Philip Morris International (PM)

Nicholas Rolli Vice President of Investor Relations and Financial Communications
Emmanuel Babeau Chief Financial Officer
Chris Growe Stifel
Michael Lavery Piper Sandler
Gaurav Jain Barclays
Bonnie Herzog Goldman Sachs
Pamela Kaufman Morgan Stanley
Vivien Azer Cowen
Call transcript
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Good day, and welcome to the Philip Morris International Second Quarter 2021 Earnings Call. Today's call is scheduled to last about 1 hour, including remarks by Philip Morris International Management, and the question-and-answer session. [ Operator instructions]. Media representatives on the call will be also be invited to ask questions at [Indiscernible] questions from the investment community.

Now I'll turn the call over to Mr. of and President Communications. Vice Rolli, Investor Financial Relations Nick Please sir. go ahead,

Nicholas Rolli

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

note to results statements forward-looking a to the are UK not to as on in of references Rule to and Arabia are direct call, to basis on actual additional the projections takeover of I directly release data, copy comparable the and Please market the regarding attention results. offer X.X cautionary or customs revenues the underlying is today's Vectura results. and Today's A terms that for our on future All Risk You to X.X your our Saudi offer announcement presented may additional our calculations of unit COVID-XX. today's today's requirements, definition that not otherwise and intend We related Please due available excludes website. as disclosed and www.pmi.com. to on and provide share on forward-looking our that press Reduced well of note, in statements. access contain release. from for s, acquire to factors most measures, materially reflect heated PLC, X/XX/XXXX. could the A currency-neutral disclosure Group the other review references end Unless rates glossary tobacco stated, organic to this projections U.S. to IQOS www.pmi.com. products. already presentation do slides, an also posted or at net of GAAP upper the cautionary statements including X all adjustments, forward-looking assessments and are been Adjusted the which RRPs. further RRP has are of to information Products, products described code announcement press differ forward-looking release reconciliations the impact webcast various smoke-free the cause statements as in Growth IQOS also on Rule remarks

to pleasure Officer. Financial Chief my introduce Babeau, Emmanuel? Now Emmanuel our

Emmanuel Babeau

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

business was strong second ahead nearly of made EPS HTU despite compared and the adjusted coming match geographies. the key to IQOS, which grew of performance compared Our last continued very prior-year revenues global diluted a quarter of adjusted the to QX's reach the delivered growth strong XXXX, the expectation high quarter billion and the of plus across continued plus with in in XX.X Most challenges to XX% our our strong impressive to quarterly of XX% slightly pandemic. of record to of up growth net the units, previous XX% our quarter, same sequentially and XX% quarter. volumes, shipment year, volumes $X.XX XX%

X% partial pricing, continued partly IQOS have a million and In smoker smoking. which, against Combustible reflecting plus QX grew revenues market and mix. also a XX pace, estimated volume net million stopped quarter an an surpassing We year XX basis, almost adult of good switched rebound weak converting offset by on organic prior solid users, a by to at

additional up significantly growth us on we expect expanded Our adjusted $ for and puts investment firmly tailwind this the providing while operating first commercial quarter performance XXXX with income an the in half And expected a margin in track terms. strong step overall. in both currency second-half, organically second to

$X this years. allowed target Importantly, month confirm we to last program, to X billion also our us outlook buyback where share over $X

IQOS that month. launched of will Japan next in also to the IQOS, delighted next-generation announce are We ILUMA, be

through to build acquisition took step business toward to accelerate important and major our covered Vectura, regard February, beyond weeks we seek recent in a also nicotine to growth, come this steps of future. in overall proposed smoke-free which Fertin in later. innovation, Day our we I'll the modern at back we Pharma a and journey represents Investor to as As With category long-term

to growth the of net heavily around disrupted levels, an strength numbers, by compared Turning adjusted recovery in the or markets many plus headline terms. continued and revenue for XX% our including reflects net the IQOS +XX% grew combustible business to basis, higher both in the organic QX on +XX.X% revenue. $ the the This XXXX, organic second inventory with in quarter RRP of need of

a notably in channel sales much pandemic, share. to in witnessed We organic of both combustible X.X% in sequential market growth remain by the South our of world and recovery of and significantly on in our combustible, and affected mix driven good Asia, revenue per net increasing certain our unit, RRPs. in IQOS global social plus and pricing by location partial Southeast America, weight in have and the recovery For and the South geography while reopenings duty-free, led

