Philip Morris International (PM)

Nicholas Rolli Vice President of Investor Relations
Emmanuel Babeau Chief Financial Officer
Gaurav Jain Barclays
Bonnie Herzog Goldman Sachs
Pamela Kaufman Morgan Stanley
Vivien Azer Cowen
Chris Growe Stifel
Callum Elliott Bernstein
Call transcript
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Your program is about to begin. [Operator Instructions] Good day and welcome to the Philip Morris International Third Quarter 2021 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Philip Morris International management and the question-and-answer session. [Operator Instructions] Media representatives on the call will also be invited to ask questions at the conclusion of questions from the investment community. the to turn now will call Mr. over I Investor Financial Communications. Rolli, Vice and of President Nick Relations Please sir. go ahead,

Nicholas Rolli

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

the market U.S. may heated and glossary terms data today's A most basis website. reconciliations to share IQOS are risk references of currency-neutral for reflect or references webcast to including www. end all posted as slides, tobacco well comparable products reduced of RRPs, for organic our on the access Unless as to our the underlying results. GAAP which definition RRPs. our adjustments. at You Heat to all additional products, smoke-free are on products Up pmi.com. Growth unit Burn measures otherwise release and the Other rates stated, are to on directly calculations IQOS presented

Pharma, note Chief now for the COVID-XX. Business Emmanuel the - Financial additional Vectura the to acquisitions disclosure and to to could Group, and also to the cause Forward-looking Forward-looking our in differ attention Today's of the or geographical related for a actual and pleasure operating the statements It's materially press today's the Officer. added presentation and results. various operations Forward-looking quarter introduce statements Fertin third and cautionary Please Babeau, release statements. results of evaluated other cautionary future Forward-looking review direct category I factors that my from Emmanuel. A segments. PMI projections separately Following projections statements contain are the your in from Otitopic, of category remarks other of XXXX.

Emmanuel Babeau

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

growth Most our reach total another both delivered for $X.XX. user continue a RRP quarter to growth share achieve further category growth diluted to across of This was semiconductor the of the +X.X% IQOS revenue, rates. grew ongoing X.X% device the [Indiscernible] expectation XXXX, growth In Our sequential billion tightness for supported the and gains third supplies, +XX% compared key XX.X goals shortage, our PMI combustibles, cigarette it's for volume ahead volumes excellent EPS to total to And QX. net due QX in with in quarterly of year. total of [Indiscernible] and despite delivered adjusted notable which continued global PMI. strong record the +XX% units IQOS broad-based year we was coming quarter impact geographies. HTU business organic expect the driving same to in shipment growth giving last in and performance of

an firmly are growth strong We currency track tailwind performance [Indiscernible]. additional growth expected the a XXXX organic on for with in providing

for that tobacco growing initial the we made quarter, IQOS share include as and to the result also for product our term launch VEEV business We early in outstanding traction we in build three for acquisition long to and go Japan, are IQOS delighted ILUMA nicotine. markets. beyond In milestone

of launch continue the is and now in return dividend ongoing And repurchases. business through reflected Our our the industry shareholder with link an in share we increase framework. financing smoke-free to transformation X.X% also prioritize for financing transformation to

IQOS This [Indiscernible] sales in net by +X.X% on of growth business unit, Turning good markets. organic organic +X.X% reflects numbers, and revenue in weight both of We HTUs mix by combustibles. terms. our IQOS X.X% our to recovery QX of the our driven many the and pricing and net per or increasing in witnessed continued plus the in the the headline grew dollar basis on of an strength revenue

to and points pricing, productivity profitability decreased reflects unit the its partly savings. of This expected the initial IQOS launch, IQOS, margin income adjusted ILUMA related offsetting Our positive and XX and cost weight effect an from increasing higher the commercial basis. operating on of basis by organic continued spend increased

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

strong of or mix our in on organically. net reflecting delivered This at dollar We progress organic net over X% revenues at with by nearly adjusted by shifting year-to-date +X% consistent unit, IQOS almost around +X.X% throughout pricing pandemic our and +XX% has grew excluding terms Looking in per Indonesia. our combustible reflect business pricing of growth performance, been the impressive. now where just growth again revenue X%, the and

basis, [Indiscernible] operating our operating Our income savings. performance by IQOS, an and by growth year-to-date leverage adjusted pricing increased driven margin organic and with productivity and on of top-line excellent an points basis XXX combined

dollar Our adjusted very in term; diluted a to also This guidance brings XXXX. plus XX.X% strong plus organically -- obviously XX.X% results. for and EPS me grew

organic X%, points. OI basis XXX revising We organic growth margin around revenues net to plus of the representing previous are for half outlook range expansion X.X% strong our outlook upper for and plus reaffirming the the to of

our prevailing forecast range, We diluted variable EPS range at growth, previous impact terms. +XX% $X.XX to estimated of +XX% adjusted +XX% +XX% end to including our dollar in translating upper currency EPS diluted rates. also an This of $X.XX, confirm the of $X.XX an or growth sub currency-neutral to adjusted at reflecting to

we be now tightness s, units our around supplies shipment volume Following device expect devices billion user comment as our in to on from we persist, as retention. prioritize XX for most recent the HTU

