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Philip Morris International (PM)

Participants
Nicholas Rolli VP, IR and Financial Communications
Emmanuel Babeau CFO
Jacek Olczak COO
Andre Calantzopoulos Global CEO & Director
Bonnie Herzog Goldman Sachs Group
Michael Lavery Piper Sandler & Co.
Vivien Azer Cowen and Company
Gaurav Jain Barclays Bank
Adam Spielman Citigroup
Robert Rampton UBS Investment Bank
Call transcript
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Operator

Good day, and welcome to the Philip Morris International Fourth Quarter 2020 Year-End Earnings Conference Call. Today's call is scheduled to last about an 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

Nicholas Rolli

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

currency-neutral cause rates of comparisons I forward-looking and the press Rothmans, projections results. an release review COVID-XX. the note direct presentation organic cautionary cautionary related are A which today's stated, unit Inc., may XXXX slides, note factors and like-for-like materially U.S. and webcast glossary statements posted Benson IQOS to for You the to & projections for the otherwise today's of GAAP to results and products, of to pro statements Hedges, heat-not-burn results, as and a measures your other to reflect that Unless results, March various website. statements. XX, also also been RRPs, subsidiary, market adjusted additional presented remarks the at the all as presented or future contain statements on applicable. that full release are end most reconciliations forma the have the Please a on basis to Today's reflect forward-looking Please also differ reduced-risk of on underlying including XXXX. the for to data deconsolidation references the and access are disclosure could from actual which Canadian products. forward-looking of in terms, our IQOS growth Comparisons definition or our adjustments, calculations tobacco well and heated effective www.pmi.com. additional directly attention basis comparable forward-looking where like-for-like

XXXX. Chief on Investor that at question-and-answer plan Calantzopoulos, Emmanuel? today's question-and-answer Virtual We Financial XXXX our the please Jacek Executive Officer, the to our join Day week the for remarks outlook to pleasure introduce addition, Babeau, Chief Emmanuel focus Operating Andre on February next and In Officer; the in session. beyond address XXXX Olczak, XX. our It's our Chief performance outlook and will will Officer; be for session now my aware Emmanuel and

Emmanuel Babeau

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

to continue million, acquiring XX% IQOS QX. double-digit and Moreover, new of XX national XX.X from Our prior with key record business unprecedented the the compared despite The our almost of impressive pandemic. challenges significant XXXX, able the robust the XX% and switching growth and of reach from in total which constraint, in HTUs stopped net performance share impact a shipment IQOS the over minimal in exited by geographies very continued a cigarettes user pace year. of delivered restriction, to despite markets IQOS made X/X consumption December. revenues volumes million have a for Most switched XX.X of social user of strong we with market our to of IQOS, HTU year, were was in XXXX which up volumes shares grew daily to global smoking. at good saw in

Free tax faced was number combustible excise Our was the faced Indonesia due additional we increasing this and of effect the the with impact despite headwinds QX, strong of in Southeast business, digital restriction the rate The our prominence, pandemic-related by in least tighter model challenges word-of-mouth from the in user most again in propelled acquisition highest positive markets. also Asia, the and increasing EU. commercial were a Duty The impacted we where significant sophistication structure. in region to of

in efficiency excellent EPS of where operating standpoint, consumables, industry exceeded volumes the IQOS next From X-year HEETS, and years Despite pandemic heat-not-burn. and X quarter also increasing generation expect delivery significantly margins rebound which we broadened e-vapor wider target dimension lil the as year in and remain of the we range recovery heat with growth ahead challenges, launch This of drove X targets. business. full in reflects smoke-free to This of ahead our weight we prior and a our these cash year. in the reinvestment the profitability in as of also VEEV our a While portfolio a and the the fourth timing schedule, and enables the the cost recedes. were X over and again product duration such our of the and IQOS uncertain,

of FDA's progress modified recognition a X authorization the around This on positive regard. product risk the followed We this in scientifically of world switching good also premarket substantiated was December. also a version of was to IQOS authorization by major tobacco IQOS of to the device impact the smokers in milestone continue make The RRPs. the of

headline the numbers. to now Turning

in growth that many line was by net in solid drag headwinds net estimate We per our partial sales Our were tobacco of Combustible of year we driven exceptionally net pricing revenue markets offset X.X%, X.X% growth. these the top mix. in our Despite full alone, performance markets, on organic unit pandemic. on factors, revenue basis. X.X% Duty in an Indonesia. by plus our the declined the partially weight resilient pricing an This mid-single-digit IQOS volume saw a of recapture of context strong was Indonesia organic in local increasing by in reflecting and Free,

the both the volumes, This pricing X%. in income back on come guidance diluted increased previous exceeds the around operating organic resulting organic in full end by points a and The to Despite year. IQOS positive to improvement strong net effect, dynamic EPS organic growth the a the X% Organic offset to Duty Japan. declined of Indonesia in the and will in strong continued including while This QX, significant around market on performance fourth SG&A in our weakness combustible me net very combustible from to. margin decline I reflect XX% and which year by impact Indonesia, than XXX had and X% basis from our revenue the net ratio of almost lower revenue brings was plus more IQOS. adjusted which the the similar our Free revenue, also quarter, to basis. price of total adjusted of the X.X%, and Philippines, reflects Excluding decline on margin gross increase an

full Our by per same solidly factors again net as the revenue increased due unit year. X.X% to the

operating deliver adjusted Our EPS X.X% basis. growth, by on adjusted XXX margin to an basis expanded points all plus diluted organic income

strong expand in Before back turn full the we underlying on a dynamic year, I will more now detail. QX to the little

trend back Elsewhere, lesser and growth. deliver strength region to quarter in this occasion, to as the markets social strong revenue of lower and trade enabled than prior volumes a the shipment quarter and billion a combustible a XX.X volumes quarter. mid-single-digit We and restriction tobacco albeit of increase in some the cigarillos. market, markets total top for and offtake outperformed appropriate Despite XXXX Philippines East to which HTU With a tough and restriction to of for for strong expected and the of significantly the region, the inventory in the challenges first expected, a mobility later. starting to Free from to end I'll XXXX. Nonetheless, Russia. comparison, weighed price Japan a Eastern significantly the market in-quarter ongoing to rise Asia and and IQOS line weak, revenue tax-driven IQOS against the second growth. reached increase sellout the start impact in a Japan, units strong towards share aftermath reduced response by record a including and pandemic, was following tighten driven gave October in degree in performance, shipment total line and tough as a provide of a growth better business industry the we deloading a and in saw top price EU, wave of to in number immediate Indonesia comparison expect show led the Our the the second the finish both higher Europe to Australia year on social Duty to continued XX% consumer as the many EU continued decline In come

go now starting XXXX with is margin, me multiple by driven the drivers expanded points margin expansion, which basis XXX into on levers. of basis. This by Let gross our organic an

our ongoing of First, an is increasing IQOS mix delivering business. our transformation consumable in