IQOS, productivity increased Our operating margin device and lower cost, to and basis. volume, an lower increasing the savings adjusted This by including profitability basis points combustible weight the XXX higher due of the impact positive on reflects organic income commercial pandemic. of spend pricing,

growth performance. in very Our a and adjusted diluted of strong represent resulting $ EPS +XX.X% $X.XX organic +XX.X% terms,

nearly organic been revenue by net mix shifting overall, delivered by pandemic user the pricing. terms, and the tougher growth despite and throughout XXXX. achieved again, half IQOS impressive, business in of of progress first notably +X.X% the doubling unit, consistent factors of almost reflecting comparison This the where the reflect net our mentioned, our our grew just in was per has EU in adjusted +XX% the I revenue QX growth regions We including of +X% the and the strong end in organically. QX $ at Looking and

by Our basis. points basis XXX HX adjusted increased an on operating margin income organic

to we remains noted second an as QX, plan investments at commercial in we While performance. the increase half, this excellent

for guidance XX.X% result. in terms, industry $ for stronger organic We combustible a even than by and diluted volume very for performance XXXX. supported previously, easing an strong following organically now expect to plus HX pandemic brings the of restriction. adjusted EPS XX.X% the improved year Our me grew also plus total This

we are revising to end upper X% revenue, the the between plus range. plus forecast of representing X%, net our growth previous organic For and

We to continue points. of around we +XXX are +XX adjusted expansion adjusted Margin to organic OI raising basis expect to growth +XX organic terms. And to range EPS $ +XX%, diluted or +XX% in our

HTU shipment of continue XX and billion We volume XXX units. also to expect between

our $X.XX. for to guidance received of the QX not period ahead launch our note across increase billion, acquisition. organic our the we IQOS Fertin repurchase full-year growth, range translate of recently projected we of diluted momentum the IMS EPS in This volumes. $X.XX approximately Please to maintain expect year earning include the and Vectura. inventory proposed Pharma We different not $X program, acquisition into repurchase by rates, or preparation impact slightly adjusted an strong to shipment board is favourable release. including currency this at starting of does any to our need the where consumable, or Given target which an authorization HTU uses rollout for EPS following duration This share market, impact material estimated of $X.XX X the affected ILUMA, share of of be prevailing $X program

many some the from Where better have key certain COVID remained, from largely Turning South HX of the of Indonesia, significant volume. markets markets Philippine, our and key significant industry present deterioration emerged the assume challenge assumption assume situation. we now to supporting restriction, that no the will We notably underpinning in pandemic-related guidance. America, further

travel recovery within in as no still assume to with has and effect. duty-free meaningful European as continue customary Intercontinental such travel Asian We rebound this A the in Union year, limited subdued.

anticipate second addition, half of In following +X% in a softer somewhat around progression. pricing first half, combustible the we

faces limit in we adjusted tax remain reduction Despite continue situation and new terms full-year business the expect the pandemic effect drivers impact our put confident HX supply. reflect in availability. guidance, in consumer Germany And the we VAT to our factors, growth monitor are closely. dynamic on to multiple is we in in continue the included Southeast have have and The these XXXX ability This progress. assumption while our This semiconductor top-line the to Asia. in will we revenue overall ILUMA, volumes and IQOS certain continued gross of to to includes global manageable, launch to market, be the continue Australia. +X% half. and deliver margin pricing first This continued and which to less tough South to from robust, shipment the related comparison higher challenges assortment in on device compared expected notably contribute also device device our to shortage We expansion +X%. constraints excise

category We product IQOS understanding around impact including our launches compared number to margin, robust deliver up will incremental of to we HX plus As commercial first ILUMA to very of $XXX the which our IQOS step awareness VEEV, around and XXX development still OI smoke-free will expansion project. mentioned expansion $XXX basis a but and investment expect anticipate million Portfolio of for campaign, points year. previously, as commercial such and a overall, spending, half, in the key and areas, also

we expect QX, $X.XX. For specifically, of EPS $X.XX to

and cash continue exchange flow to XXXX in year-end rates working we expect $XX prevailing subject Lastly, requirement. billion at capital operating around to

heated and the imports excise traction. which of some applies results the to tobacco resume the passing of a of more us regulatory differentiated recent IQOS framework smoke-free to of the export the the broad, Pakistan. Mexico, Nicotine no depth, quarter. regulatory for to our I of in and System the tobacco longer weeks development positive discussing in Recognition in import Philippines Delivery the Example treatment In by devices. continues in for includes potential Electronic House institution highlight reduction will Before gain to ban allow want of of Representative, differentiated on harm product of RRP product heated devices,

encouraged product heated the the While cigarette health to has less of government potential combustible harmful the less impact, view and for between we the cigarette excise consumer switch principle tax from tobacco smoke-free on of that as changes away we incentive alternatives. basis differentiation announced are important recognized providing German to misguided, on

groups We the by decision. optimistic, are country in member the remain scriptural and taking a we experience hopeful and approach ahead new the also note lead election, we the key hamornization revisit tobacco of excise practices to the among revision good gained In differing the relevant marginarily, the non-combustible political government to the will into views the fall states. could account in greater the that directive EU product, of

quarter, QX X.X% our reach launched strong and market for by driven X.X% Turning plus total in back to increased the s reflecting shipment disruption inventory peak. QX duration lead when need X.X notably now sea second times, continued from the to Japan, Ukraine, +XX% units QX, in and around billion freight The reflects consumable. were encouraging reflects ahead XX.X for the to plus of HTU markets the quarter pandemic-related a the unit of in growing its recently HX. HTU the shipments business, ILUMA This volume Middle volume IMS first from volume and EU was at region, by of +X.X% Russia, in week prior-year a by our to billion number recovery the of maintain of quarterly results. progress growth shipment compared cigarette key East. growth