In $XXX share of repurchases duration, QX continue to growth the our recovery of improvement are only the a acquisition. to restriction. shipments limitation any amount during expect assuming blackout some million around inventory This we still include in full-year October HTUs limited Asian XXth other after ahead travels or term very a of guidance from to slightly following impact does Given and not continued QX we with subdued. through volume s. and modest assumptions, be Share QX maintain intercontinental IMS to need duty-free the in of repurchases material

challenges notably in Asia, of fully and +X%, Southeast expected reflecting and pricing accomplishable assume in to continued softer markets, +X a as comparison well with continue Germany in certain to Australia. South as tough We pandemic-related QX

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

expectation also $X.X and capital latest our expenditures full-year factors. billion We reflecting to related plans pandemic launch update for around planning

to some discussing am regulatory further in recent depth, positive I to report pleased quarters. development Before the shares previous

this new New dedicated example, law a now in be tobacco for defining on a For scientific growing adopted both There risk In compared potential new evidence reduction and regulatory of the is body smoke-free has year, and the Switzerland warning. differentiated treatment. of cigarettes as from product, as clearly to category real-world were Egypt, federal which of with branded product government warnings. cigarette Zealand, differentiated a in earlier alternative products text Fiscal allow published substantial and smoke-free specific and non-combustible smoking. combustible packaging regulation product with reintroduced In

to frameworks While be market and expected, we critical continue recognize fluctuations support Fiscal regulatory are to [Indiscernible] this that opportunity. reduction different across

and were increase October reflecting Middle from IMS Turning recently year-to-date. region, encouraging in to now reflect back and HTU plus for volume volume launch growth This Japan. continued our Japan, the by and price quarter, the results, timing progress units by from plus tax shipment August total X.X% increased billion Russia, of strong X.X% by EU primarily the ILUMA below launched Ukraine, driven QX East. third around HTU driven +XX% shipments X in the the around markets

XX% XX% X.X% The comprised the heated in cigarette X% industry of in IQOS, of volumes We performance expect to continued full-year of decline of total to volume compared share. Due recovery and our our minus in year-to-date in volume unit this tobacco sequential in to X% XXXX. XXXX, shipment dynamic total XXXX, reverse and QX QX. impressive market reflect the our as

$X.X top-line. net X.X% my same becoming shipment smoke-free up effects achieve by XX% revenues on year-to-date Smoke-free of net which Company twin QX, mix putting in rapidly, changing reflect for With majority product supply almost on Our over growth of X.X% aim of devices, outweighed plus our our a on engines track billion launch, acquisitions. accounted of sales compared step-up net to period of volume in of The the the is made IQOS driving for X% the organic to XX% XXXX, adjusted RP growth XXXX. into revenue us the other revenue. constrain the in year-to-date our IQOS reflecting plus a

markets, pricing The and, HTUs. combustible is first certain in on on

revenue the is increasing HTU unit, which and transformation Second net accelerates. to mix per of continues increasingly deliver our substantial growth higher business s as at in our driver powerful

margin XXX basis Let me starting an now growth organic which points go of the by with expanded on basis. our driver margin into year-to-date expansion

continue. While ILUMA prior for the Japan devices expansion the in [Indiscernible] lower as were in positive shipped discussed launch, to quarters multiple was QX

including by accompanied net $XXX year-to-date of revenue an and adjusted around Our on This the robust bearing gross our manufacturing and XX ongoing commercial XXXX, productivity lower than with savings supply QX. we and also efficiencies billion a costs, with effort as This are more marketing, target our basis. chain basis benefit. of efficiencies million $X inflation increased investment progress saving mean $XXX This offset generated our SG&A have in more year-to-date. of $XXX processes toward efficient overall in XXXX. before over working the IQOS engine partly by growth ways was organic reflects percentage significant efficiencies digitalization commercial million of of business points simplification SG&A reinvestment, for strong of and With administration, research on is adjusted million combined and fruits this

our both and combustible drag mix. into Moving give X year, to approximate QX year-over-year gains points share, QX for strong [Indiscernible] portfolios going IQOS next momentum an despite from market market sequential us and in

for IQOS the HTU key we further shares Importantly, geographies. with quarter expect in record fourth across improvement s

market recovery QX improving in stable and and notable to total backdrop the Indonesia, EU combustible, Mexico, volumes the region. For close Turkey, volume includes industry in

basis, portfolio many strongly and pandemic-linked and COVID In comparison. of challenging dampened step Our industry as volume year-over-year South restrictions stable recede by sequentially have bear one a share markets. in our recovered initiatives the a is have target Southeast category moving in on Though renewed improved nonetheless Indonesia combustible of the our sequential somewhat Philippines recovery. trend share impacted -linked us the in closer prior-year where measures the fruit to Asia, has and

Our sequentially expected, than share grew pandemic-related region primarily development less given Philippines. albeit the in in the

to device Let's in supply now semiconductor the the shortage. tightness to turn due global

of to run to to affected availability the impact devices our Device demand. and As with has at Japan consumer X% half and in full Russia, volatile significantly shipment in supply continuing which limited so resulted September, net the on fulfill user in a XXX,XXX the will At we plus several increase, already competitive the the in in QX, ability notably semiconductor this device communication. remains year-over-year limitation in situation outside the of assortment capacity flagged as demand forecasting quarter markets in given persist commercial tight below supply certain IQOS we into assume X and XXXX. first to this slower were grow, growth recent communicated IQOS sales. This of in growth stage, the

