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Philip Morris International (PM)

Participants
James Bushnell Vice President of Investor Relations and Financial Communications
Emmanuel Babeau Chief Financial Officer
Pamela Kaufman Morgan Stanley
Bonnie Herzog Goldman Sachs
Chris Growe Stifel
Vivien Azer Cowen
Gaurav Jain Barclays
Call transcript
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Operator

Good day, and welcome to the Philip Morris International Second Quarter 2022 Earnings Conference Call. Today's call is scheduled to last about one hour, including remarks by Philip Morris International management sessions, and the question and answer session. [Operator Instructions] Media representatives on the call will also be invited to ask questions at the conclusion of the question-and-answer from the investment community. I would now like to turn the call over to Mr. James Bushnell, Vice President of Investor Relations and Financial Communications. sir. ahead, go Please

James Bushnell

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

references disposals. exclude webcast may IQOS the basis Growth organic all RRPs smoke-free heated data as with glossary which PMI’s Ukraine. as and figures Consistent on adjustments, and pmi.com. slides, definition entirely You additional and rates all on stated, products tobacco reduced to products comparable well to and and an release are on reconciliations U.S. our calculations end reflect otherwise last including pro measures to for operations or market IQOS terms, quarter, of directly currency-neutral posted at are the our references A forma Unless presented RRPs. products risk Russia basis presented other comparisons heat-not-burn the adjusted access to most unit are today's of results, in are a our the to website. acquisitions on and excluding GAAP

statements. Emmanuel. various forward-looking that Over to cause or actual Officer. could second forward-looking previously, and Cautionary differ of Emmanuel now results. Statements review impairment of from Forward-Looking the in from I Babeau, disclosure in adjusted to today’s introduce intangibles projections presentation your factors of the remarks amortization comparative quarter will Financial a projections mentioned As a of acquired XXXX, results and press my and and Today’s results. attention to its statements basis, you, release PMI and starting the contain Chief for materially pleasure on exclude direct to future It’s

Emmanuel Babeau

everyone. Welcome new in your role, James. and welcome, you, you to Thank

focus and to all and on of safety Before reiterate our Ukraine by affected the on begin, employees I our above the war in want supporting I families people. their our

and pledge humanitarian continue deploy our support employees. additional for We benefits to Ukraine

and complexities the in chain Russian announced, as as orderly in Russia increase banking operate restriction. As such an exit manner, of to we and continuing the sector intend supply financial market to previously challenges

options the governmental so environment, changing in We to for requirement of certain obtain any regulatory actively increasingly work on and continue transaction. an for rapidly to and approval operating including complex doing the context

business. business future and growth maximize growth of the pro in the user and results impressive by EU IQOS underlying of to launch in top momentum in momentum limitation to QX further in This forma of excellent these quarter was smokers alternatives device smoke-free million, adult exciting the category volumes us our and in demonstrating highlight geographies of continued The demonstrated including In first XXXX and further were quarter revenue share driven volume pricing grew predominantly IMS diverse bottom better-than-expected continue markets growth COVID the Spain. We XX% cigarette net growth developing plus with to revenues plus than to forma combustible, the smoke-free robust constraints more to strong of latest of opportunity Switzerland recovery the impressive net and allows stronger our the of transformation growth continued Japan, Turning line strong compared second HTU of as X.X Maintaining and last X.X% ILUMA strong into category positive Most volume chain in of supply growth. market. the IQOS reflects delivered quarter, XXXX. plus pro acceleration switching and supporting due organic and forma acceleration ease. QX performance the market. sequential while Greece. restrictions highlighted plus shipment adverse by Marlboro three of across by RP world, X.X% XX%. a timing by impact the QX gains accelerate its the leadership to market region, grew QX despite Japan another pro

HX we business strong our the to continue, of the and year. momentum are expect growth from underlying We in outlook an for organic

to both confirming company two smoke-free including financial Swedish of in proposed boost future. profile. Russia an deliver our future year margins. of consecutive XXXX, This addition EPS providing of offer on around shareholders $X, is are a a We deliver our revenues cultural value-creating volumes, to fit, growth compelling with additional growth, Despite substantial as volume currency years status would well to strategic accelerate and terms for further our net diluted The expect set organic Match a of we a adjusted and headwind Ukraine. opportunity now in track and of full

Turning to headline the numbers.