X% improved of XX.X% in we year cigarette impressive Units run some IQOS to XX% specific share come shipment to X% total comprised performance XXXX, back effect, which mix in sequentially, as the While it's market XXXX. headwind compared market and in of addition face Tobacco to. of XXXX, to volume in continue share Due our I'll Heated in to of our the

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

ILUMA. HX, devices becoming by rapidly, track a us revenue Our changing in on made compared X% aim lower shipment growth accounted approximately adjusted net The quarter battery for and sales RRP markets functionality and fewer on prepare product the in longer majority XX% volume net in user HX, IQOS Company we device device up purchase XX% driving XXXX. certain putting of to reliability, twin $X.X in and of of revenues, reflecting achieve nearly engines +X.X% +X.X% second to smoke-free our the is mix billion in topline. of Smoke-free and net our of revenue for our organic XXXX. due replacement the NetX life, growth improving as prices time to reflect IQOS for existing

certain just in HTU I pricing on on net the pricing is combustible lower of First device mentioned. and market

to Second, HTU s and at Net increasingly unit in revenue deliver business transformation this as continues Investor our at as powerful is the of mix an driver Day, increasing accelerates. IO growth, substantial per our explained

basis with on driven starting levers, margin Let prior by by portfolio. across explained HTU quarters, and our into me pricing points This the which driver now including is +XXX go expanded expansion, on mixed an of effect our gross first in basis. as multiple the margin, half organic

than in Our SG&A XX working. declines, of adjusted basis strong target reinvestment. of This of our XXXX, on significant towards ways cost, a adjusted with our on by growth and $XXX the and delivered our productivity effort including commercial in our research efficiency offsetting target our inflation bearing XXXX, with This billion an revenue before chain accompanied XXXX efficiency $XXX simplification of the effect and lower, towards basis. ongoing more supply processes, efficient are This strong million %age around business start of billion saving net engine more points the savings million a on HX. organic was IQOS HX fruits, as $X of manufacturing around and digitalization gross reflects over of delivered volume marketing We $X and XXXX. combustible administration represent journey SG&A

market, the Focusing market combustible, give industry investment, communicate of smoker via also a results and permitted. market the high and prior with we of due Bangladesh. expertise, by certain pricing It strong share Turkey, Despite is efficiency. the therefore Philippine portfolio formidable half with rebound, accelerate now IQOS to our maintain and brand like international our in markets we on important through exposure low strengths. commercial us where to drive good growth leadership share ability Arabia, year, over and remained adult below like Mexico, presence through the with as to Saudi reflecting selective infrastructure, share our as return such cigarette by in hold to to leading our QX loss mix, emerging markets and the platform This

a sequentially trajectory second expect recovery over-indexes, share COVID the from this compared half. partial our border the quarter and positive closures, where to Marlboro reflects first impact on continue and Importantly, through improved to occasion, the travel. we This social

Marlboro. expected recovery the including portfolio the and by segment is initiative, also of the strength supported However, value in enduring

our the with turn Southeast will to region. top. I We gains briefly target time, continue cigarette South stabilization in coming know and share category Asia on HTU over to

headwinds after difficult have a moderating. notably quarter, last covered As volume been XXXX, in Indonesia,

pandemic are a and the major consumption remains However, still below a in the pre-pandemic levels, of in region, with pricing renewed Daily the remains patterns number issue challenging. environment lockdowns areas.

year improves, gain within volume as industry share with X expect Tier encouraging growth to continue We where recent in Indonesia participate. segment the this the we

Our Indonesia broadly of over of to overall geared in Manila initiative for exit our in continued with an IQOS share share share in recovery balance strongly further both year. HEETS. sequentially RRPs, and stable QX, Metro the at the grow X% In Philippines was portfolio over with the

the the net our December For track overall, to we organic period outlined region deliver over on call. remain positive as growth April revenue on to QX

X.X of and on were there of million as in we around the half Moving X quarter, IQOS million addition year-to-date, After plus plus exceptional in the users further plus first step-ups performance, we now million XXth. a June adult the million XXXX. QX added X.X estimate second the building of in to XX.X IQOS user

the conversion increased even experience reflect user device balance in EU our including category cigarette DUO, conversion We growth, of with than previous the and key conversion. Our X.X% again, pandemic, million accelerated geographies, achieve reflect such to smokers with EHTS with points, rate innovation all and both momentum have of second offering. superior remote the initial Japan with to the reflects the XX% during overtime as X XX.X momentum above higher and pivot that across for further smoking, of In EU of IQOS IQOS our total industry of offers reached stopped combined IQOS ILUMA. rates total It new introduction prevalence and session. +X.X of seek switched higher products estimate the We brand million various also the of QX engagement Strong Russia. region, year. notably a to more for the and volume is region, IQOS HTU stages the offer last digital below to This points this HTU share which paying quarter and and widespread IQOS the adult off. price of enrichment strong user segmentation