IQOS in devices. increases user replace shortage. followed major the replacement assume This only at next really We the the will continue would acquisition users, targeted prioritize in successful upgrades Nonetheless, half The highly is but a to IQOS we that Therefore, and year. of [Indiscernible], ILUMA driver normal of device it significant acquisition. take their for to carefully it additional existing in sales many large significant would at confirmed retention. place now base, from launches whom by device behavior start triggers don't Japan needed a necessary constraint beginning in second of of be existing consumer supply desired

situation, QX, area. and launches project. such and development we category, ILUMA portfolio investment campaign, already HX phenomenon user to million continued reaccelerate anticipate and in IQOS temporary and a number Japan evolving in expect once ease. investment product expansion this demand first and strong, understanding this remaining IQOS awareness important incremental half. Given to a we commercial compared around the spending of Including smoke-free Overall, include as made key shortages of is have in with we the This growth VEEV, commercial $XXX

including ILUMA, and number entries We and plan. new have to exciting consumable, on devices not a innovation of exclusive but of pipeline a market

our transitory a the shortage, XXXX XXXX, could targets. with impact targeted in as margin XXXX However, below growth there our on base expansion, confirm adjusted result and net revenues, user OI and which growth Nonetheless, robust rate organic we growth a our XXXX-XXXX port reacceleration supply for short-term shortage are XXXX strong scenario average a confidence diluted under in EPS.

to now there September as were estimate performance, XX.X Moving IQOS of users XXth. million IQOS the we

reflect by our this to the X.X Belarus, in sanction time adjust international quarter in of impact the the needed around Excluding million s commercial programs. device of the of of supply with rate growth growth tightness the and user subdued

Japan, in launch again underlying brand the by demonstrated As strong. IQOS the remains momentum ILUMA of the

to XX.X geography, switched again the the of constraint. million of growth XXX,XXX X flagged we adult with our broadly half total user QX. improve the impact of IQOS cigarette to IQOS than in despite each have balance HTU X for share of device QX user consistent in adjustment industry assortment, higher stages a growth smoking reduce for The year. to volume growth Following program X.X growth across with We by seen be should XX% points X.X% In communications. the third key QX The acquisition user conversion. and smokers total stopped user second the various plus EU quarter reached compared few in to estimate HTU recent and last therefore and region, billion expect that or reflect potential

And seasonality our X.X deliver we increase with QX QX than to Robust in year, performance the HTU QX, s combustible lower had due combustible disposable point, market. seen prior have terms. be trends continued commercial on very market Italy, devices share a in as prior of Russia. some QX trial expect Germany, remain and and good which seasonality growth growth strong to growth Russia And in the of to region expect Underlying includes excellent. programs as both product. broadly limitation with to pandemic-related discounted quarterly IMS notable As we in in while fluctuation for a we due the HTU year. increased e-vapor related This offering we the share expect sequential IMS the by further and strong to of mentioned and market, contributors. strong notably consumer plus last volume stable share on share sequential the the across largest We competitor as the effect Poland lower-priced X.X%, a in performance quarter, in

our versus billion October the adjusted reach factor the total in and timing adjusted portfolio the reflecting reflecting sequential our the also of X.X [Indiscernible] to we of Xst a across Japan, and record increased future the to by growth adjusted XX.X%, room in leadership, sequentially, portfolio of on This point growth southeast brands launch for interest continue the see growth ample high Kazakhstan. total the to in by In due Adjusted overall the eastern due X.X innovation albeit time. to with International clear our and market both regional is strength see we over However, and supporting of dampened addition sanction the prior-year increase positive Belarus in tier seasonality. price Europe IQOS of There points a region plus basis for somewhat IMS ILUMA. tobacco IMS normal quarter X Kazakstan, contributing. fell our to volatility share the excise category shows ahead HTU units, existing with by trend strong further HX to halting and category Europe shipments grew Ukraine, high in sequentially slide share and sequential the

of loading the share on expect heated improvement robust QX nice The we wait category further of adjusted effect maintaining almost making a QX up capturing majority continues Japanese overall category's sequential IQOS in and may a growth high market with the grow, underlying volume While of to consumer tobacco and XX% market segment in IMS, growth. the pantry in total tobacco share.

to In our drive as smoke-free growth the markets, market XXXX. aim geographic to be addition strong other in by one we we product of to existing in continue expansion

Africa, Egypt, During and of Cairo. Europe the in and reached share exit IQOS first off-take in the quarter, we an in X% launched

delays may where [Indiscernible] snooze market, nicotine middle-income product have add smoker expansion and as This [Indiscernible] sale for of we of category. a which making XX are us half the acquisition where XX Norway Again, market number smoke-free XXXX. markets presence some in this our in [Indiscernible] take more recent robust the first are in are of the and to to measure and introducing in we countries. We of of low smoke-free emerging program available which adult pouch in gives PMI Iceland, total also now product available

in innovator years, dollars the behind recent your reach, strong of all over Despite regarding Given and billions property. tobacco let share few our and intellectual our pause to product, process. in category attempts leading and we leadership disrupt and as patent Across our smoke-free through of words lags our strength have clear litigation the being by investing the who the me on R&D business competitor a smoke-free global innovation.