Second combustible. is pricing on

on This pandemic, COVID-related in than on chain. in only to focus overall impact commercial lower achieved delivered pleased inflation, have Gross and our our on target basis. annualized manufacturing our device working. investment of to in of productivity while is in of focus cost processes, profitability, COVID-related billion compensated already by points supply basis IQOS by savings supply augmented X focus from came and us of that Over and addition improve our from I savings investment, efficiency and Third and an adjusted commercial margin invest cost. footprint percentage lower G&A and supply of reflects digitalization cost organic efficient growth the to combustible the thereof which on SG&A $X effect extraordinary our remainder end Clear XXXX. expansion extraordinary X/X as chain with gross continuing exacerbated report marketing, inflation, in XX chain allows productivity, our net combustible was lower focus costs to and and a volume, the for with of ways billion efficiency, our IQOS. efficiency offset very administration of revenue of of more manufacturing volumes. simplification $X.X the more by research over and including years, supply business engine chain and am XXXX our on ongoing cost we where came these costs, quality efficiency, the XXXX, The

operating pandemic, travel IQOS the COVID such Importantly, consumer our with channels. reduced ex global year, further fueling week's Investor a as Between an initiatives, our savings billion not well our costs impressive and manufacturing these, reflects efficiency of from uplift in the to SG&A excellent of in strong growth disruption of currency to of This elaborate $XXX for to nearly and us such and these include initiative $X year savings next like-for-like We the represents significant effect. shift expectation earning also at and $XX as profitability million chain. net X.X% performance higher the due flow capital least ongoing working above The cost necessary estimate supply digital resulting cash Day. plan do allowed at growth on a to in we billion. deliver growth around those and to

our $X.X lower into to translated amounted expenditures have performance manufacturing rate. historic capital ongoing in billion, below improvement run Our requirements. Significant

XXXX. benefited and expect in also we of However, of from $X.X investments certain around timing the CapEx billion

primary industry estimate X% the quarterly an decline. the on return another COVID business, category. the to to volumes, we average we dividend pandemic of year and X% in this U.S. around shareholders, use of excluding and raised on turn is to reinvesting Day. of the the cover allocation which share. by is in rate X% XXXX, cash X% $X.XX entirely from per Aside of will the I attributable China. historic combustible at almost effect is Investor This to to topic Capital X% now compares a difference declined We the to to the annualized

suitability has the reflecting in convenience displayed and different evident is As use our occasions. remarkable its category smoke-free results, resilience, for

been covered in combustible As consumption daily has main prior we in quarters, factors. driven lower by X have

with occasion usage in of global Duty of reduced with markets wage due large line second, closure amount on also and reduction And in amount depressed, workers. travel. Free hospitality restriction social the of confinement, during to the social especially in gatherings. remains daily occasion First, a settings

a recovery the expect seen and since most have mobility in recedes. severe of period gradual daily We pandemic improvement partial in QX, the a reduced consumption we as

shape uncertainty speed, resurgence a considerable infections. many all pandemic. exiting the serious timing of countries and we at remain there are experiencing in And As know, present, on the

the see expect of However, in based repeat our XXXX. severe of consumption on to recent do not we lockdown a experience QX drop situation, renewed with

this occur the be historic assumptions. year, floor come of is X% it to we back this average to in XXXX. assume I'll uncertain the guidance industry X% to if trends so any will However, for when rebound decline discussing

performance. our premium that to follows of volume and the combustible Free better volumes It and Indonesia occasions. compounded this our to should point share, by consumption our our exposure recedes, we were shortly. I'll see pandemic to and now Duty in Turning industry a dynamic portfolio as over-indexing Weak social come to market

on We remain strong track billion billion we units deliver the means of units XX IQOS the clear up As This say in This highlight IMS difference on more in volume out XXXX performance expected, heated XX% quarterly have volume our HTUs shipment The over level HTU XXX will with X% XX.X even was range fluctuation over XXXX. the on partly year, over to made performance over XXXX. end that to our X% billion inventory to of beyond to increased of mix. and no and this were between the billion reflecting shipments. was represent the in shipment XXXX just fourth to and XXXX our from well our billion week. target growth in in total by year, above of the on next revenues and quarter XX positive prior in communicated at an basis, plus compared year. tobacco XX XX% XX% previously upper our organic XX% the year of net as significant in outlook approximately

expect on IQOS growth. positive as providing powerful proportion and We of continue over grow momentum a revenue to the to continues, driver this time margin

users rapidly. net of the substantial mix revenue Eastern some our cycle revenue for X.X+ existing a introduced a made XX% X% is mainly lil total the and new longer year the of quarter. IQOS replacement naturally we sell for in Europe. full in In device, fourth and still IQOS sales approximately of Solid Our net now changing of mix. original up lower to due lower-priced RRP users, products to ratio Smoke-free have devices accounted billion we amount geographic geographies, $X.X the of

international share. total our market on now Focusing

very lower X.X cigarettes. by of share In was Indonesia. a for impact share heated increased by This tobacco Free the exceptions. our by reach volume offset increased X%, only key units, Duty before by higher share where with which markets share and meaningful to presence, points cigarettes Our points driven increased for IQOS X.X partly few has