growing broadly inventory we estimated HTU movements. strong, sequential HTU year-over-year, quarter be due around volume trends with line with IMS last fluctuation sequentially quarter mentioned, market. +XX% As expected combustible to of in Underlying for adjusted the seasonality the trade and share remained first and QX for the effect pandemic-related +XX% when to on

share This with dynamic growth versus quarter, expect contributors. growth. robust notable includes broadly headline region, see Poland third across with strong We to and stable the Italy the similar performance as in excellent underlying

grow in and the over EU to region user sequential Strong continued X.X reach of our XXXX share Russia to X.X%. the HTU QX, despite user IQOS X% our base, start pandemic, by doubling to million. since reach X.X in growth We points continued performance with

distorted EU, can recent to growth. estimated movement, Adjusted by IMS excellent and As competition, sequential positive Russia in year, in before trade be combustible consumer inventory market. the expansion and in naturally can competitive in the the now generate growing. progress offering category geographic This After like share is discounted Japan, and reflects +XX% markets very as year-over-year trial. of tobacco close IQOS this for heavily the attract dynamic seen large initial heated

see our strong room our future launch and we tier We ample further user price existing both the and continue with IQOS of grow to for ILUMA, base, portfolio growth.

contributing. we growth significantly We the means in While our is of is Europe Noise no available Russia Southeast longer share calls, Kazakhstan, almost with we the IMS. Eastern have a QX Negative broad show earning across trend growth recent region sale HTU uptake where Europe there on IQOS that adjusted assumption, focused in excellent and following historically Note Ukraine, X%. in for Belarus overall achieved in original international here

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expect consumer and We growth uptake of launch supported IQOS August. user the by continue robust to in progress underlying in ILUMA

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Thank you.

question-and-answer each. questions [Operator participants thar it time, of X we We will the now and keep to conduct ask fairness instructions]. a conference. the maximum portion In of the interest of

line the comes go Please of question ahead. first Stifel. from Growe Our Chris with

Chris Growe

Hi. Good morning.

Emmanuel Babeau

Hi, Chris.

Chris Growe

quarter I assume soon please. start launching you'll want ILUMA with, do nice more I I go questions could, in if you IQOS I and to and there. markets. ask want two Japan, to into have you first Hi,

of in likely the shipments in that above already mentioned I this think inventories. be know half sufficiently I quarter to the you've you you year, built still building that launch? the that handle happen had expect second to consumption. Would case? still we've inventories or Would

Emmanuel Babeau

Thank was think in Chris. launch of preparation No, element for there you, QX. an the I this

that and aligned, we stage shipment rest further we at at don't be the so the of For more emerging to HX. expect material that in year, stage, IMS differences to expect have

Chris Growe

some on And my you on market did know combustible Okay. in business, detail a question share that. you guess good would be overall and a gave question I combustibles. I just softer have that the

and get your I to I expect could that you you maybe more to to around Risk combustibles, competitive the time. I share contributed there Price that, your over combustible that's think to little in environment it stabilize a pricing there And may think want your market in area. a be now year? business you share is this right for mentioned how just sense less to related give color stabilize you that thought just think Factor if

Emmanuel Babeau

our in Sure, stabilize we Chris. CC or have. CC category, that segment share objective to that's market the On this clear a objective

Of course, we it's want a year-on-year stabilization that reach. to

good improvement that are kind showing and We sequentially versus of market stabilizing QX this to the see is share QX. quarter-on-quarter, it's

that's we we gradually coming year-on-year. that that want We'll not yet that That's pursue. objective are an quarters. terms reach stabilization for see are the there to when in it. But We to clearly able something of we have

On environment. pricing the

it QX seen, we was in pattern as a Indonesia, there Germany, decrease duty positive. excise is you comparison, of VAT HX price the in Australia. about flagging of X%, been I cite in so was reporting clearly difficult good. in year. is started increase term impact of there different As have we've quite nicely more we basis still a would a are

confirm be, when that. We'll which COVID monitor of be increase. many price our the we we bracket So X% to see on exiting been there is of but X% well price stay the we which year-end than be take to to are But could into exactly decide our the the partially, will of what is monitor are the HX. certainly that what is economy course, say stage, going increase. There customer monitor term of We're of means that crisis, to into a also tougher we and be favorable evolution we're is at happening. that as, the price account we I expect, that we'll comps unknown would HX, driving to would that how quite of and increase to do we're to after impacted certainly less year, and overall notably the Nevertheless, what increase it going and an to have price in HX monitoring fact comes A follow question that situation. lot capacity HX, decision that And X% going of increase on is to flagging would full as exit. account. take in by timing in we that inflation play. situation know the the going hopefully, that still for going because

Chris Growe

the all for you Thank perspectives.