ongoing and Our total in PMI, many reflecting combustible on recovery pandemic both including basis by X% total, X.X% markets net plus Ukraine. revenues Pro organically a X.X% comparison. plus QX by Russia plus business volumes X.X% and the and continued plus for affected IQOS the in grew and growth grew against of forma by of pro a strong forma by the

less As of we due played previously, duty-free role, replenishment indicated anticipated and notably a timing inventories. also shipment of cigarette to unfavorable

grew pricing as on Our X% plus expected global or X% organic pro supply by X.X% of to shipments of despite forma by incorporates manage basis and total total a plus HTU disruption. almost X.X% plus net a we delay excluding pro Indonesia. basis combustible the chain forma Japan This revenue plus on in per unit through

declined pro points income and basis Our QX a adjusted organically forma operating XXX by on total. points XXX by basis in basis margin

as smoke-free growth support the initial in transitory speed communicated of as out channel four main in results, margin growth. match As devices and we reflects roll our replenish HTUs and expected factors: this further to cost to user dilutive distribution impact includes higher the ILUMA QX higher and quarterly This constraint investment the ILUMA first, and portfolio. our of IQOS device expand device ease of and sales reaccelerating

air in expenses. of due million the impact to the disruption, around additional Second, freight chain including Ukraine, in $XX supply notably war

comparison, recovery the productivity war, of by inflation included by global year X% notably Third, savings. around our Despite Ukraine. pandemic direct our substantial to certain exacerbated total and ahead transportation cost costs. which currency-neutral typical line plus growth for and expectation EPS to us a challenging in wages, $X.XX, goods $X.XX energy deliver of sold margin pro and cost Russia of the materials, PMI and cost growth adjusted these X.X% diluted last, prior goods to And top challenges, X.X% forma for of robust enable efficiency and in margin growth plus including driven ongoing

pro by the volumes plus and by in first forma by strong and the pricing. again, net unit forma X.X% total, Pro by cigarette recovery driven volumes organic the at X.X% in now, X.X% for IQOS X% impact X.X% the year plus also half basis revenue per and plus a and and performance of of plus plus total, grew X% positive by HT PMI. on delivered the grew category. Looking of reflecting basis plus on pro total forma of growth growing our a We revenues

organically forma points and factors Our a operating total, basis points in basis mentioned previously. by pro XXX basis income HX XX adjusted contracted driven on margin by the

acceleration plus excellent by diluted $X.XX, shortly. to strong circumstances. performance foresee on will relative pro in adjusted trends robust $X.XX We review Reflecting we expect it Currency-neutral margin in given in our and to an a basis currency-neutral our topic an XX.X% a this X.X% raising plus performance growth XXXX. forecast. to and grew forma HX, EPS for I combustible, total in guidance growth our are With we IQOS expectation momentum, the previous strong better

XXXX, X.X% by we for X.X% shipment forma to achieving another grow growth. volume volume our now to plus First, expect plus total year of pro

and adjusted X% in from to net volume, forecast recovery between inflation, strong and despite Turkey. pro XX zero as With accounting X% organic For are initially X.X% with growth revenue, in the X.X% drag ILUMA ongoing greater-than-anticipated points. forma plus a we the to increasing plus to device unit pro plus plus and cost announced for OI margin previously, expect expansion compared to plus higher hyperinflationary our of between organic we deliver basis narrowing contribution a global forma

XX% impact rates adjusted reflects due the plus include to slide raising outlook $X.XX, yen. further $X.XX the in pro a including and prevailing appendix also are currency euro this estimated of an to of Japanese This We'll notably currency-neutral XX%. on range growth with unfavorable to a We detail forma EPS between $X.XX and our diluted at estimated plus for impact.