Duty X.X% share by share Free international XXXX. Marlboro of total Indonesia. world's cigarettes negatively in our and market by was the However, impacted far remains brand with leading

share However, social in a lower to we similar its expect which Marlboro restriction. occasions, COVID-related tracked trend. to development over-indexes pandemic course movement the are and Indeed, naturally many consumption markets, it recovery the of aggregate during over year have saw

premium share and and volume total above estimate of industry to Marlboro of U.S. i.e., share given revenue, terms value closely of share, is In performance, which our to we financial related our net China, excluding more the significantly the positioning be IQOS.

grow turn by share a growing kretek to I our segment, After hand-rolled now difficult with share strongly to which value our enter driven again. XXXX, expect XXXX Indonesia. leadership sequentially We of in by we XXXX IQOS. is a stable the trend, supported

PMI where in into New XXXX. portfolio of in with with annual excise our are lower increase around is hand-rolled kreteks to will increase broadly and average unchanged. duty X, rates weighted average February average for given over prior XX% come line industry XXXX a This the excise our for rates is force the to over-indexing on increase

priced and coming financial is significant expect tailwind for higher-margin over both our there the and for year. lower a revenues, support consequences less market negative Indonesia, government performance machine-made product, employment we mobility not these significant level selling share has field the yet tax a segments, continued in constraints. Given Despite which With between issue progress the segments. X the hopeful retail to move government Tier playing minimum Tier slowly will given remain the to and been time. price, X below address that to respect We over enforcement this the than

in will compliance the on more no likely price in move to the new levels. excise of the industry large XXXX, with above industry the now expect the on level. now of pass impact And is of However, rate remainder the above the minimum minimum we The market majority limited. be is change

also Tier a in quarter the We the X in of in growth a and segment gradual below improvement fourth flattening our the volume. saw shipment

below other As a pre-pandemic improved drag remain consumption in still restriction. and financial markets, QX, sensitive Indonesia our since was results. to many daily level material social on but is XXXX

excise trend, structure smaller we impact much on for be to to and volume less on done XXXX, outlook share performance. the market ongoing much a much with remains better negative expect pandemic, a our uncertainty a the work there the While regard and overall industry

For fundamental minus consumption international intact, rebound reverse. we XXXX, of regard on as COVID adequate. combustible including category, the negative levels XXXX which The price our estimate we of category the global elasticity, the X.X total assume daily a a at remained also over impact cigarette on average With basis. investment around portfolio, to remain

of However, COVID. incrementally needed more aftermath immediate in may the be

by of which investing the equity continue brand remain world's will brand. We leading Marlboro, in the far

Given the a important performance. carryover will pricing impact growing And combustibles portfolio segment an of XXXX in COVID the Pricing driver of may our low-price management our of share be effect economic environment, gaps of strong. remains while remain the power and also the the focus. our of price variance,

pricing significant that HTU third as productivity in also due HTU top of I sole is highlight this the over addition represents This X performance. quarter higher XXXX. power IQOS mix, driver brands. users price. with increases IQOS sales the no around generating there and volumes XX.X would growth, line were We HEETS the on in weight Additionally, of of since X.X price the IQOS growth of and our our the to in other longer grow, move our end million of selling to increasing that pricing million now our XX. adult million user the as estimate December legal-aged average I

a user the year, the notably through renewed We the quarter have of in fourth acquisition restriction half number markets. in accelerate despite seen pandemic-linked second of

including million active combined the remote this momentum estimate of Russia. reflects widespread XX% smoker growth user strong and smoking, EU is with region, for that in across further We Japan IQOS have off. geographies, balance switched total XX.X various conversion. and digital to engagement, again stages all IQOS pivot momentum the with accelerated the IQOS to This paying brand, Our of stopped or and

acquired increasingly such As a us segmenting immaterial in and broader of price category. in the context points. and its of Japan the with our purchase smoke-free of new in of range device to in base the as Ukraine reach and half enriching into early second legal-aged expands lil the market the our our category and The we are of is helped smokers Though SOLID offer user lil users the at number stage, markets this Russia more addition in Russia, them and a bring base. user products through

to from industry IQOS previously, week. more fourth coming the on quarter As HTU of HEETS total cigarette we next In region, we'll in plan exciting we innovation volume. for have which bring elaborate said further the quarters, share and reached record a X% EU

a large gain, market, combustible million As attention Italy, the in the the prominence Germany I the reach QX. acquisition addition see QX in by strong organically, increasing contrast performance. to to quarter excellent This sequential We growth accentuated are growth share, contributors. a can follows of and winter X.X majority and such also and the the build strong the likely underlying your exiting that social in distorted the X.X coming which of were of XX% with in volumes. year with and slide, strong border months continuation between on strong recent this reflects converged and to closure shown and other further IQOS own product dynamic a XXXX in years as of and fourth future growth as to sequential user linked Poland awareness added user IMS seasonality with be reflects also progression million, in year-over-year its momentum. performance to consistent share, draw the this sequential IMS in share the quarterly the other fluctuation It pandemic, restriction. in

IQOS in and region. shares a saw HEETS U.K., demonstrate X.X Russia, with in National to which show in offtake the cities. addition, where performance shares the the record further quarter. London we We our almost key select and the Spain national share where In market the globally points and QX. to shares X% continued the we continued reaching strong also the X.X% key potential to in here Strong cities, and with I excellent EU reach show traction refer grow, progress by across of HTU for up both for you appendix, in key latter

of quarterly portfolio and category success the with reading in As stage the user and consumer of Ukraine, line broader quarterly notable smokers conversion with to spectrum. to in with sold be and user, SOLID purchasing expansion on we build socioeconomic year when ownership. context in acquisition adult our to are market. across with both we the A the business the of an the majority results the the Fiit commensurate latter And lil volume lil high you are lil the of the Fiit effect device The consumable a incrementality region, commercialization, in urge a device of of fluctuation shares. with early seasonality in in this broadly new consumable was both cater combustible acceleration product Russia of future. In to the with this in part IQOS level contributing Russia EU our of seasonal The at mind the highlight is can IQOS. the range of this in significant, small in