-- XX to of of the Office. the U.S. ITC property industry us court the The import, been at UK high -- federal ensure European is need domestic in which, product with all U.S. against other in U.S. have be defending agency outside and U.S.A. to trained challenges We Including deals IP successful ruling among things, you a rights. Patent intellectual the our

mentioned for both been were note interest a promotion of We in has whole. for also the that two health I tobacco exclusive and health to product, expected Congress determination by [Indiscernible] IQOS given launched. mandate it fulfilling appropriate the FDA, paths final found the already The public population of drafted the is the to after as had the benefit IQOS ITC

to that In the given financial is ruling many early the upheld, U.S. also subject IQOS expected buy and unable plans for and process. of meaning in time. material, the contingency impact presidential hopeful users question patent The the is reviewing consider that Representative domestic the and XXXX, an of of American be office underway where by appeal certain time are a the on IQOS in are U.S. claim U.S. more is fallout, with patents of this would this Meanwhile, current scenario the initial include bit our review in unfortunately would the be that would IQOS will the Trade where U.S. impact denied the access. consumers ITC We period stage to manufacturing. current determination in

cause The took the coming disruption the United IQOS, see over a story U.S. a availability to August the of ruling States While near-term large years. in the ITC forward continue success the intuitive with step to internal innovation launch of may using IQOS opportunity and X for on edge global we Building historic IQOS devices SmartCore in Dual, switching easier heating [Indiscernible] and simple [Indiscernible] Japan. technology. for a the we support of IQOS and conversion the will HTUs range two higher induction device believe ILUMA smoker of in

taking with outstanding growing at results sales tech start XX%. exiting availability are feedback the device initial the of in the national volume. increases -out of of of and despite also users rapidly, [Indiscernible]. positive, [Indiscernible] has with the roll very XX% ahead the While launches meetings place stage at to comparable September, well on at PMI total over -- been same device some limitation proportion were with past HTU new growing the purchases of quarter net Consumer all

and in allow. Following our the when to to of circumstances XXXX in second additional forward we Switzerland launch major plan success, market look launches next month

to own deploy commercial progress approach. product, is allows experience. the good markets, through And route-to-market scale to continue first with channels VEEV commercialize where variants taste and at the infrastructure bespoke a we IQOS of our We range and IQOS premium started of providing nicotine it efficiently in superior a levels. a group VEEV IQOS in of with a limited

encouraging uptake of And estimated consumable in of the start available of estimated see and distribution not increased in product exit national sorry, put, Italy share VEEV to share. We system products. sign national consumer an system to X% volume Republic exit early positive -- we related despite offering, tech an the Czech nationally. X% with yet and tech expand being of volume success where see crude competitive reached As feedback clear we

in also plan launch in in We Canada in to Ukraine Croatia October, launched QX, before year-end. and

FDA preparations U.S. We a to also apply PMTA continue second in of for the half from the XXXX.

to wellness, scientists, Turning in significant opportunity complementing corridors health inhaled focuses beyond to focused our see our market and area tobacco and addressable self-care capabilities rapidly and with now Vectura expected to over care and and including us new We leveraging acquisitions The the expertise nicotine, with botanicals activities. of Fertin in of have to expand $XX wellness continuing moving space. existing in billion areas our by on strategy adjacent therapeutics, which two technology, while and business XXXX. innovative capabilities Pharma, of and oral enameled CDMO XXX Otitopic, around more to product infrastructure, our to enabled grow formulation an development

fully areas. science, you up these As on like updating this exciting more existing areas. progress opens shown opportunities innovation, forward leverage in 's new our We new on will number and a future this of and slide, complementary clinical look focus the to highly This innovation. to related expertise in product and PMI acquisition plans capability

addressing make to and to and range priorities, most transformation of continue world launches ESG Moving the access product [Indiscernible] throughout smoke-free impact We increasing broaden smoker growing on we the advancing sustainability material our market to availability our our society. through smoke-free by around to good categories. the our progress and product adult across our new with

track publication smoke-free to capabilities subsequent receive In achieve am second of recent tobacco neutrality principal The party opinion society. which our to recent framework capital, financing And that and to XXXX from XXXX, links build proud of impact and areas have we our addition, develop on transformation. to in intellectual our the by target. nicotine, beyond product positive carbon five-years direct refinancing acquisition of highlight framework. the for Last, transformation we business foundation strong operation a credit our successful as linked to our business a commercially adding laying follows of remain our ahead facility. targets on [Indiscernible] S&P, revolving financing I our a ICMA our seek in net and strive social and human

Nations for and are bottom-line on highlight performance IQOS with top climate issues. robust, underlying generation. with which plan and robust connectivity and to between XXXX growth we excellent transition plan publish strong carbon social approaching, a justice, Change and paper Conference the low momentum addition, we environmental Overall, in In track Climate United cash on the white for

seek portfolio accelerate positive in our We product This the as alternative with reach. are to better adult of to society. the smokers and geographic we critical on number of switched is impact who smoke-free the broadening investing growing

In addition, platform development and position in oral investing modern capabilities nicotine. recently three provide our announced strengthen are of in we as our care health safe in therapeutic, which a illustrated acquisitions, comprehensive tomorrow in wellness the by and

have to increased return a line cash majority higher continue QX program return sustainable and in share towards we deliver in our journey and shareholders We through our investors becoming dividend objective to as our to with repurchase value smoke-free Company.