Emmanuel Babeau

you. Thank


from Piper Michael question next Sandler. Piper Lavery comes Our Sandler. from Co.

Michael Lavery

Thank you. Good morning.

Emmanuel Babeau

Michael. Hi,

Michael Lavery

I of it pricing some wanted to just the a on couple on on follows I ask questions of One, Indonesia. discussion, guess.

bit just you favorable of what the as call help little offset out, looking expect an and it better pricing. to dynamics You the Can there to ahead? some understand us a obviously,

Emmanuel Babeau


hard but was is there. an probably announcement basis again, last to the remember market situation certainly we strong year, recently, impact is very comparing seen of the crisis. we're of Nevertheless, exited by hit was probably normal has doesn't back new not on and lockdown year has the have the that situation, improvement the so probably It been the tough comparison. pandemic. really based certainly what unfortunately, to there So favourable that mean, of favourable comparison, until It's restriction. that a country last And Indonesia

doing premium what Indonesia, becoming last it increase, That improvement us we negatively same playing possibility year. when to if And are by the share. any gaining time taxes, market, enduring the the grow government. used close It is this are that one it last to XX%. put know But, market the going other it's that share and on to there of the with facing. going explains able be that XX% year. our are market hopefully are very at used clearly well mean duty to unfortunately, place of to when that situation year. at And and oriented kind probably seeing more environment, course, don't don't the that with still is and for and we is call the ground to to last we volume to news XX%, no gaining category, doesn't we this be corrected least ourselves at getting excise in X versus we Tier price it are We we is evolution there. that the a we be, way Tier policy the X, That that duty, is comes and also, of of when comes end year, But on favorable, have excise lower the is but around, it's around It happen. longer the

Michael Lavery

just pricing, actually you any have increases, lowered saying to you prices? not then confirm on that are And getting your you're or

Emmanuel Babeau

impacted that's but what Indonesia impact are price in term increasing is a the we there having in of with it's We reporting duty, why we a by are Indonesia. are And increase and still price, negative between so without impact. difference

it's impact. bit overall a of having still negative So a

Michael Lavery

I got it.

you're duty the aren't increase? offsetting fully correct. So That's increases

Michael Lavery

IQOS you today? there? really on find And a have launch products resellers Indonesia, stores you of And be you a can and But out funny Can a somewhere of official about there. in internet launch all or give creature. then a us language. sounding called else, just sort have status those quiet Jakarta of Are dozen quite how are do sits a they IQOS we I a in getting haven't just the Indonesia look that proper in know

Emmanuel Babeau

may some the club we launch no where is There user. official gather IQOS in

have also, fraction to, a small hidden referring the it that's As the are if of no want, purchasing gum very And you the the smoker a there certainly at with are kretek, yet. you market. stage. a launching that small foremost, the but power current could of first that while be and if but afford global the people non-kretek, group specific that can population, element you we offficial devices. addressing launch, develop know, of objective part device want, that course, only one Indonesia is do the you That we consumer. been to is, critic haven't of And a for that, and We

Michael Lavery

much. Okay. Thanks very

Emmanuel Babeau

Thank you.


Please go ahead. comes question next Our Gaurav from from Jain Barclays.

Gaurav Jain

Hi. Good morning.

Emmanuel Babeau

Gaurav. Hi,

Gaurav Jain

is me. Investor to 'XX, the and at Hi. from are you almost Day at quite A of this had you couple XX%. greater of than guidance over on One coming questions that X% ahead growth year that clearly XXXX EPS

in X to there that and a it So will next years in trying be what interpret high some markets? is potentially Germany could because have understand; these the realization which slowdown year market is we European that you closures Or how should next the gap other I'm tax cost impact [Indiscernible]. that in in

Emmanuel Babeau

for Gaurav. you the thank Well, question,

what to Day, you're the X%, a are and is between that track And the objective targeting news, new the compliant in X X%. the?X?, far. But think said at means the a the guidance to more think for to XXXX than I the you going the time more we because time than start we than three-year it's that good sharing I don't and the clearly more this been on beyond XX% start strong we year for good the see contradiction certainly X%. first strong are which being off I We've overall indeed we're of are with Investor so to above XX%, deliver

Gaurav Jain

your how more [Indiscernible] in EPS growth would is gap there to And past impact potential achieve Europe, this these guidance? of Sure. that

Emmanuel Babea

to there gap on the difficult factored we could even CC, absolutely to other you when between make that, excise gradual that of But product it extreme reduction, I some is account be duties. That course, scenario, scenario. guidance. to reduction, think the mean, and comes in our are and always into whatever taking said we it's to react I most have and can

at We capacity with thanks to price. could been consumable repeating And that increase very terms switching Marlboro. IQOS more premium is and should be have an consumable is We've commanding to heat-not-burns saying a used, we are that the a customer. is heat-not-burn better regulators governments excise duty, IQOS a like superior product, premium and be to there that same price. between and certain ly, that increase see positioning and we are more well. to because already smoker That could time, combustible should necessarily price to than the the Today, incentive there envisage decrease that often difference that, to some also as a continue fact We country, increase category for We be a product, case for cheaper the of product the will move at everywhere. in not that in coming of the better going a and price but be gap. that some could the expense in and lower And product have combustible changed to the it's to believe to heat-not-burn course, them. as you're be premium the certainly something going and is

