unfortunately broader to a will export that decision, if Mexico just of us here resume that come to rapidly I we're So the [indiscernible] back devices. allow they may Hopefully, one will on

Michael Lavery

Thank great. very Okay, you much.

Emmanuel Babeau

Thank you.

Operator

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

Adam Spielman

Hi, I've you. thank for you very questions much. got three

The really it the June. $X.XX, forecasted EPS was you -- turned wrong first $X.XX that June, one ended you sorry is quarter at guidance. about below EPS in by In June, in for about forecasted, that out

$X.XX now a your is to think appropriate guidance a month forecast inability ahead range And wonder you even why giving given You're I that range. with accurately. just

about is So, the I of mean, that's the range, first question. It why...

Emmanuel Babeau

say, said, $X.XX, in be that's what I are coming No, big Adam. as of is saying going would a half we the the factor Yes. because for understand, Thank I the Well, we face question. QX. one-off of reality not is that you have, let's you compensated number, that it's $X.XX to from

So of June landing we of if it's that that at landing, of the anticipate we number and happened QX. at not missed beginning not helped fact as it's the the could that just had June the the end of

mean, approximately that's there the and of all -- and $X.XX all because lockdown until very June that I confinement beginning been that we the above $X.XX we would instance, month in when June important, Now, at don't being is to the work we fact, June in physically, of I beginning all that last to say, there like disruption, was you're if has number of to right, the deliver realize the of a that think when I all not look, many we and geographies, going back even back to I people still gradually is know for that things think many, when normal. released were be anticipation

basis that's to this we guidance full So, for capacity probably that And June us months. year. come for that have was could really on the with giving to vision what a the visibility assume coming of the expect and pretty on we this that come let's good

first are So the being. of as which important the of we've the we again, has weeks rather important, $X.XX, been but June has the the time this not of has environment of June been is course, July, learning miss and in and of $X.XX been been confirming for kind understanding saying,

Adam Spielman

Okay. Well, fine.

Okay. June be And you $X.XX $X.XX won't basically December, implicit looks that you'll I at point. in be by And end suppose $X.XX say it's that answer control there somehow the to movement it Does as that's it if of is an the was that around mean or at it, a that like December. sort interesting end is there of movement? unexpected above, the also there end going of could of

Emmanuel Babeau

to I'm thing I'm know I've of so you happen. able of not and ball, course you this broken could crystal whether kind Well, tell my

for not us are we happen, anticipate everything, things happen, being, that of always the have, pluses well, think we this with guidance year. time for in that the been at say With the and the right again we I more. remind think information that considered can mid-July that of stage. to the number to vision we the that the with minus, and you a a landing, have, information the end and the the there when months that's are various see. that as behind we're scenarios we last for coming the that I'm course, vision, is encapsulating that and all haven't a But not and right landing our guidance here possibility with for that able scenarios several of think carefully is build always, we'll I anticipating range and If right able and to June it are till the we guidance, think all this

Adam Spielman

which that's the I tough phrase specifically you the growth well, I Okay, to portfolio. in margin, different, question And is completely than thank very really much. it's a talk answer something RRP it. about Can of

margins, do grow The is, from modestly do but next partly higher sort question, years? to got been and think margins percentage you've said are really quarter, you yes, partly a gone you because business, does this really a but in I think RRP in the you pleased, within the more gains So, we can whole question. up, RRP that, because good RRPs also not impressive two of about there sort know, of question. that's So And obviously, than should don't digital. that or we question is, in guess will we thing, RRPs, is or within I towards slightly of quarter how each three question QX, mix XXXX a a the It's have moved margins? not it's whole long-term it surfaced -- see really think you the it perhaps for level now so

Emmanuel Babeau

very No, question. it is, Adam a fair and it's

would in the new lose but not to margin even different, device condition acquire make have of Then, it's investment on of, Let IQOS on absolutely what HTUs, are at value intrinsic model improving as is RRPs. there look part on the is -- me reminding we're producing, total, be way consumable think, so is course, money, the I percentage you there is of on basis, CC, say, which the of by the sometime because been clear the the situation okay, accept which a seen enjoying some evolution. that's I improving versus starting by stick some it's today on type productivity, from, And It a that therefore, starts devices, that at we well one, the also make are which of and some we the to described a the material you when we've day, are, this gross with a customers. okay, know, a business margin end start per and the positive and favorable the one. this this higher can we've positive of that can of that small we business is be we money possibility RRP I to but fact you the or as and

well, of that have the growing point. in convert line to So on to retain. course, we top And things then improve going that's old the starting order below IQOS smokers as to RRPs. machine on then machine we're that, to are as to and you the acquire And

but use the cost are, say, engine, gaining of the machine, time would digital, we engine. and in we also, efficiency, more said are would the the it, increasing strength I at polishing same We say, I the of we the reducing

playing going positively. that's keep So, to

So, know on margin meaningful in That's a impressive, grow certainly the RRPs. to impressive you take what I and RRPs as on keep and continue should behind whether should but IQOS objective. to the put you manner gradually I don't I we expect know certainly us don't growing our