our representative region. this reach resonates strongly to again, and the growth IQOS barrier below purchasing Rapid are price commercial in in we excellent power segment serve very share whom segment the and, a across appetite the bodes even also such reported adjusted to as Japan, agile Menthol. extension smoke-free the legal-aged the Europe encouraging reached In Marlboro well supported the may recent HEETS alternative, with and in tobacco year have Eastern total medium line our more and share as by entering versus for of units movement, portfolio. indicators to market On share purchasing XX%. lower HTU Marlboro X.X and and model market The share. our October the trade continued including HEETS, prior progression to strength cigarillos be testament while the the price fourth for market X.X consumer ability the market quarter, medium launch upgraded by for increased points tier increase, total the share the heated to a by Black for of inventory and XX.X% basis, national brand of IQOS, following both tobacco HeatSticks price our for consumer our Marlboro our Both points smoker many power brands However, sequentially quarter price grew certain for markets for successfully highlighting in for category. HeatSticks and in

overall We of which grew pleased especially sales are by sequentially, reached in-market regard QX adjusted given consumer for our offtake HTU a the before QX which into the QX of offtake Tokyo, heated of IQOS of XX% tobacco XXXX price maintaining volume share strong The high QX, the in its segment. share made in up our December. with X.X% total the in milestone over XX% market performance forward brands as category tobacco increase. we pull

seen key which Tokyo, category. by share in the around milestone share in third overtaken terms, notable The working across A the in this in double continue offtake very quarter. Seoul digit in has Malaysia Kuala address of to And we while consumer picture of XX% has is already are our crossing December. Sendai. the market specific issue, that Lumpur Korean pleased market it's cities especially in QX challenges similar reached We including Japan, misperception

capability outside digital of In for which new in number Kuwait the of Maldives. markets the takes where markets, existing total geographic the half This markets: the our to growth in addition three OECD. to leverage launch to and over are IQOS We of XX, sale IQOS Estonia, available is strong expansion continue.

product, market August We XXXX, new in Czech first in the market continue EU IQOS in in This commercialization and the the coming follows including Zealand weeks. December. Italy lead enter we to the and continue XXXX, of launch our Republic Finland over e-vapor with VEEV, will New new market

As infrastructure at us commercial consumable and position. scale. previously, IQOS the will premium allows of efficiently to have Both said the and we the VEEV be device deploy

youth our great on products. to against access place all also guard for efforts importance We

at emphasize out further our reduce of issues are our testing on of ESG health X.X sustainability critical the first product, legal-aged the of roll significantly our in Switching pillar the our VEEV, that XXXX, technology we will is corporate our deeply and That's be highlights to aligned. we consumer. impact a our total focus. in global our strategy key IQOS we million unique cigarettes strategy and the sustainability. our the a company, can our milestones to This product differentiates and and want replacing as verification of mission. remain cigarettes and more why enter sustainability, sit business with with XX.X of we stopped smoker core as long-term our and not that of in As of addressing XXXX. million select we be serve most less of the from are value the have focuses strategy have negative impact a strategy now of proposition age with challenges Despite efforts pandemic, on By final we again to of our achieved harmful unprecedented core company P, I our estimate what the to our smoking. issues the number approach IQOS, alternative, smoke-free switched the input piece ESG+P to a out deviated category markets. framework. Phasing now sustainable And

to We back which recent some in at we'll achievement ESG, come Day. more notable across detail also show here Investor

another which are excellent we it an role including there pioneering do, speed the global impact, sustainability through story, example much work transformation materiality expect embedding in exit and into a significant turn and the as for sustainability make sustainability, unique growth, business to a tobacco words, of next and guidance to and main we I understanding to is the detailed disclosure we While shape our will innovation and return recovery. achieving from now of reduction. pandemic. and In where carefully XXXX, believe our PMI is other for our unknown we topic remains The approach opportunity transparency will to an week.

must we in this is to disruptive our clearly factor our into was performance coming COVID outlook not XXXX, the for and it over, While yet year. uncertainty

the many unfavorable assume first and also lockdown rollout markets, faced prior starting of place in pre-COVID year vaccine where across currently we in change an quarter not we measures With the do meaningful just comparison. any

Looking beyond for growth we in a of restriction, with reflecting which and a see is impact clearly observation depressed the the range assume less the a to this, level this return even in of organic assumed net by there event consumption of are second that severe providing ranges consistent QX prolonged revenue will in not our range are we outcome, and EPS. of These a XXXX, wave. our

For Duty of global travel the in-country Free, rebound a lag to likely is in mobility. improvement

investment. no assumes in for margin terms. guidance of scenarios likely on and XXX And EPS mix our This for this range into expansion points guidance to XX% adjusted dollar $X.XX assumes approximately the also growth This meaningful revenue speed not IQOS we plus Our billion of X-year industry assumption $X.XX of key target event This positive and HTU Free to a X%, the minus all growth X% This level assumption, efficiency, guidance basis EPS Coming flat estimated does of reflect least total volume the of thus, faster in plus adjusted growth range. year. to the This the recovery plus to range assumptions in share prevailing of of expect continued expect at to XXX of ongoing the diluted and shipment depending the growth to to of of business X% is achievement the favorable investment assume cost or EPS within XX from the Despite of in higher volume some this organic range XX%, reflects EPS organic recovery. units. plus growth, an an this of of impact organic our net effect shape X% $X. we tighter translates XX% net underpinning the of accretion in guidance, at pandemic. Duty progression rates, diluted of repurchases. currency our recovery in including other projected a billion

plus average X% excise to the historic also in with positive to Turkey volume by in in the and with We minus structural PMI incorporates in the outperform above manageable This trend including of X%. Indonesia, averages. resulting a Russia expect industry gains share of IQOS, and the increase outlook, increase forecast line change driven a

As mentioned remains earlier, our I power strong. combustible pricing

and COVID in Indonesia, pricing plus immediate we the X%, to of X% in Indonesia. X% XXXX, aftermath crisis, carryover of given combustible effect, XXXX However, assume notably the or around excluding