Please raising to production convert for initial of units, pro to due of shareholder the regulatory XXXX Russia for to fourth total forma excellent, the deliver we from very notably which the now in in a line of contribution of the of their is Swedish further assumes impact. and approvals. note expect from consumable. Swedish outstanding and billion induction this subject to IQOS the and expected not we target HTUs as volume range. outlook to contribution acceptance which year, Match, our no XX For our and and proposed constraint is HTU volume year shipment combination $X.XX we for our ILUMA forecast currency forecast main adjusted pro is billion close estimated upper quarter production necessary an the $X.XX strong, full our The for representing dynamic XX HTU Match diluted EPS existing momentum Ukraine, cancellation basis similar With previous growth growth including year PMI, assumes the $X.XX, unfavorable half reflecting expect capacity, success Russia full forma to to with production

expect of the We in half continue a HTU HTU improvement first progressive through excellent growth with XXXX. to ILUMA quarters coming the capacity in

and flow further shown forecast prioritizing increase plus headwinds. the forecast billion the launch to QX an full years, capacity as We $XX.X notable billion challenges and A XX%. remains compared business $XX further outlook as around accelerated And ILUMA cash generation in around update We despite our pro our communicated operating earnings through currency operating delivered of in our plan growth year previously. notable as previously to forma Russia includes our robust Ukraine. recent cash cash of assumed with exceptional. from growth are flow HX an is This launches to in market contribution accordingly of

forecast of after revised sheet, growth down one-off balance driven underlying to a and accounting also somewhat capital by and for growth working exceptional While strong flatted full XXXX invest pay in business. higher requirements our demonstrates debt maintain this timing the against year This impact, ability favorable our in inflation underlines and our currency. year

June payment. and of decreased June XX, expenditure at and ongoing debt XXXX, XXXX, billion net compared $X.X of December capital billion both to despite $XX HX Our dividend

policy cash with progressive additional Our commitment is to bring. would look unwavering to forward we combination dividend and flow, proposed Match the the our Swedish

in We expect year also expenditure. around $X capital continue full billion to

outlook Moving now to for the pro half. the second forma

margin to growth. bottom organic line strong We line growth, expansion expect adjusted deliver and OI top acceleration in further

organic IQOS line driven mid-single-digit pro in HTU top billion expect we growth volumes. $XX QX, shipment by For around with forma

and a from impacted shipment to negative volume cigarette remain for Turkey. While to trends will growth QX there comparison modest impact to accounting by the is expect and combustible revenue both a historical tougher resilient also timing, be shift QX we by expected Net standards. in in hyperinflationary continue

to third in of broadly be While to constraint this range EPS headwinds QX $X.XX, investment the expected temporary in a pro R&D offset estimated by XXXX. commercial diluted an an results This compared expected rates. in device somewhat QX to quarter, currency $X.XX smoke-free at cost including and in $X.XX we impact QX prevailing expect of ease to adverse forma adjusted as step-up in are the a

The pro a HX is expect our pronounced volume shipment phasing We expected be QX most a to in as improve. the with OI weighted. due HTU margin also to to QX adjusted capacity HT recovery forma in rebound constraint strong

strong results. the back the and quarter to in EU volume in-market HTU region. performance first for half, plus strongly Pro grew the both Turning notably our XX% by sales driven second forma by

As timing expected, was volume ahead the forma QX of IMS shipments mentioned pro reflecting earlier. of later shipment I significantly growth growth

plus Our volume HX. increased plus and by for total pro QX forma X% shipment for X%

earlier, on put pro to growth year this track forma basis. on touched consecutive well second both us deliver for on and total I As PMI a volume the total

shipment HTU QX. pro units or heated our forma total volume impact With the in the of IQOS, tobacco XX.X% in of comprised impressive HX timing despite shipment XX% in anticipated performance

momentum we exceeded sales smoke-free majority by and a almost up is Our total XX% in aim Smoke-free of of $X.X the reflects VEEV and last and organic forma our XXXX. HX addition growth in with pro XX% become The We first changing top device higher for growth providing of driving made as device and approximately the IQOS of and to net portfolio of total further in in engines margin as average pro X% mix expand accounted accelerating forma X%. PMI also a the many X.X% portfolio for positive of line lower powerful the launch price our revenues. driver at ILUMA. in for ILUMA a we ladder, net continues of geographies, rapidly This IQOS preparation pro net HX premium volume our billion the on is growth. blade company volume. price revenue revenues plus year. half This twin our than year revenues forma position of plus reflects RRP device of delivered in devices to shipment and

is first The led pricing by combustible.