Adam Spielman

Okay.

and Let be me impressive. try little bit more a precise about

precisely, is first it's in year. dramatically last the half -- clear clearly going margin also 'XX grown the what or the to has tell versus You me very but margin not of XXXX in

And going question like uplift in on -- suppose so, is was more the than on modest the to RRP should much I really is just XXXX? expect a something or the XXXX similar again in be it we business, uplift

Emmanuel Babeau

we I that be further. margin, that comment Adam, believe comment can it's going we to What improving some won't tell on I keep to above, is but have won't you significant headroom below. whether I that,

Adam Spielman

fine. that's you Thank very Okay, much.

Emmanuel Babeau

Okay, thank you.

Operator

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

Vivien Azer

you assertion good and commentary seeing that those square share like appreciate trying with that My just Marlboro you market recover Marlboro. given to I on occasions. are I'm some believe markets Thank comment commentary is and Marlboro question exposure good -- down-trading outsized markets, already its social that the just that will square the Hi, I'm to that Mexico. Turkey had trying morning. around been in to you. modest first

in that occasions? how pressure down-trading select a you social margin is So, coming degree the do to Marlboro the just markets wondering exposure excuse much of think of me, the pressure is have from market high versus really, Thanks. share

Emmanuel Babeau

disappeared few that, you're have been And nicely Well, the growing can it as in think said Marlboro I such also that during where a large the losing market the for where share where I because -- because at by big the we it's QX. Marlboro and drivers and a markets difficult has down-trading, entirely extent has been both social market you movement right two some that Marlboro, markets have QX same been you of, a quarter has that, think but that behind have the you has as well. of Philippines, to almost many see share has time, been Marlboro way,

Philippines, to going Marlboro. seen direction But everything that and more mixed down-trading we even some are are even So, certainly certainly one is ease. social it first real we I it's conversation I low? think talking bit would been have when downward the picture, the seen the than well the consumption, not able a and it's I a been the to see really Marlboro during as When mid Marlboro nicely crisis we and the with countries, more be difficult complex about a hopefully impact has that was of, and period rebound around down-trading, comes evolution it confident where in has that. It's say. despite to is to to rebound going for or we've which market So, COVID good where

share points has Marlboro market getting been the X I think of quarter. in

good. quite it's So,

that Marlboro pricing, say, I'm brand. about been impact is important down-trading to absence Marlboro, again, talk biggest would impact on Marlboro not has but is see an I when social going main So, this lower rather on down-trading, the we where the mid-pricing this of rather sure we and is moment

fast for will the and hope that So, rebound enable we good a brand.

Vivien Azer

perhaps coming you. HeatSticks new need quickly perhaps IQOS is like user. seems just then countries second like of you. per my And and the is or would in of Thank there average of juxtaposing volumes Thank and of capita relative terms your that is number terms helpful. Is looking it online consumption structural of translate per a function development a ramp consumption on geographies That's a question against you your that that to in and bit geographies? combustible in at there existing degradation in to new volumes, their users cigarettes shift little consumers into IQOS

Emmanuel Babeau

impact tobacco have it that. based few impacted frankly, potentially have an daily QX. sure disruption have consumption data that not by of that We and point been nothing that market I'm lot in the the know on a that information and data has clearly maybe IQOS, that we Vivien, we on markets but Well, on to the no can in has QX any markets, for we to been globally would that all some have pointing influencing that

Vivien Azer

Thank very much. Understood. you

Emmanuel Babeau

you. Thank

Operator

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

Pamela Kaufman

I has VAT the just Saudi developments of during thinking puts takes about There and the Germany the quarter, wanted a how Arabia to reduction. and tax current number ask you the been environment. are increase of excise VAT including

you as I outlook And the are your for environment did what through tax economic forward, is So, downturns? them taxes the you changes? to see what of And these a passing guess result the impact looking is consumers? past economic and of what excise following prior in

Emmanuel Babeau

you thank the question. for Yes,

whether true general try that quarters in find to deficit that's as the temptation is environment. your finance the evolution of going could crisis yes, maybe to what many are rule. to higher deficit are be a a way rule, on excise the face because more on expect the for budget the we sense -- and of countries to can it. evolution general coming passing there So, term of tax it tax we But certainly duty behind question Well, this and that's is important VAT, the on comment or

year. of decision First quarter of made this of in type all, the fourth is the usually

probably QX, beginning of QX. the of So, end

many to you day, about trying you're to -- the that your rather going are net the of increase quite the the at to more receive. too at have governments impact on decision in remains on that to the the therefore, what's the seen I we XXXX-XXXX, And environment the is not not be and versus what So different know depress feeling you're the of know when time. going you're it money that maybe be of sure you get to end nature. consumption going term here, in tax happened all and price, increase But