As business, average in likely is to per higher revenue for unit. growth top significantly the net XXXX, the higher biggest which be driver weight the of has IQOS line our

capital be year in and As that $XX around press exchange around cash will to strongly rate assume -- laid that assume at XX% rate morning's we tax working release, operating subject billion grow capital our requirement. out to will flow this full effective and prevailing to

I expenditure already assume we $X.X capital mentioned, As around of billion.

on first for me a moment expectation the quarter. the spend Let now

in number quarter. in IMS spread year-on-year addition be QX to shipment of likely which Our days to to in many This organic buildup seasonal largely lower net COVID-free to revenue selling we are slightly inventory volume March markets, sequentially being the XXXX, volumes in strong growth QX below from pandemic patterns we Due of to slightly incorporates as be strong stable XXXX. HTUs. stable to to lap benefited and QX, the normal down began around expect a the this a continued as and in

both and compared to market QX, share We also seasonal an underlying reported already mentioned. I combustible noting expect gains basis the the in strong on factor sequential HTU

the organic estimated margin in at $X.XX prevailing of primarily effect an which around and efficiency favorable progression realized in of due cost this growth in to IQOS effect positive should impact X%, currency We around $X.XX, EPS We expect rates. including to equates adjusted strong the mix an diluted believe XXXX. result the QX of

the the plus will results growth first To that no it tumult comparison come quarter, were growth and volumes organic EPS conclude, in QX revenues. than our should Looking expected, X% higher-than-average as beyond in easier stronger surprise net in year-over-year delivered XXXX. the of with enable

over growth a to through sustainable years. superior We coming and the are business building IQOS deliver

of the structural IQOS through challenges momentum demonstrate the Continued pandemic growth of characteristic. this

competitiveness business. We of the leadership our strong are to also committed and maintaining combustible

a of top bottom our have growth levers for number in We and line.

mix powerful effect the of IQOS. First,

which for for combustible where and, appropriate, RRPs. pricing important Second, remains

and manufacturing, VEEV business continue to Additionally, further model. costs we innovation lever product and of lil our chain in we hone as and offer are efficiency are SG&A the the stepping XXXX. in IQOS supply up our and launches with Moreover, our product, broadening

bring also IQOS platform. can heat-not-burn further our You exciting us expect to to innovation

and As smoke-free of the strategy, heart tirelessly I work mentioned, sustainability our further to is at we continue to our mission.

to more At we Our transform, there. Virtual we the In Jacek at same organization admirably most We and are capabilities. on challenging you to Day on coping answer recent incorporating and new confidence, and continued to skills Investor I the one forward with questions. growing our you. leveraging of now XX. and look XXXX, business will seeing short, topic demonstrated and February than happy extraordinary your period time, this forward our expand resilience in history. look through further in Thank Andre,

Operator

[Operator Instructions].

the Goldman with Our line will first of come Bonnie question from Sachs. Herzog

Bonnie Herzog

going volume of future? so base. hoping about could guess I margins. big your in I your of in you margins, big cost expectations today fixed Andre you the made could increasingly larger impact And bit question as or favorable accelerating this more on then I about about be IQOS And an around be amortize context that, guess, a you variable an talk would thinking little with this the you've progress be as could Emmanuel, congratulations, touched thinking this digital, my I'm investment you absorption lower any upon I costs And just and Jacek. terms was guess, over in expect first could behind you of the and how of the talk about that opportunity as

Emmanuel Babeau

to be going going Happy next week. what do a we're see that. to It's only teaser Bonnie. to Sure, versus

and us, more with week. with a next can But anticipate what we'll I much headlines share bear we'll So on certainly detail. few elaborate

lever I in think IQOS, of generate up have performance. what numbers. the our as clearly is used we cost showing obvious very in fact performance our really that, on efficiency also beyond to number is a for XXXX great That's powerful the

are least some instead is are in IQOS them. of good cost not and but IQOS, many billion years, And delivering X So to that we them, exclusively $X working of what of related X levels, for we on savings. on at efficiency course, to several of years, are is the overall

in you we at I that And great driver gross that's quite the If being improvement. look for margin would it's across the margin generating here, portfolio, say, improvement. manufacturing level, further globally obvious successful a very on we productivity, margin and are are working

could business if more want, it's we maturity, we making extremely it's that because you respect, inroad manufacturing to but on we a going SG&A, you're doesn't on One, companies just So that's today. if improve probably same have then to X efficiency. productivity. And in I in think are have on runway, drivers generating And you are many the say would CC. find productivity good IQOS, not also identify on IQOS, probably cost even something the that I on certainly our

working efficient to company. We are a and be more agile

better all and higher made we is the to the One to we IQOS, platform have have work is speed we But automate, there fast-growing to very all that So IQOS connected week. are over growth our that only in mainly work that a of that on of great be IQOS of on we not that to you and investment the and will is indeed on elements. I performance. great are learnings way company deliver to on X be course, are over. us And an base. take And the we business. allowing nicely saying the not I'm we at We're stop certainly but investment but we And more per all are doing. investment Thanks course, IQOS. the the cost the making a of IQOS, that not business, that then we we that work commercial investment have just user where keep and not with past, we elaborate level to we you investing. amortize cost. performance this we being of that reduced cost digital the is elements simplifying there the because digitized, But going work, we on variable standardize, cutter, And to a overall the and and is growing will thanks, now next then to

Bonnie Herzog

that I is aspirational appreciate you need And markets IQOS you're that. on double maybe convert possibly business, my was that. so and on based your to by then That growing going But mean units to is it's could base, as the your as that really you implies at is all price with My you've to years you more continue talk of your you you Okay. to in out, analysis progress But platforms touched touch guess different question for of XXXX. X-plus the probably large. look as base in that about next made the on week. more target hit just next further helpful. our different smokers? with to it I user points or second segmentation your look I XXX going billion

assume I evolving your how So you about come hear more if love mix strategy And the going it, do other reduced-risk anticipate from over to there, think time? I technologies. because to insights any of is conversion