For XXXX, we innovation both to have and growth expect user when exciting shortages a pipeline devices IQOS reaccelerate of device we for And consumable. ease.

see for future to our happy to business I'm confident you much, continue our We remain strong Thank a growth and questions. now answer organic very targets. and XXXX-XXXX your in


you. Thank

We question will interest and our ask Barclays. keep the we of conduct may portion [Operator time, And In be each. fairness will the questions maximum with of the first participants please two of now [Operator take taken. conference. time we questions Gaurav from a Instructions] allows, question-and-answer Instructions] that follow-up Jain If

Gaurav Jain

for Thank morning. taking my good questions. Hi, you

Emmanuel Babeau


Gaurav Jain

My first you XXXX for unit issues device because supply. [Indiscernible]. growth rate -- the question being than around XXXX-XXXX comments the around have range given of lower the is on

is your supply imply it that IQOS of lower, way way is acquisition investments Now, are then so a -- lower also beneficial and lower your and commercial to should correct EPS, thinking or incorrect about things? it if be doesn't device that your is

Emmanuel Babeau

So thank you, the for question. Guarav,

one, stage, repeat in This scenario. stay this going year. us me the have is so constraints let at frankly, one HX next fact all, with you it's that is to the not that fast-moving, And that favorable more situation. a are super-fluid First the scenario, of only

that don't that but was XXXX, we I it the are pressure to XXXX. it possibility still in HX seeing in see the HX on we're going availability share think important to know, really So we in

in six after So same acquisition situation, and another second referring that's no we impacted this been launches But is course, or seen potential half this XXXX, commercial situation a by are doubt we remained going very saying the to months we've the that's the clearly that see the In absolutely that, in very we months at period would of potential on. strong that this unchanged reduced absolutely would of think we'd underlying fact clear. have IQOS. very six what's scenario sure the we with that And you HX. are be spending of see of think the of happening, of potential today, activities, that's the I number number time, that it this by

So be when ease, innovation. top that, we there will coming shortage acceleration. time exciting nice the be very will same very a the of at with On

You in there more the know pipe. ILUMA, is

on when So we to building is even availability the sure IQOS keep but there we're make franchise. the going category, that some limitation also keep we awareness, building

to So going not a all mean, cost here are make will -- go success. away I we're because to we

As only time you know, on the long and not managing X months.

be we that you continue reduction once in this in success have. again among scenario, would as But building limitation can others. in QX, So is invest clear are even when yes, there scenario to we long-term that investment. it's there would we be because some They -- one this outlook extremely the in is see

Gaurav Jain

And you now are you going are devices. that your there have on production that and they're number cross-currents have And with on file also you've planning Then PMTA to oral file the you than lawsuit which then strategy. as And you for launch PMTA U.S. Fertin, you versus a U.S. partnering domestic later to you. VAT. you're potential acquired to that product well. follow-up like for product almost Altria U.S. of do is of that question your could IQOS to if the potential And VEEV a Thank so a lost year, modern a there capability also potentially market. new also a be gives also next the IQOS in for

competing So we be in some some with partnering Altria. parts think could will how in Altria, parts you other with potentially be should you about,

So how fit does together? it all

Emmanuel Babeau

question. for the Thank you, Guarav,

clarify again. me Let it

conclusion. question. We have this and that's them of will ITC final with going see not what we're commercial rest of each so the Altria partnership tobacco final with I products, is outcome clear. the to And very

time tobacco FDA the it's the frankly the to the on defining presidential moment of a be objective reduction. at are for of review. We of think We going

has would I to benefiting a tobacco And the administration product think is from in [Indiscernible] nicotine U.S. the that is. mean harm to reduction important that policy protect flag here inhaled how great which opportunity today [Indiscernible] is this the only IQOS,

And fact us. still after ITC solution during would my the we the continue that positive of conclusion been the the decision. flagging with development a think for case it very are that IQOS been get production. presidential remain it saying to a was could final course, a potential outcome, I the going as So in U.S. hopeful we We'll Altria. notes, of we're the work local to delayed. And, go we'll not we've The to that ruling convinced I've bit strong overcome absolutely for In find the of be

which up at course going thing. at launch where category launching how PMTA agreement certain made options So are or Altria have oral other a don't ambition And it, due that's indeed one as modern for set today. But open, considering will And point has And we you to then want have and be we product have no could well. in and file on are with we to this stage. we been decision one, so all you've time we the decide said VEEV. partnership. We kind a the of in any that for commercial

Gaurav Jain

Thanks a lot, Emmanuel.