second substantial the growth. accelerate. RRPs revenue as net is of driver increasingly business is higher deliver unit, The an which mix our in increasing per transformation This continued at to powerful our

mitigate of I and points and in chain SG&A. of from leverage we gross XXX With our This administration our better organically well while points smoke-free previously, line halfway basis came forma to to productivity $X.X inflationary million the invest was basis HX partially in which margin we by savings drivers Pro pro cost us $X and by continuing reflecting mentioned temporary efficiency $XXX gross savings, XXX around the headwind improved point, than decreased and the was margin over generated basis factors realized forma reserve million and operating in XXXX, for by billion growth more costs, This pressures track This by to where to by million manage XXX expansion. marketing turn $XXX top of adjusted disruption offset from forma business contracted driven successful inflation. approximately billion cost supply positive now by deliver COGS we of points. Let's organically. margin $XXX which pro savings cost program this growth of reinvest OI cost deliver are on XXXX. RRP organically, as adjusted allows which margin and

growth well in and engine a categories accelerate commercial to geographies. R&D number programs opportunities long-term as continue as investment our of for digital We and growth across

second reflected in full year trajectory operating headwind tough to outlook, of year comparison our margin the half the in. in As expect we our as temporary and improve

forma delivered our on in Focusing again now in growth net QX. and revenue combustible, volume organic portfolio pro

affected grew by comparison by volume driven X.X% Turkey. and shipment forma pro Our pandemic notably Indonesia, plus against a Poland

In plus the Pro a remain expectations. pricing was been recovery And slightly addition, forma the passenger international outside traffic ahead increases. in we on combustible pricing duty-free of environment our we saw cautious continued Asia outlook, gradually has X.X% as of economic while improving.

full similar to We expect deliver a level of pricing the year. for

product QX in leadership switching demonstrates combustibles and to of segment HX Our smoke-free both strength the portfolio. positive and helps our to share maximize the

target becoming of marks category We the XXth cannibalization. year leading despite stable the brand. world's impact share Marlboro continue the over This a to cigarette IQOS anniversary of time

rolling surpassing consumption X% occasion, with grew plus forma the pro With of social a HX, Marlboro return XX-month share year-over-year category again volumes in basis. on XX%

product where share smoke-free IQOS points progress to stable as and Russia and growth as with combination over largest IQOS with positive position share nicotine growth IQOS deliver Of is capture pro in -- smoke-free the basis share, we Moreover, XX building global strength position market Turkey. now gain course, Japan leader. their make of a equity our QX continued strengthened a We of we The undisputed brand and Italy, combustible including the the PMI X.X% plus gains markets long-standing time. as success share of HTU in excluding in second duty-free, present in is Marlboro's Ukraine. forma in total are the brand us excellent

a over IQOS X.X We plus the was half XX growth IQOS well Moving reactivation strong high million on retention of of million in impressive estimate QX as as to acceleration as million in in receded a program compared device on by user HX, constraint reflects X.X were first and this users basis. plus both basis. as The and many of very approximately forma record year QX pro start IQOS now growth of last of This the users June supply performance. ILUMA. there and acquisition driven to IQOS XX markets

In recent continue acquisition this tight, monitor X largely milestone to to manage and situation. supply eased has reflecting While the the EU drive Switzerland in quarter, global approaching is device of semiconductors effort. closely IQOS are of with activities due own and Spain. the success and now supply retention, stepped-up remain launch of we the The proactive we users, our region, the to million commercial along in constrained ILUMA and of

HTU share plus by points X.X total volume. cigarette industry quarter to Our HTU second and X.X% increased of

and QX a years, the recovery to prior the compared to of quarter. continued user performance of the volume second notable additional from to in exhibit we IMS combustible Italy with the share strong continue expect with region and year-over-year this robust in seasonality noted market As Poland. sequential excellent The usual was growth, combustible half. includes growth volume importantly, across this the by Most affected contribution sequential strong element and

slide in volume key our some key to is driving region. Venus, Elsewhere, of the I and cities combustible of London, in and Despite to city strong first in on sequential effect growth. Tokyo. category importantly, XXs. strong. our QX. IMS in continued denominator to In shows world a results very high Now Rome Vienna trends the the latest continues as Most by impressive while Most especially in color Budapest such mid- market of IQOS pleased we -- Japan, are the share Zurich. Athens, are with and remained results ILUMA the share increase in further to our This remain Texas progress the mentioned, selection surpass just XX% give the is city the share of

share increased X.X shipments HX and towards a recover QX for due adjusted indicated brands our half should timing by plus QX. weighting the points in in seasonality. second last with factors As a lower XX.X% record quarter, to to The despite were QX

even While our was these category rollout use notably of we in the slightly performance slower are was ILUMA initially further. than pleased The with resilient share mainline have accelerated entire planned. for combustible results, HTUs very with our price could and quarter

is were designed more encouraging switching results and to smokers. early However, its to cater price-conscious legal-age consumers to ILUMA

estimate consumption heat-not-burn users which time. observed offering this product. improve competitive in The from low driving in growth. conversion, should of now full IQOS tobacco average users price X/X represents also ILUMA legal-age less competitive lower total increase daily with believe We of Japan increasingly to an due year's we category to have We over switching around