We example. the say time, we two these that country. one we sure, on same certainly going happen between we to there haven't being is that say, term, that been are for better seen heat-not-burn believe that would think the anyway we've some some installed nice in are between in continue be seeing cover that be that recently to in reduction fact should the growing, other products. the And to but Germany possible still is And long the will difference [Indiscernible] justified differentiation a gap. that that that the be to the on EU, by being will at fully there there We of believe that and consensus product. clear I combustible fact for ready

Gaurav Jain

Japan. If one on can Sure. Thank I you. a ask quick

a will IQOS probably will up from closure, closures throw lower which these volumes you're the will and We have gap in gap variant, of potential the capture and October, maybe There in move. right price point launch [Indiscernible] a which volumes to launching a is reposition category market DUO low IQOS that up ILUMA. priced to lot a lower be X the?task? IQOS cigarette at moving, this

Emmanuel Babeau

product. it's with And category keep we course therefore, progress, of big, IQOS customers, time for focus going that enrich we say, a the believe would for we've as clearly premium going potential major being. big remaining I the for been Certainly, highlighting. to to on killing is ILUMA, Gaurav, we change be to And for represent are and saying, the as We huge real, pinpoints. the them that's a going [Indiscernible]

for what cost most premium to also we'll to in on see evolving, money certainly no the good simple are The that interest of value as depending product ultimate of of value Now, case, several coverage said spectrum from for enough customers positioning but exception prime the to for different market any of So low experience, and have the full devices the launching the the premium is is experience we new goal, once experience an the I the willingness would course certainly, level at of to positioning. type, of will other in designed is price how certainly and medium in is from with that market, say, full Japan instances, make delivering more money a not that even is to a our cover market again, positioning.

Gaurav Jain

lot. a Thanks

Emmanuel Babeau

Thank you.


go Herzog, Bonnie from Our next Sachs. question comes Goldman Please from ahead.

Bonnie Herzog

A Emmanuel. Hi Hi, Babeau: Emmanuel - you. Thank Bonnie.

Bonnie Herzog

a Ukraine I your a full a for lapping but back wanted still about EPS Hi, couple of are the volumes just decent it as thinking just -- on the I despite year, questions. relatively expect, industry to step-down easier improving, guidance -- second guidance. growth comp. I have does?imply? of circle you I half wanted this, in

cost did you half. to maybe of incremental associated expect with you in as the few called the margin and out sell some call pressures devices gross out ILUMA second rollout you things, Now, a more

want sure I clarify as also half. of So the incremental then to to the second I any you're Operating half, just I in to buybacks. just takes, wanted pressures all make or it relates And understand I and puts

you're just buybacks at a including half not but back guidance? wanted your wanted the doesn't you're all:ot from as aggressively, including share make Does buying to in year all I second just sure impact be understood mention mean that. did material any this buybacks going buybacks, the to just guidance just You at of in to this I include verify.

Emmanuel Babea

buyback on it assumption. with Sure, buyback be to the kind No, the of any not clear. starting clear. Maybe making we're guidance Very to what's or make Bonnie. no, going

because HX be we put don't As kind any But And for flexible. it. scenario of HX. the for want said, of on to keep magnitude the buyback really all amount That's frankly, super we buyback the want understand in we you we really, want envisaged. the can be flexibility, to way precisely to of should assumption

HX versus Now guess because really margin on I the HX, that's your question.

between of reason started for well going continued I'm course, think profile, Certainly, the but line dynamism different go favorable the margin the what's HX to you summarize in with to evolution element. HX common I through all be to evolution, is happy on our top and business. strong IQOS

facing theour on some easy should comp We CC also, year, an that on relatively have are CC impact of last business, so on the still our business.

than in stay. IQOS that our that answering challenging price I increase dynamism element CC we is, growth business being other delivered could raising why confidence that's of reason We revenue week, continue X. our to course, X of clearly guidance the first there question it previous be impact we are is more X% to the mix said growth the have on so on driven HX. see on HX, as that's HX possibly strong It's on the on that so price, continuation revenue Then the a to on by to growth going one the revenue organic element. we on different, the in nice the And

productivity. the is level one Another of

You million period. billion Obviously, XXX In X-year not target a have period. the if amount number is X want necessarily over seen for X XXX you months a a sustainable HX, we the million.

was there generate same million when see level of not business, you One another a indeed impact, in don't necessarily year. doesn't It but launch product, productivity this element. impact that front-loaded true for Then new of all fact I we as the launch are in the it's margin That's any there element be mean nice the industry. the ILUMA. some a is to HX, that in And to any the productivity XXX on intend at to HX. going the So