Emmanuel Babeau

Guarav. Thank you,


Bonnie with, Herzog Goldman take I apologize, next question will from Sachs. our We

line active. is now Your

Bonnie Herzog

Thank Emmanuel. you. Hi,

Emmanuel Babeau

Bonnie. Hello,

Bonnie Herzog

couple during on quarter. IQOS ' performance the questions I of had a

the you curious topic, might to sales sense be supply then curious could backlog And been devices, there half you how to -- this are gives -- about on, I surrounding is the on if what new semiconductor for risks. from might going to invites by better ILUMA. the suppliers big there subside consent of And any In especially to you on any is. strong longer. constraints? less on of conviction forward? a in issue, maybe stronger how any have the then contingencies or issues share going without understand the for First, way quarter device other how last orders guys finally could then the and be just be shortages working was that words, much And thinking These his you hear you are just these there dependent second

Emmanuel Babeau

Thank you Bonnie.

the IQOS the of in during without first of term on question sale So constraint. potential QX device

we've that devices. XXX,XXX of several been of seeing are We sale missing

So really it's that material obviously Japan look to was with we've launch specific fact because a Japan of been ILUMA very and and outside Japan the reporting very, the situation. have we outside

XX% even by So of QX. which outside the we very course, been X%, devices below still Japan, And of close underlying growing markets. in very, our growing are is, to significantly have growth

on that have would give We managing been as been of we grip think have we've GAAP things, now that I facing we of as a the idea So that kind during said, better, during QX, reallotment. I the an may on reassortment, I believe, this quarter. say,

We kind have a better understanding return. possible of that the commercial best giving actions of are the

clear on to very we're prioritize. how a have going We view

say an QX. in devices, whether better we do the acquisition. assumption, same of not we I'm So XXX the as terms we few able we user that could better in believe still And that than be take restriction to we believe as same exactly that but even that the would thousand growth let's mentioned are growing level, growth, on severe level QX, with user a

underlying X.X to year seeing that that miss to absolutely mean that a the rate one, million million altogether, anywhere X.X user is believe in user consistent. And we're if X growth that we're So to each that altogether. in was you [Indiscernible] growth between going X HX between

understanding you understanding you, that of better is the helps some X hope of impact -- it here at impact tell -- manage September that But September. that the X was September, of the can to the was beginning how to see I at So of something we I should mentioned consistent billion -- the device On the And beginning shortage. should in clock -- have already that with around we are working, you you it. shortage. the

using are We lever. possible all

very with in our exploring are So intense of suppliers we old discussion course possibility.

shortages planning they We our on are of reference range. because talk not the of about dominantly the it's IC, we into and of same of course various type quite optimizing are all and kind complex entering

managing that well. as So we're

more a even bit market well, the and looking been we success split maybe buying are we've by to as able and have We could little be at there.

what hearing fully of tend And be all should really to impact. the to would constraint, I terms on consensus back half today year we in year. think a can So better that we in there of minimize kind of the of next is are the kick normal. in that if putting next the fact are is the much not to HX number lever first capacity And we should

are to that moving the we've is But the faster going things an economy as we to overall in said, six months. seen is assumption I today. admit of to the in situation happen And this I the because maybe have next rapidly. have demand fast, So that improve something going

So that mark? talk an be so scenario that improvement Well, it hearing that have are far. that more What on in we with be our another HX a could Does is maybe But partner admit maybe. to scenario. when nothing that even That's stage. totally we with supplier clear could question HX. mean I and

Bonnie Herzog

Okay. Super in question. If maybe I'd another may, like squeeze to I quick helpful.

this on to during your is acquisition, cig Thanks. total slower mix how sales and more we it about then impact IQOS device device dynamic, volume should next this few margins assume slower the IQOS we in this of be elevated quarters? Just should So given your enough will essentially combustible strong this sales user safe new volume about growth? period during be think to and this? offset period And of think than how your

Emmanuel Babeau

acquisition were the asking how user good, on not Sorry, volumes, impact expect very correct? we you your was should versus but line

Bonnie Herzog

Emmanuel, because -- Sorry, period sales, volume mix, elevated. come could the so this of if IQOS during I'm combustible didn't slower thinking it be through device cig more on

Emmanuel Babeau


Bonnie Herzog

mix that thinking margins. [Indiscernible] dynamic can impact on

Emmanuel Babeau

rate category, with stick, and Look, terms we flagged that it's very the consumable coming business, our a that very numbers. leader that the category was business. as nice of is mix [Indiscernible] as as that continue a altogether. quarters. brilliant IQOS EPS in terms in continuing margin of IQOS for still much to QX of gross nice And see well, we you know And of target positive the we in per visible the fact also And of growth in revenue is course, this the very and coming

in of So to maybe pace. But situation, that's to is mix evolve; the the of be of in terms a the kind are continue because positive. bit what of of, weaker to situation. spend top continue if has a to growth this And nicely of course, okay, we will positive on a is there already, at question then lower going going SG&A that, but

So say margin. be on negative the that it's necessarily a to it's to difficult impact going as in

bit, driver to We to about growth a financial are the the even powerful going on very And And again, talking continue going any [Indiscernible]. higher than going significantly to to be on rate still deliver performance. impact is decrease once it's is mix. our evolution positive still a on

Bonnie Herzog

Thank All you so right. much again.

Emmanuel Babeau

you, Thank Bonnie.


we next Kaufman take our will Pamela with And question Stanley. from Morgan

line is Your open. now

Pamela Kaufman

Hi, I follow-up -- question a have good morning.

Emmanuel Babeau

Good morning.