In in markets promising IQOS see continue XX, addition XXXX, to in pro income and medium market. forma in strong progress we brands very such The reach launched December by QX, and to volume. IMS countries, X.X% sustained growth in XX the in developed continued low to our share HTU of reflecting growth grow

in represents market, Beirut size recently launching the Jordan, positioning Macedonia of notable QX Egypt where where large around ago. this relatively market North launched the the despite than Given restriction successes outstanding share include A to reached this of of commercialization, Cairo after the and example the of share in Other and Lebanon early off-take Manila. year take and less well increased points of X.X are progress. one plus Tunisia, Philippine this portfolio by as XX.X%, Georgia, X% pandemic IQOS the and premium stage existing prime of as Morocco in

and been of with X to continue Japan seen XX% our priced QX of conversion growing volume. already XX.X% sales in continued very ILUMA notably the an has retention rapidly QX over Barcelona and super in portfolio in over exhibit TEREA making ILUMA our a high especially a continue for launch. grew commercialization IMS runway growth where of also Switzerland. ILUMA, limited volume share sequentially, in has strong. a volumes TEREA share restriction as in launch industry has smokers. and very to XXXX share market device by Spain has reaching XX% growth. of tobacco plus TEREA with the of in existing Encouragingly, up quarter. nine with to proportion share start around HTUs with drive covering XX% of cities their national XX% In continued launched encouraging ILUMA of to to in HTU now X.X%. ILUMA traction grow legal continued largest market. initial increasing surpassed TEREA March in exceeds QX. record HTUs We of is speed demand with upgraded the sales. exited level initial robust as A now expansion exit become of increased such coming also significant off-take grown second the within Madrid. We the In XX% across after long off-take results, exited only tech remains four to of The and key quarters. SENTIA ILUMA see prefectures HTU to Spain of plus IQOS of IMA's second positive This volume the ILUMA growth regulatory have brand, months the to Moving Spain and months rate Japan, our users which premium IQOS the for Sequential strong quarter, had off-take and ILUMA and Switzerland, national HTU

regard innovation. over further fourth continued for to device We and brand continue launches With premium pilot three competitive leadership with rich category launched important disposable to we In and and play a and category segment our plan convenient position growing entry the for expand consumer France, planned an we the hassle-free June to established through IQOS time. off-take the launched e-vapor our our encouraging including into portfolio now In market, differentiated to expanded number smoke-fee pursue different Greece of QX. portfolio example, tailored an our continue now as results, smokers. for into proposition XX% as of e-vapor in disposable we is pipeline income device. geographies, product and average around two share portfolio market middle heat-not-burn to VEEBA was The XX price serve to smoke-free market. expanding XX% in are legal-age new late quarter, role with We global to Responsibly closed-pod deliver launches devices in with to premium QX, with the latest to ILUMA in further VEEV sequentially to additional our the XX%. recently present marketed This is addition needs is in in e-vapor, a Italy markets. low varieties. Canada nine profitable can VEEBA

geographic the Our in also in QX expansion IQOS of products with smoke-free launch of continued Bahrain.

with course, potential to deliver in would of the our our without biggest smoke-free potential completed, would Of with a Match. proposed a combination towards are the two have a addition aligned portfolio for Swedish accelerated expansion. near-term is with to and smoke-free smoke-free of visions transformation becoming This company. our a The working smoke-free position major acceleration portfolio in smoke-free companies leadership in comprehensive If nicotine future category the growing cigarette fastest create global oral international would global heat-not-burn and champion. we a

operational Match Another us unlock and franchise, over offering as categories over pouch medium shareholder would and is which and ZYN, the years. This more significant competing opportunity would a help coming significant U.S. long smoke-free growing this the substantial strong nicotine the cultural a market. strategic fit, U.S. leading Swedish large, term. value be the rationale creation across deal with and attractive platform, a for other