Your optimized. cost not are

fully volume You to amortize yet have the don't all the investment.

processes. all optimizing been haven't your You

we the is going as I'm say we're disappear XX how exactly able course, you have be to an on tell you obviously gross revenue, have rate. not going going innovation. we impact to to but an of more full that ILUMA to, to it's is on gross cost impact XX the an productivity device, and, as to not the on overtime. well, mind, with that boost gross margin, on versus This would going an but an let's that me of months is coming I launch XXX take, long going increased are certainly the to when Company. as Then, for it element where investments is I say, the HX. So typical, last fact have will impact some said horizon to And have going in course, HX. the it's from consumable sell million increase to investments This same device, margin HX going make margin going the these be top to to it's XXX there impact ILUMA. to to of these impact iAnd get

going it's that where So and about we're and it's capacity, Company. That's the further about innovation, it's commercial marketing to put our money. business about digitizing

targeting of growth need elements are evolution revenue all in But adjusted very you margin of profile and understand still a HX. HX obviously. HX nice between our different and take we that, EPS to the said account So having into OI to these obviously,

Bonnie Herzog

second a doing you've sounds there's helpful at the new a just Japan of encouraging. it takes, improvements Ploom really a If puts environment, And question momentum pretty was industry and what competitive volumes. and pretty their trial. launching I the broadly, that to darn lot ask discount raised plan X. the Okay, good they steep as especially just to to feel That's that. it is may, given the Tobacco about I launch on Obviously, in wanted all appreciate like I guidance, and think about I drive but by

confident to to that are Japan. coincides how with continue and wanted stepped-up Thanks. launch you're positioning going competition concerned able Maybe the ultimately terms of price. take this just to how understand be are Now, to share of maintain with especially I your it overall, to in you you and in ILUMA as strategy ILUMA share? relates

Emmanuel Babeau

Yes. that's course Bonnie, very Certainly, of a elaborate question. on I it. good happy to

this now most and that the increase cigarette to the the see bih and category. seeing And smokers category, vision can better in to competition that's need investment where to is certainly, my more end think increase putting capacity smoker accelerate product is important find probably share in need market of develop the shared tategueyas the answer, smokers answering news. And that category, in and Having just with the very To And think that start there take showing, to this way, competition commitment are a really realizing and geography obviously, the a accelerating. see world. proposal. phase First some said fact course, for that's we happy taking the we of overall we a that, good great. smoke investment, big I journey is priority. we the really out nology as and engagement more for tech that, on the think we lion's the jointly a expectation, growth great is innovation, I can that competition see is the to beyond foremost, it important what is We of heat-not-burn

And the versus they some believe a to some competition Something technology, the of discount and that to to is innovate, that our struggling big difference. that some that's bit, our where product reason way is closest cigarette. the have is why making that's capacity get a to probably experience little where possible, combustible mimicking, their is the And traction. of them

feeling end free, and device combustible back versus But whether So smokers love with may what because the almost satisfactory, back you or same it you're really fact then you you more and of consumable what generate? the is the therefore, IQOS, with heat-not-burn, the not doesn't benefit lower does the same of lower not you because cigarette whether have a IQOS to enjoy. for device as switch it trial pleasure, converting it -- IQOS to the to And the what satisfactory you an not is experience create may have it's if the role consumption that's playing coming cheaper. if as average loyalty. that ILUMA, then and that lot generates be day, At you provide we just it's further

capacity device, it always certainly with different end will this majority our to a the delivering the of is us the as heat-not-burn market simpler on It to confident firm switch to continued the better IQOS. smokers experience. we to lead experience purchasing we what to to our right with are mean way also, to the continue product premium superior retain doesn't believer comes I product we're a that to day, of the So big innovate. share. exactly that And category. be just that convert propose believe offering at going technology, that make to said, not But will And power, and Targeting, expectation. we we different right the when a capacity

Bonnie Herzog

that. you again, all so helpful for very much thank of Alright,

Emmanuel Babeau

you, Thank you. Bonnie. Thank


Kaufman, from from question Pamela next Morgan is Our Stanley.

Pamela Kaufman

Hi. Good morning.

Emmanuel Babeau

Hi, Pamela.

Pamela Kaufman

terms you the VEEV will should of you into versus in that is $XXX I And increased ILUMA plans we other level the on will spending reduced additional initiatives Japan? the think you offerings. the was primarily investment much behind, of of in investment that how of about terms $XXX be the year your million, then hoping for markets? half level to incremental for to risk what expand second could launch for this elaborate as related or in annualizing And spending, in be next

Emmanuel Babeau

can of say, in not Nevertheless, of know the that amount want to that to places part disclose because, an of imagine, say going growing don't I'm detail are to putting about also have to disappoint But form are in I to behind going that to as be Thank is But move to will only, I on you opinion. your I are more certainly the super have switching you, volume, you that activity. smoker I'm sensitive commercial conversion extract this order fully and is Pamela. understand we IQOS i.e. and we Certainly, the more happy a more launch IQOS. that. want top-line, there to you curiosity investment to afraid ILUMA.