I to as seen if the and it's past shown this weather duty XXXX/XXXX and as said, of many could but, approach case, again, that doubt not lot crisis, a I in say, there excise time different is I I course, are But, from no governments. quite and what is at reiterate to, in I would we was we do of way number least our my politicians and and this that the we would this hearing think that it the a -- clear. think increase again. countries kind have as it we've headwind in of capacity different environment, was Well, overcome that probably seen we've of if be a case, it the of kind and

Pamela Kaufman

if on that you provide And trends saw you. second color quarter. more was then exiting the wondering Thank you the I could

particular more on there seeing trends You recovery your to the markets then, Europe. developed what a X% comment about X% forecast other you was drivers And volume and thinking can you're in differences are in markets guess regions? and And between how highlighted that I the across you this behind what emerging trends that for the forecast? across year? industry guess I volume are broadly,

Emmanuel Babeau

should expectation sharing I we've sure. probably what Well, for QX. our about back to be been

and We we the of in a we weeks are as to a June doesn't we disruption. that global said market, So, seeing market to and normal, consistent are more less bit over. the operating are, July, manner with kind we said, first in mean the a as gradual improvement back start but see of of -- maybe lockdown I

are on saying revenue trend -- be sequential June, why for that a in so net is that is but we've improvement that that that QX. flagging we QX, versus we So, been expect will

to and in that's to see year-on-year mean going been but markets to because remain what impact some our of of back we're to top on other are course, extremely evolution negative that have be market It addition talking because because of doesn't going the going Duty the also, potentially many QX, to the line HX rest the QX are exactly of Free, of is negative about I've the of restriction, Indonesia, we going play we of coming some year-on-year, to X% the on on said in year. because course, for from crisis, that's about continue COVID impact behind So, that, be and some vision the economy. but growth and in disrupted, lot disrupted we

number, So, of mature to going expect economy into is some versus disruption end trajectory and going by what we seen to I'm in impact year-on-year. we good we've a maybe this the environment quarter new but in all QX that and going not sequentially, an certainly so enter we if we're QX, and the improving that's the play us. market, net to -- QX show versus less the said, probably revenue on economy. QX, to still for That then, would but the would be as at we And resilience in could keep QX negative feeling. net improvement expect nevertheless, ballpark enter to -- be our continue revenue

the make trend And between so, trend, the and year-on-year the quarter-on-quarter difference then comparison. to the we really sequential have

Pamela Kaufman

and for on IQOS And Thank And impact has Russia you Russia? comment the for its IQOS anticipating important you're just in on market growth. has HeatSticks you. environment Thank your super my from last what what the premium you. an economic launch? been been question. adoption performance Can

Emmanuel Babeau

in doing this QX well in Russia IQOS been Well, in environment. has very

it's, course, we been we was So of for say Altogether, evolution the has I the pleased are lockdown with there continue Russian that but impacted the some our share in grow minor probably from cannot RRP a but Russia, disruption, impact and of no to IQOS this market. the by in evolution. in way market

it when you it look strong in seen in QX. that was So, volume acceleration underlying decline was a at we the with the down, not in volume, have

a resisted two that's next in the crisis, quarters. we on has not with going well trend going and is market IQOS the this are be the to So, COVID pleased to development. very that I'm pretty elaborate through again, what

the IQOS news share to perform The continue in market well also we we're is on CC expect to to at IQOS. growing and that that going the maintain market keep We same share good time.

nice achievement. a was that So,

Pamela Kaufman

you. Thank

Emmanuel Babeau

Thank you.

Operator

Our Jefferies. of line the from of final will come question Bennett Owen

Owen Bennett

very keep hope and afternoon this well. all I'll quick. Good you

out IQOS driver between June. to was wanted cigarettes Thank main to possible industry the just sequential volume it I improvement and break you. was come in I and the wondering there? is what in that the to So, just back EU

Emmanuel Babeau

the I doing well, would of Well, June, say through with have been seen yes, in said, of has IQOS indeed lockdown trend. we the many quarter. the end an the as countries, we in improvement

and Europe seen notably, quarter we've some in Southern business, more course, some but we've improvement and in about we acceleration IQOS, CC good by June, has lower in seen I which here. geographies and impacted seen lockdown been equal, All June. are of talk some the So, quite clearly, and are tourism whole the some the have acceleration the being has by been for impacted in markets been penalized not markets that have

better see lot the abroad cross-border the they've a a course, I being the of and of Of closed. with lot mean, globally activity through purchase quarter. markets made doing border being been typically

a of trend have is this Europe. seen So, that we kind in

Owen Bennett

Thanks Okay, very very much. helpful.

Emmanuel Babeau

Thank you.

Operator

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

Nick Rolli

concludes our joining for today. much very you call. That Thank us

If you you questions, have the contact day. Thank well great a have Stay please you. follow-up Relations again. any team. and Thank Investor

Emmanuel Babeau

soon. Thank you you Thanks. Talk Bye. to all.

Operator

And ladies you, today's this thank conclude and gentlemen, call. does conference

disconnect. now may You