Pamela Kaufman

supply the you're midterm next the weaker below drive supply Would this risks the second that have target. and below target, results drive these X% would and growth side scenarios I conditions your anticipating to to fall to morning. will relative for the a assumptions? improvement XH need sounds year Good like to half. or follow-up about earnings revenue the and scenario an be your outlook in It and worsen question

Emmanuel Babeau

without very scenario. play can we limits that course, with Of

we've been we QX, expect seeing -- still even weakening of it in will And We underlying say know, as we shortages user in on the in already going have HX pressure versus the that's And we growth. a that when an continue improvement below trend. be next then, this said, QX if scenario year, the to to that face we if are in versus we're describing, admit you growth. QX

next to So been [Indiscernible], a just difficult there targets. a once next that combination happening average would me year. in accumulation of potential scenario. what and comment drive the the growth growth so be that HX happen be in come, temporary again, something this [Indiscernible] be of rebound, that the year, will But rate is would our could but what one XXXX, XXXX, could the would and could below that year, Which trigger for reduction has that's beginning it's the HX when

Pamela Kaufman

bridge was bringing My on the to is also you. decision. for U.S. into What ILUMA U.S. to an the ILUMA the just does to clarify, the to ILUMA next you IQOS timing IQOS of on PMTA U.S. contingency Can terms its for be of the ruling the in ITC Thank That your plans And to in would entry available accelerate application 's IQOS pertain technology? market, elaborate making question there U.S.? helpful. opportunity In the is manufacturing

Emmanuel Babeau

further described, get would of on I fact that how have I but a won't it's local are could elaborate ITC to the presidential the the So contingency there. favorable, how regarding presidential the want this but we clearly we but production hopeful that for review happen outcome some -- review repeat was us that unfortunately, this elaborate before element, that mentioned eventually will not an plan, previously. part answering if what I I cannot and as further, for have we you positive we reason could

ILUMA and PMTA, a be process carried have PMTA, would a discussion FDA this all with to on the able On the to I'm need process the will stage, at And the not FDA. the frankly, answer by we you.

require ask position a certain today ILUMA comment a not point certainly PMTA on at on So time, for a but timing. we will to -- in in

Pamela Kaufman

Understood. Okay. Thank you.

Emmanuel Babeau

you Thank Pam.


next question take Cowen. We'll Azer from with our Vivien

line Your now open. is

Vivien Azer

Hi, thank you. morning. Good

Emmanuel Babeau

Good Vivien. morning,

Vivien Azer

I I've apologize for but a question on issue, ITC belaboring got the too. that

IP where are questions, ITC? success Two reviewed Thank pending the internationally that track can just litigation that you outline the in that still cases claims of were you those please. exist. You've If litigation? And are of by Number you've clarify internationally. defended around X, defending noted record number so, against litigation terms that there current can successfully your X, the same you. exact addresses

Emmanuel Babeau

Not cases trial I are successful. I notably to pending, we've on number at want in elaborate on of in just been appeal, or that. Europe, them a so been are Europe, And there won't all repeat we've that far of XX public. cases, Well,

the the that through doing. patents And a been the And ITC UK original review at court going the And Office evaluated number one what reviewed patent, of UK be patent that a already but patent already we've two even tells Patent patent, the in which of decision. they [Indiscernible] about to family of lot invalidated before And been and fundamentally the it been success it of the some the proceeding and of validity based have we strength family yes, European court. merit ITC so on the by the are Europe. decision of for of this Europe. has have on the then precisely of think in their I So courts the have

Vivien Azer

Thank were to a of a in is your about question I pricing reiterated. That's on markets. or you. when of my bit you. cigarettes. the it's caution lot is uncertainty, your point modestly, feeling outlook is kind consumer? question; of you with what I the COVID started ability Thank cautious pricing, your etc, take And year, getting combustible of The if follow-up there know the operate then broad on conservative correctly, I helpful. view pricing a around was pricing, you've started as we is you a etc. year, we it's better; But What today? If little think recall

Emmanuel Babeau

on Well, for the you the next have still to can elaborate I give me remaining weeks year. before year

could think think what's we'll in going still that the that's inflation unclear initially, time. environment clearly quite but be better early I a countries, it's what maybe we might build that global environment. many One accelerating be than to thought still

you not being and the under COVID that aftermath keep built, on will the so economy of able I'm cautious probably stance, at many which So remember I was the of are impact to shock. stage, comment a

more inflation. it's going that seems us, have is impact were have I we great that with clearer a view that for in months was that what's to probably maybe general landscape bear on making going And what increase to don't to but a know a be one. increase. But situation, of that create seeing not a we can before still a admit to favorable be I coming price couple from So the

Vivien Azer

much. very you Understood. Thank

Emmanuel Babeau

Thanks, Vivien.


take Stifel. our And we with Growe next will question from Chris

is now line open. Your

Chris Growe

Thank morning. you. Good

Emmanuel Babeau

Chris. Hi

Chris Growe

follow-up question. supply the a on had just Hi, a had I you. Thank shortage. quick Emmanuel. I

I true and your did know effect some those in X.X all X.X launch markets. going I for Sorry Is ILUMA's hear device. the shortage duo. products, chip keep limiting it's to but this some on there,