proceed the the with the U.S. the satisfied in have period stated waiting transaction. June process under offer on expired, we meaning As document the U.S. that transaction to for antitrust our has requirement in published the XX,

the in regulatory and to the subject acceptance approvals. close necessary shareholders year, expect to Swedish of Match this the quarter transaction fourth We

remains the have to of near-term initiative today define reducing new XXXX attention are their by The of net-zero XX to that Moving the the carbon delighted weighted new neutral than our issues. decarbonization The transform that given comprised to integrated of support X ESG own challenging our sustainability want published XXXX very track Science-Based continue report our target KPIs is we factory scope placing of and year for by represents performance. gas revalidated target equity towards a initiative for long-term tackling our made Included material in to across we XXXX KPI sustainability, to Target achievement first suppliers major most sustainability also each good. we we factories performance-based most more outlines our May, XXXX. XX% With product performance eight climate aspect strategy. methodology year, to compensation. company targets, which detail of your of meet validated science-based from definitions, and report these progress any us our chain, I report and regard in to on accelerating how as our on positive target. by the our included are executive our strategy of decarbonize KPIs further published ESG have XX% To recently greenhouse I more doubling transformation new this emission to of target last for index all goal development, and ESG our our XXXX providing in spend Scope as and transparency and index Protocol, our XXXX draw is sustainability in The now to am success change, and these

our of of ESG critical is evidence smoking. potential real-world of Finally, product There most growing one body of a substantial product remains and smoke-free scientific reduction risk compared impact to priorities. health the

on financial continue We adult can Council smoke-free in on accelerated products multiyear switching conversion, retention the and policy some further us well public away can an e-vapor consumer cigarettes. on we to is that further whole product tax headwinds, forward we support growth and for excited launches To track Superior treatment in of later the challenging results Health currency-neutral include ILUMA. half first play have We placing framework impact positive robust promising remain a to a strong from and reduction to examples XXXX. volume higher the from Recent in policy smokers this presentation, look performance statement recognize Increased and with plan health. fiscal Belgian by despite harm IQOS Romania differentiated market delivered pro driving deliver satisfaction year. forma and tobacco a have conclude today's

business allows impact development better to and market switching growth, accelerate wellness perform a further continues in to combustible the share to of organic and growth care smokers with on forma for innovative despite net maintaining society. product IQOS time of long-term net cannibalization Our our of volume revenue impact of over to deliver to positive alternative pro the will invest and well seek health us

innovation, continue across category such new to enrich smoke-free grow geography. expand to and VEEBA and and our and ILUMA We pipeline of existing as

in diluted expect adjusted to for are guidance We forma Ukraine deliver raising growth EPS, the headwinds. year and full around including currency Russia total total despite pro in adjusted and our $X

with XXXX exceed revenue a comfortably now on organic net X% strong outlook, growth X% of minimum in plus in diluted more our excellent target CAGR expect currency-neutral plus growth. more to adjusted EPS our and than basis Importantly, forma XXXX XXXX-XXXX an and pro performance than we

majority fully remains ambition a smoke-free by revenue business intact. Our also to become XXXX net in

We are in the transformation. of rapid pace confident our

Finally, returning we to shareholders. continue cash to steadfastly to committed be

are your Our top than Thank cash happy reinvestment priority we you questions. by in policy, and more generation. strong for capital and progressive allocation to now underpinned our remain answer dividend business flow the

Operator

from [Operator question comes first Instructions] Morgan Our from Kaufman Stanley. Pamela

open. now is line Your

Pamela Kaufman

quarters. experienced new are constrained to two you by would contributing you're anything users ILUMA strong were momentum where geographically? you be by that then And And driven is wanted these a related not doing How to in for that, capacity? IQOS that the production estimate growth devices? if what's last prior what Is to user much do versus adding IQOS you've there I get user differently? new sense you the

Emmanuel Babeau

Thanks, Pamela.