Andre Calantzopoulos

shot. tobacco because it the still technology Yes. many I'll next said X and be taste I prevailing times, that will technology in I terms the as you believe, first the Bonnie, convert to ability the highest over heated has give satisfaction of people. years,

of in in I we I the this step time, market. terms today. probably address and to technology will for points talk next in markets, price can And most X over probably the pain to we Now or X with vast many with need segment, believe, if so heat-not-burn price heat-not-burn, cover of X, which in There X need of majority stay consumers X technologies. segment, aerosolization the segments cover technologies, you mostly week will about will we'll where segmentation, the be consumable have next X exclusions

product is heated category. one tobacco the Now clearly,

that's the in both and line and fastest think I volume. bottom growth, revenue terms of

e-vapor. obviously is second The

there We products. burn believe dual to that a users, switch are trade is see want and obviously, to we There e-vapor market these like I entering also because users there is lot we would this capture. between dual heat-not and that, to of consumers

every for consumers and clearly there e-vapor The the IQOS. leverage brand also key to infrastructure can capture name we think of is products. I the

cartridge the and know, because you as reactions I you to very need consumer your XX problem you has to competitors maintain positioned, e-vapor, very turn equity of and we for product but more an XX to to different consumers you products also infrastructure. if is that's consumes we and, build premium category, first need then have don't very and need half product for consumer to it's for make it's think that's the products the best at loyalty get, importantly, to because you difficult and discount be difficult but a and because sell be only just a from economics good, a the loyal them, the also week, different per

the with Now good. that think of we in a have the so undeniably IQOS RRP, is Technology The we infrastructure advantage of of best IQOS can is leverage. the I equity that's lot having helpful.

to products category. use this the And then premium, pouches obviously, think occasional so products I are I think more use expand nicotine or non-predominant time, products. PX the also is like over pure going We make inroads nicotine we can this in although in were or we

little again, more extensively cut -- sorry to going we're to next -- okay? that's a and in elaborate but -- week, this bit here, more this So

Operator

next Sandler. come of Michael The question Piper will from line the Lavery with

Michael Lavery

again. it's IQOS a on Philippines, XX is basis And understand if very which, touch And launched there course, you to share, any there. stores points it small, have wanted I early right, of Just the without you initially. but

touched about and Kuwait on digital the Estonia Maldives. the call also launches some You in and

efforts of would some bit you Philippines, digital life work. there? quickly more market to just to ready a little how they're seen it's the of to little just those sense a Can going be pretty so of love effective. And And bring in you're certainly how

Jacek Olczak

Yes. It's here. Jacek

responded the well. Philippines, This as So product the be in fully yes, very actually one in was Manila, even And launch, also pretty due not to expected change And by tractions. getting last whole COVID this greater to first moment if starts the the year COVID digital, to we of Manila. started the the the product restrictions had strategy the we good may, I and driven fact impact. that precise,

same we're same I if geographies, following go you of while in frankly to is is, think product right, sizable Philippines. especially speaking, rollout secret But received. the like well which Manila, the a major for strategy every not for path we'll geography still in stay the the because the

stick I testing is on you trade. taste think route-to-consumer of different fits a also purchase. when very We're There et the the off we're just than have lot characteristics, cetera, a models, as entering well. the rather countries trade consumption

good for solutions there. So need part But come we with to very on IQOS. is unchartered still very which up of I'm positive that Asia,

Michael Lavery

or to buybacks? certainly seems might just where But before would second like sense it buybacks. a Okay. the and with with that on the a that place in guidance. you is, resuming currency now could clarity one That's Can be And in helpful. some of -- it what you consideration trigger on you Helpful tailwinds have no that play. into it give need could balance sheet come see there's

Emmanuel Babeau

stage. next you we'll until allocation if we'll review and global a strategy, us bear at week, address capital all have of with that our components Look,

Michael Lavery

on could stand problem. on Platform If just swap where Okay. give Any That's sense of with you TEEPS? no then. any you X question that? that Could maybe I update

Jacek Olczak

the mean, the conducting XXXX. Platform on we that further TEEPS test On in X, time this this I year market will commercial be

Operator

from The will next Vivien question with Azer come the Cowen. line of

Vivien Azer

tobacco could was market. I the IQOS. that from like what to in wanted consumables you of on down the us on traditional looks you the and mix I also some flavors some the color give for drill novel wondering have flavors if

Jacek Olczak

That's know, we Vivien. market have okay? varies by menthol. of you Obviously, as market, Jacek flavors It here,

a other proposition. IQOS, are are a segments IQOS frankly flavors. segments flavor is great in and proposition at some But winning most There day, flavors. we in type from speaking, this very tobacco I have of of targeting coming -- we I also of attractiveness right? flavor really has at and has are operating mean the So the still, most We mean, segment, tobacco end much places the very our flavors. most of is stage, menthol the at the scale, of which the

the so by really flavors, give make if more I of varies share a like and can't predominantly you The it people, cigarette -- bit menthol of impact indexed you will menthol, Japan, But -- the misleading. in be I has sometimes country, if menthol follows, doesn't So bit predominant then think just without the international full menthol I predominantly that. if the average have general you typically, markets it you a it market that you switch. are for mean, because it's are dominance easier to over there. A in

Vivien Azer

Understood. on And also please. follow-up my IQOS,

either Marlboro year, of quarter the course contextualize terms versus contribution brand? you saw brand share in the progression that the of from over the Japan, you market In the in can HEETS the the

Jacek Olczak

of better contributor bit is the which pleased we're And year, below growth. and The that above dynamics it's very overall continue last growth, Marlboro the had volumes we the so on priced the the contributing than of course brand the but HEETS, is still major interesting, not the growing Marlboro, Marlboro. actually Vivien. very Obviously, the to Marlboro a a

Marlboro try in the You're market the consumables, -- asking we positioning of dual -- because this is first which and HEETS or Japan. double the dual