Just to are chip be shortage? those also by the sure, affected

Emmanuel Babeau

was there vision are but IQOS for things on make. more well. was doing. What when with which move mean what a s moving priority are And explain that very IQOS a also percentage that that we selling we're the fact of X.X+ have long-term of issue in technology up why obviously of afterwards have moment X utilization as step on a taking table, X.X, blade and to as the and instead That's pressure our Chris, that's would are if I course, is us. strategic a want protect that is to want that of our North as quite and Well, of commercial don't second, think we much to you avoid enter the will very portfolio, return for that existing do I that how sure into have selling Star, IQOS that to of we available need we the new prioritizing optimize as we And great device because, clear and to want, we user detail we that some of lot by the to that to are and strategic to is highest due renew first you moves device they one, And make we consumer. device want limitation device. kind make possible of on that where we course, of we have that managing of and these make us, certainly constraint sure benefit action on low decided any the top to component to one the more the

Chris Growe

do relation in some I of kind can more to a you simple what drugs? pieces just of of your here understand question. nicotine and the your have good to that we're this Otitopic acquisitions, kind of need beyond acquisitions, And if nicotine build and short-term, And at Thank need fit to to is particular you companies. this if you a understand color you drug which just a just Vectura, in stage of terms tobacco in to had question beyond Do sales. more base in for there. high-level you respiratory separate to for that vision your respiratory element

Emmanuel Babeau

So this globally, a already we're think term beyond platforms we lot if going think with nicotine that we there to have notably in of I able want, do great to be you is And on and acquisition. R&D. put

but in synergy. we're think that that future, integrate think sure we the that have and additional on here could bring making Now, would to mean the acquisition we of other for the it does interview as we don't In that [Indiscernible] capacity all maybe, in and time I going terms in maximize together, XX said, two R&D, care we objectives but focus the acquisition do this R&D. the we self big optimize by which we were And wellness. our to on putting as therapeutic, know strengths I make could really we skills, I of for combine talent - comment can already what -- well optimize being,

Chris Growe

away separate just at And acquisitions just kind main from clear, was future to you to you through your goal repurchasing looking shares? thing capital of That's not should take I of the commitments your [Indiscernible]. understand these be

Emmanuel Babeau

our on Absolutely. buyback absolutely. Nothing Nothing. has No, program. changed

Chris Growe

so Have day. a That's great. much. good Thank you

Emmanuel Babeau

you. Thank


from Bernstein. will Callum take we with final And question our Elliott

open. now Your line is

Callum Elliott

landscape next please I profitability maybe that an kind seem tax bigger be IQOS of impact. this question. the picture, you you about a was situation It tax the year, big changes this does markets? still [Indiscernible] that slightly just other of Germany, hoping Thanks shrouded the contagion and tax like the of do risk in IQOS for is would frame could so mix talk increase see headwind then And uncertainty. of material recognizing for you just price proposed increased the magnitude could in Emmanuel, sort political for some to in

Emmanuel Babeau

And as XX% progressively by are to such time, we it's project impact you of Well, very German feelings an better of the prominent are seem we a country too we give low. on that it's impact because me about and the cigarette, Germany what's differentials what be idea it's one the really course, a fact some growth. principle Yes too not than be are to early is that have harm IQOS impacted this impact year. the the treated will I certainly But repeat is differently is be reduction for tobacco it course I can going on believe that should there as trajectory recognized. allows on to great fundamentally going profit it's and side, derail in will mixed happy of enough. same next it. with fact this But our that [Indiscernible] At XX% and putting the think Germany, not decision

differential. new There is we it's So whether to XX% possibility and is plan certain the point we grow the of a a to is things even time are a course, in and early are hopeful form, that starting time, if at be too clarified. these say, there coalition know yet possibility. that from it that could getting But over

contagion, to differential term each of see the contrary, today. comes when the that in are significantly a look we country, they of Now, see even, CC, now at latest the differentiated see, cases higher treatment to it coming them versus on most don't we we We normally Germany. when of versus

example, one I in Egypt for just the case So instance. more take If that's than XX%.

recent more are exposure to think clearly So line to extent toxicans. making taken difference, a a large with the authorities, much decision in in the which they by in I is bigger reduction

rule XX the a think to differentiated be CC regulatory difference happy could moving [Indiscernible] tax Well, are have determine a taking have government difference. of number and between be I treatment maybe And guideline. on to You should to what we big and wanted that see XX% the country, treatment. if a you the to to a

Chris Growe

Okay. Thank you.

Emmanuel Babeau

Thank you.


turn I questions no will Nick to have for program further back We any over closing Rolli or time. the remarks. at additional this

Nicholas Rolli

Emmanuel Actually, a I think remarks. has brief few

Emmanuel Babeau

Nick. you, Thank Yes.

Just moment some up brief to comments. give closing with a wrap me

of great see year IQOS all, of demand, the growth be continuation business. financial to is strong a for innovation with we IQOS near-term underlying and device certainly despite the track last, pipeline. of We and supply, of rich fundamentals, And our not growth the XXXX for X-year our brand. performance First track supported on momentum targets challenges by on but a remain least, for

to today time much for and So your very we to soon. talking forward look thank you you

Nicholas Rolli

Emmanuel. Thank That you much, the concludes very call.

any Investor follow-up questions, a have contact you Thank you Have again. you nice may the If Relations day. team.

Emmanuel Babeau

to Talk you you. Thank soon. Bye-bye.


This QX, Philip International call. the does conclude earnings XXXX Morris

disconnect at time. may You any