As of reason to say but are returning we I number a a there, certainly that's will And reaccelerate we certain of be important. fully to going a and normalcy. to see, more commercial markets activity. not number marketing

to life a are marginal, the stabilizing and we putting to of much innovation, accelaration. in part presence selectively science in and RRP going so our it's market of say but this CC more very We on the are may And to money fraction category more there notably, possible. also build in be reinvest I more term we and we also accelerating of that's signal objective it's small to butt of would that have we share. where going be have investment, extra here it's

year in term more our we'd No, So we're what program I of efficiency going generate S with next return clear G&A. stage with annualize to want at expect that, not S you new launch on next investment very let's to that And have have have don't to million. yeah, ambitious a I year. a country many billion great think ILUMA plan on this we on in I'm that, that would Remember, be to but And really to but offering would in the elaborate invest Pamela, what's that, X investment, be certainly new necessarily some and impact technology. nevertheless, XXX XXX is going able you to behind the need to XXXX. on

driver a ambition for to this nicely a revenue We that reduce that a And on our including three-year investment we period create course, to be ratio all have is profitability. therefore, the remained over dynamic to on have. big of goal revenue. And SG&A increased ambition absolutely very

Pamela Kaufman

very s? Thank is, And how, at region. America Company's new the way you. I'm you if it the the just in the my the That's helpful. can behind in all, other given that changes 's strategy management question priorities U.S. and discuss structure rationale strategy influences curious is market, particularly Deepak in in that M&A?. background anticipate we Mishra changes conducted, ' to is the or the U.S. Company's IQOS rollout any any towards Should the

Emmanuel Babeau

his you talent we're all see taking to responsibility. very him thank great new Well, highlighting the and for of Deepak pleased

highlights, We keep notably, fact the the could course, in working to just have, some IQOS. potential but I think interaction close for it certainly, VEEV globally with want U.S. for certainly, that for we ambition. see the on flagged of Altria Americas We that we IQOS

and me the that that You more as we mean country will in see reduced potential. a actually where potential have on certainly want we participate but product not to a that, to risk allow elaborate that U.S. great

Pamela Kaufman

Thank you.

Emmanuel Babeau

You're welcome.


Please, ahead. Cowen. go comes question last from from Our Azer Vivien

Vivien Azer

you. Thank morning. Good Hi.

Emmanuel Babeau

Hi Vivien.

Vivien Azer

on wondering I they that question IQOS are they towards still product, days, was and you. would any insights new it's Hi. insights. general? that other newer Any are consumers with IQOS but consumers, if consumers to platform legacy preliminary the consumers, be expand early engaging that My in are the first Thank skewing I very helpful. know is VEEV. offer could for you

Emmanuel Babeau

category. Vivien. launch is learn We could a for this to the soft VEEV, on want what -- I reason. of number a call we Sure, Indeed,

already technology, as of was the polyusage. were We a complement great natural age verification, case people was to who the of move that including been see can some are absolutely the the of IQOS learning for the paramount. VEEV many And nice the And knowledgeable already, provide. IQOS brand move which user the in put as obvious in us from IQOS initial dimension experience we [Indiscernible] from

think I moving are dimension. we now to new

great have do but is of experience, the feedback We only initial very design, we the the the product it's some beyond not well coming comparing from test that this of quality overall elegance show when that versus that move consumer competitors. the

course, ambition our launches, development with of will come of certainly So that flavors. more to more in time accelerate

expect to vaping. first after on So certainly should the ambition this step us in category, you increase

Vivien Azer

or since Perfect. the on should going feel that Thank seen knowledge short you. expect And portfolio, bolt-on you while do allocation. we've forward? my we more acquisitions comfortable your this In acquisitive. followup question been is order, filled Thank you've capital It's a white be or space gaps you. in just Company

Emmanuel Babeau

be, with our Fertin a the on would platform build platform, on certainly indeed perspective. life and and strong proposed from ambitions Vectura, on wellness, have for we inhale X would we would that strong of view and therapeutic very very Vivien, acquisition My notably which really self-care science

that we great. that would that For today on have the science, life certainly view the That's be topic.

Vivien Azer

you. Thank

Emmanuel Babeau

you. Thank


I over concludes for turn it to management remarks. the back closing This will question-and-answer session.

Emmanuel Babeau

Alright. then. Well, key you let with me messages leave some

a markets, in first First, report with XXXX raised despite we from very EPS half adjusted happy a robustful recovery record and slower are diluted the guidance. pandemic performance certain to high

of the billion IQOS to track to impressive continues. target units XX we the of XXX And deliver Second, our remain growth year. for on

in as the Business the sequentially Combustible key our is recovery many infraction improving Third, from pandemic markets.

building Beyond to again talk vision, strategic Thank in are we you of joining Lastly, us towards as our milestone our for soon. Nicotine business and transformation. important part you


concludes This call. today's conference

may You disconnect. now