Creations. geographies, Creations know extended the Russia. we the the you in contributes. European we couple HEETS And brought first, HEETS When Eastern well, HEETS, propositions very of premium in As above HEETS a also to

now Moscow Russia. XX% premium volume. about So constitute further overall of rise HEETS And HEETS Creations like in we HEETS the in to

the below good. lil So on then the we segment very Fiit proposition. And price that's by complemented notch bringing

device, devices in now a the coverage per down $XX then price phenomenal premium is on go spread the on pretty from on And to device. segments have with the $XX we're the RUB devices. the we go because pack XXX. the the to on Russia, from spreading and And can then RUB XXX free will IQOS on So operate testing we consumables essentially lil IQOS

devices frankly it now close IQOS in in the terms a hint medium. gives to we you X. touching how medium below we go of the competition -- speaking, that is and above why as with can we despite, broadly is the essentially competition know, you So And segments Russia. But have this

And on bit strong the but we terms by a in which continue on growth aggressive of continue and user acquisitions we both IQOS, years expansions -- it's also that top measured a is sales So HEETS delivering further what the we of few places growing HEETS. like Russia promotions, the the in very in good by little device cities, in started ago. a the

in the the have a from St. and So Petersburg cities, in doesn't we the need expansion we have Moscow, continuous that and growth which main other growth the cities.

Operator

the will The next Gaurav with question come of from line Barclays. Jain

Gaurav Jain

FY margin of in 'XX that improvement expense, in 'XX. XXX and on saw FY is was travel improvement, And basis VAT, a this top et guiding are points, production to benefits point like So on which there German XXX the for of cut cetera. basis organic you

happening is cost. is trying closer margin your I'm to high of basis that underlying what not So is ask points, and improvement XXX basis XXX to points, that clearly because

well? as years next that few is should thinking So how be about we the

Emmanuel Babeau

again, term, on outlook. for we'll week medium the next elaborate so Well, more

For the year, Gaurav, your you let assumption. make I'll

have driver for on I think are you we the of are because think are model. kind I can we the improvement. And clear we then clear of the one-off in what your also that savings on that so COVID, margin factor seen

on the cost in really improvement XXXX. and will XXXX, of in the in has So in per revenue, That and been driving it's is continue about positive margin impact is that then stick terms of is efficiency. of the -- margin of what growth happening IQOS that that driving everything terms

we'll week. imagine, elaborate can you on As beyond next but that XXXX,

Gaurav Jain

taxes to which second flavor this talk to cigarettes. My Cancer released Plan, things Sure. they week, Beating question European heated earlier is of plain increasing packaging, on tobacco like the ban, -- and on equal was

incorporate think how your how these risks you And sort of of So do that? in outlook? do you

Andre Calantzopoulos

Okay.

is First also this in and plan a of my this there all, positive aspects plan, view. are many in

mean, taxes. has risk reduced regulation tax. product creating amended so first directive, directives. foresee not we're the is all, okay? does excise that okay? about and we it of under tobacco The directive governs It's tax the I that And circumstances, about products, today directive not all First states of the The product is framework side don't excise which talking subject this tobacco category, the to to increases. member tobacco can a the be under is talk

the within to as combustible the exposure, rates And But absence that not that minimum of said in case. differently on to hit in than all products. has speaking, key this is combustion, tax taxes by in stage increase that to vapor next view higher product have this Nobody criteria tobacco frankly category But this and is example, different okay, happen. a in tax So of the be should cigarettes product, can cliff in of this any Our criteria. change how are any will then member major to at year, defined, or for products, going course these year products. okay? continue has any discussions and and toxicity a or start this to states means, other available, be, for

clear secondly that product regulatory state e-vapor of more it the and a they that's a very science Q&A from participants that for because thing bit has plan these cigarettes. directive, hope on in is there at that always there say country pain product Now and based for all the evidence, the But is advocated served, then -- was a it okay? RRPs the industry clarity harmonizing there left regarding in we we and the So regulate, is the cigarettes, not take that member and speaking, also up these because on differentiated products, And all the the I only end serious frankly this should one; every that a products in be which, as -- regulation. now, will provided are same voices just regulation been directive to cancer that tobacco different day, be -- to will because decisions.

positive this worried this all be it's opportunity because And outcome these discuss wouldn't I the I actually an may think particularly So stage. things. at be about to

essentially, sense it discussed IQOS, will longer on price on cigarettes. benefit And for of much, we higher believe if increase price we tax explained, part average weighted the in differentials we much makes term, somehow mid-price pass two, triggering number of productivity Now the you to the than less if, position, is also health, even to sense the take And by tax cigarettes, passing its to public any taxes countries, chance, differentials because pass passing in the maintained for than tax consumers, on I it's a is be often, number very also room the one. because have as makes order close consumers. tax it so

it, will future. that's potentially, taxed and, way cases, to at substantially So in that heated nutshell in to a that's all as to e-vapor governments assume we in products assumptions. look tobacco already that RRPs But also should for and increase will that's taxes the in, the time we baked need apply but some in have the over excise money, products

Gaurav Jain

has one driven I by increasing that's rate Sure. EBIT, last which And been at a and your a if than can ask interest, question. higher Philippines. It's on minority

in interest, at Philippines, it like considering opportunity on reduce the to Xx partner exchanges there an your is your minority So some trades PE?

Andre Calantzopoulos

envisage this. we us. -- in wants sell we discuss. they're I At day, very moment, No, with mean the the can partner happy don't one to if Not our

Emmanuel Babeau

with our Philippines. in happy very We're partnership

Operator

The next question of Citi. with the will from come line Adam Spielman

Adam Spielman

So think you're take the that usual. to guidance you in first pricing expecting I combustible cigarettes question, on said than less your variance

think Now that. X%, do years take by COVID to really you been and less for pricing. to you I it's surprised with and want something and I'm that it's years, years said

the been You broken. also said has pricing model

my That if it first in for to be another take year less have you will question XXXX, this XXXX? year, would So take combustibles is, I suppose pricing what question. you the low in

Andre Calantzopoulos

Okay.