second We it really in said user we that a said performance in million good we obviously than are growth strong that of The more it's So and the X.X growth. the being and pleased is reflected -- HX, across record certainly IQOS, that is with news for quarter. very of geographies. growing very I the are

impressive. really So growth mention geographies. where But across of have number such contribute a trends course, these they we all Italy, And Hungary, size that countries Portugal, very are see Japan, their is the such of the mean, course, in size, more I smaller Romania, could Poland, but the of countries countries as good we reality because of is as quarter. I

think we the is that and benefits that But to ILUMA can by There to So We've launching where propose the combustible customer it's realize switching they people It's know, some limited a today, cigarettes are as is from the I IQOS ILUMA. fact get the certainly fact expectation, clear all we tribute unfortunately number Switzerland of Greece. Japan geographies in been product. you contributing. the Spain. IQOS making

the the and So to yet But where said, country helping certainly be ILUMA. I is launched including this country, clear, performance. board, we that the is performance across as haven't very in

products how including we we how we combustible from digital contact leading how the journey in with away benefit moving we get IQOS start are certainly, touch customer, we we in great deliver So them how experience, how the we are IQOS. of customer improving and to smokers, a from them, way explain dialogue, the the

go market it to share, people doubt, you IQOS. we continue growth, helping. reach a visibility call to see commercial more of visible, triggers people, works go go is engine, themselves and social we impact by certain become is growing. are in enjoy friends wants and awareness, IQOS. why when how So gathering, you and what explaining no who that and the that events, really organic is where more learn, more you that IQOS about want they start to you in to They in discover bars, improve markets you There visible, our probably There

We innovation. are also accelerating

proposing We devices. new have been

We are type references. proposing new of

even choice we So, the enlarging that are attractive. make more and and desirable IQOS probably

success behind So think, that's the IQOS. driver of the all I really, powerful

three a and I the what is version have more certainly previous we It existing ILUMA resolving -- focus on ILUMA are ILUMA in Now with the is where we on that pain launching. was the remaining It's of the with IQOS. potential loyalty. coming capacity, conversion, point experience. great been that it the if increasing is markets see the customer

it [indiscernible]. increase consumption expect to to the in average We Net well improving significantly and We reduce see customer countries. Score as daily Promoter our the the

ILUMA. where we we countries launching think launch to in the various kind sell coming And obviously it we're various see rocket and So we are should we that I in of more the momentum to bringing even expect stage higher, that the going are where IQOS launch of in going the second a quarters. that in as countries is the to country

Pamela Kaufman

light how in are the transaction. sense for you would Swedish in your market. the in sale more for of U.S. you That's to very appetite near-term get helpful. a additional to acquisitions consider I current wanted additional also There Are Match characterize in assets for the a position acquisitions?

Emmanuel Babeau

Today, the expecting is we we are were focusing at on the beginning. time Swedish line The Match. one

shareholder the changed. to subject transaction We Swedish QX, continue to Match Nothing course, in the has expect of acceptance. of closing

things Swedish on are the journey on in future the on further become the I closing a to that. is the successful clearly, smoke-free No. priority accelerate Match. We focusing door focus that and But would other our leading company? and today Am

Operator

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

open. is Your line

Bonnie Herzog

I drag forma higher at you from on in partly OP And have ILUMA on then of your margin organic guidance. adjusted your on then was an lowered margin margins, did that QX. least full-year your basis. question the HTUs. It a declined cost And the devices pro and also OP highlight you

be second could sense that how ILUMA. assume hoping be kind second to of will based from wanted on drag give on continue could imply driver this on Or of sort guess, just you key ease? margins FY ILUMA? as EPS just of could into drag in but margins negatively you And us the lower out So should growth the does I half, which pushing guidance, And I impacted, the that? half, XXXX, thinking the in a verify of a keep just just I 'XX rollout the year-over-year your long of

Emmanuel Babeau

question. for Thanks, Yes. Bonnie the

of said one. on true we've say Needless course, is cost. that are that's a HX, we input X% seen of seeing on number that inflation And the our mean, to in we that around headwinds I inflation, So margin.

guess I supply that disruption coming the in in have that's countries, So in we it's the are notably that war probably significant. Obviously, the inflation many from lower we than Ukraine. from coming costs chain, see but

need that the period where for air dramatic a only cost shipping at do air We're globally we during of going and temporary. globally, time on it's up. acceleration of is, of but a is of freight course, have long We time, not that, air very freight term. going to not the But costly the keep to