will all, of less First take didn't pricing. we say we

from Germany, the last think still model opportunity, works where which is had I we regarding okay? may very we'll and also had reasonable, and say, what's -- going continue conservative, to Russia a Elasticities would carryover the view, same, are year. We not got it We well. tax you has comparisons in take And some, will never pricing the Indonesia year, break, because say, year-to-year assume VAT, Indonesia pricing, the increase. to Plus, everything. of my I problematic, tax going in happen which this we makes to make assumptions in the

So pricing a exclude in all if to you these markets. elements, we're still I think other back the normal

we severe So we clear, would the If is of end to I have going watch of this both because of price in that terms I I have this the the absence all trading, any is say, stage at the to but and good decisions post-COVID, clearly, and we're I'm mistaken, combustible, that's a which low-price take are pricing heat-not-burn things, on if in that on certain that's to excise down low But just also more think and carefully these watch typically assumptions, is products out. taxes not gaps, between overall, mean segment, contraband there in everywhere. doesn't markets. shape. now to -- Also mid-price the watch in, IQOS, the happening something we're mid- anywhere. market, at

Adam, What last So where the if decline, in COVID X% don't is industry we think had a we are, assume what underlying super at decline. So because it's Indonesia, is I range industry if we in to related X.X% of baking COVID X% good year, related. even pretty look, you the visibility we have happened guidance okay? gave we

industry. average, the for mathematically X.X%. So $XXX That's we're billion X.X%to consumption missing on for

So the view, finish. we that will restrictions one in once but my rebound, -- don't day,

Now year have negativity, this minus don't I that's a for X you we units gave stage, of recovery. exaggerated. know to X, some maybe for X, guidance underlying X, but this at super billion us. you plus/minus have at At which XX is minus

So that's points. revenue X.X plus/minus

may range. and Indonesia, is, pricing end the We the up And better. much better volatility the where high that's at that in okay? So end the Russia if comes of

Adam Spielman

next I which blunt, think guidance, leads understand that Well, understand Okay. I it. about EPS there aspects really to my and question, the to be is, really many don't to are

have going EPS QX, expansion, to in all, hard, of saying comp going is sales, first where you're you're you're flat like-for-like your to So organic to margin have growth. X% insanely going have you're

say or full do comp imply And and a have QX, do really XX%, you if QX is so can is in you going only in a that seems very the Every any guidance. you X% single great you've to is me since well year guidance to then don't EPS question. gave that. And the range. in quarter, being the XX% to the you you're conservative. because sort easy estimate. quarter, is XXXX, smooth. time well yet way wasn't another You it QX, point -- of a on of This given you're X% asking then to this was It It same and

$X.XX were going said yet you very fourth And and to You beat that you it in you the do quarter, about said for handsomely. December,

you that would the is conservative. that give Now guidance suggest systematically way incredibly

Is You guidance full for believe, to point, the To that which in very either with been the is you're comp forecast, tough incredibly that you can't well the systematically price or also QX the I don't that a year fact conservative. you've conservative me suggests conservative. against super always really fair?

Andre Calantzopoulos

either, but it's I we're COVID wouldn't you okay? okay? it's of things happen the saying, mean, can understand but I not finished. bullish because at beginning Many are say regarding I not conservative, what the year,

exceptional if million okay? So year, put bottom more regarding unexpected costs. we some And Emmanuel accelerate said, the bit than to very as towards cushion to invest we I expenses a had need because not to year call, may $XXX line you would need of a money recovery, of have the last in the we rebound, more gradual COVID, So a end acquisition.

we will physically can't, bottom clearly, then go You money can physically to do line. the the that. If

bad stage, it's if and which by at where So say. the to which, XX%, revenue at stays way, because we will okay, is, X% to be the I line it's not XX%, all dollar would it this XX% the range, phenomenal, be this would gave

That's situation. in is year, It's of conservative. that's okay? this month We're still ball foresee every think happening not just crystal don't in to don't all. I a normal have everything I So this

-- just how explain. and can understand and I it's further So I but --

Emmanuel Babeau

being sequence, say, able please course, to, Remember, certainly the a to about commercial course, -- we gradual activity. that in more trajectory, we in design mean been, are recovery in of in but would Just HX. investment of we've is mean, the limited going I what exactly we factor as be talk without expecting that that

As towards overall the of more know, better restrictions of say the HX year. be investment part moment There could you be number a second will we with a being also skewed eased.

So into expected explains you have QX happen that account, better as to maybe well and investment could one today year. initially. in is need take the will why the expected to But that have than

Andre Calantzopoulos

come more be quarters still I have line. would the bit conservative If combustible, more. love to but more But to to as I pricing, bottom The fine. can favorable. have case, goes That straight goes the the to It we and unfold, bottom Any line, that assume parameters. we'll we think gave I get the that's that.

give quarters outlook. better the as will we So pass, you

Operator

UBS. The final will come Rampton question from of the with Robert line

Robert Rampton

Hello? Hello?

Operator

your is Robert, line open.

Robert Rampton

come How actually? queue to in the

Nicholas Rolli

put can Rampton Robert Operator, queue please? in you UBS, from

Operator

His line is open.

Nicholas Rolli

can can remarks. We'll to just go the Robert, Robert operator. we I final Andre, you the join? closing remarks. get call, back some think after Okay. have If you to

Andre Calantzopoulos

I all you for Yes. thank mean, joining.

XXXX, I thought results first time in I had think for the when have rather we much the were we talking came better complicated than March. but would a out

'XX. would years. see hopefully, to -- X next understanding volumes will recovery and profitability terms grow to the in excellent, long-term maybe to look the a of I more continues positive on more is in the IQOS X forward love sharing in And you total see on we and in market in next cigarette good week, in growth to The we at I think with 'XX. actually. strongly. look my very in we momentum view, relative rebound, IQOS some

for So day, have a thank to and good listening very us. you

Nicholas Rolli

contact the log questions, XX. Relations and look you to Eastern X:XX well, February event. I just It wanted add website that, on if follow-up Day our to on to the the on instructions for Investor starts can any at Investor team you Time have how on

register joining again, our nice Have a the And website. You day. can you on call. very for thank much

Emmanuel Babeau

Bye.

Operator

that This does your We participation conclude today's ask you conference you please disconnect your and for lines. thank call.