So we are impacted. obviously being

a launch impact volume of that very, impact Japan, Japan, actually, to ILUMA make an in is the really a -- And we margin where had three TEREA in SENTIA. offering margin that, on models temporary with having So something notably in level. beginning, of the on negative and the as very And On we since we with don't top that the at here. have is coming impact the strong of now an has well. and beginning there beginning, launch on three on and ILUMA important devices strong is then on that two is the device, it weight investment, was said at device. the which device we start cost a And which optimized

we expect of seems to So the XXXX in improve. course gradually

is inflation temporary. not So

would putting clearly with what the I in QX a I'm improvement of margin stage for will we of be that in know coming expecting lot the but in And we better cope an a are with in the lower, just the we should phase the do certainly more the gross are think recovery margin as are improvement extent P&L. large investment have a as there clearly, be QX, there having to at investment on HX to and skewed that's growth. we are that, we of are expecting. we'll that QX, seeing the Certainly, visibility the that P&L following but what the will level we on have to we and the then very right are future. we be that's also that the Japan, a be impacted been and for the growth, we to seeing be not would deterioration the been and it rest, and volume in on we've that HX, the already been that quarter, are the temporary, margin. fact headwinds by nice margin are shipping to we it but the course, Remember, should gaining not better a able are mix.

that in HX. so course, one-off HX, And it's was of we another but have the impacting compensation will

will yes, we of and they beginning back to are recovery some most clearly, mean So, time, over will normal be HX. it what difficult year, of everything still doesn't facing be will is on But headwind. the a in That margin. with that be temporary, the

Bonnie Herzog

sense. of definitely parts. makes lot a And all yes, moving Okay. That

to involvement target terms committed you've hear investment-grade in much us proposed are? not question to guess are potential I your helpful. more my a a things of I'd So as past second where maintain activist transaction? guess, this then how on that is And stated Swedish a color have to the of was I'm acquisition risks have of what guess, Match, ratio, could And maybe I other words, I I thinking give you your happening? leverage think but ratings. about like you you leverage? in don't want the you flexibility little how do And this you see your just then asking, transaction on you

So guess, just be you the that. what threshold of rough, get leverage to wanted I from maybe that would sense to maintain a for

Emmanuel Babeau

to you all, can is, What of of on tell U.S. Bonnie. terms first approval. we you, have Thank that requisite cleared the in Match regulatory I Swedish repeat

So that is behind us.

by a processes at in this expect the this very fact Swedish down, offer was that of Match the is like For offered that for And in the what according said to they Swedish we would I remind we fact we then, Swedish of May, are several it of that we offer confirming in closing for Board to compelling to a acceptance. markets fact approved jurisdictions announcement I the going Can confirming been still believe shareholder plan. in volatile, subject compelling the here, reiterate premium everybody the and that beginning the QX, And the shareholder. them ongoing that which been have most we course, rest, time thought for are Match their shareholders. Match, the of the XX% has quite was since that

to comment no Swedish other And make. have on have what to that's I Match. say So I

Operator

We Stifel. Growe our next question take will Chris with from

Your now is open. line

Chris Growe

half. had just timing question of a I the first on across you shipments second for the

about quarter implied about fourth second versus to we're the that Does year. to of shifted as for -- that just the talked your X the You've what's sticks in thinking billion IQOS the over shipments quarter? half XQ fourth shift for mostly guidance the

Emmanuel Babeau

if help seen have Chris, expect HX, around which what the with can to Yes, XX%. line we the on that in we IMS try you, be more to shipment growth is I underlying was much in QX in

but in expect don't we what shipment, that's HX. missing in of have we So been the expect that recovery shipments the

But recovery very expect to expect year, shipment broadly to QX, IMS consumables. shipment above QX We continue of IQOS in will align be for dynamism the in the strong then we this where IMS. and

the is that we the for that phasing So expect year.

Chris Growe

device the Okay. shortage? They've let's chip relation point say, as Does been as is And full the you'll time availability right availability. first it, elevated the have, half even is you that And devices? about a 'XX availability your elevated little the on to in just call based continue of sales. of line devices that to 'XX think more you other where of to question half build on had in, one of remain the here first

Emmanuel Babeau

have I Chris, think two elements, here. you

The remember, constraint some QX we had some year. device started first that last availability QX, on in impact one, in and

this level in comps. So of device course, on there low year the is an based increase

device that's realize make sure have smokers to first think IQOS access how can to that is important to I it the element. And it's really to So important converted. get

So second And replacement. that of competition a element, On clear device there well. important is it's ILUMA, top effort wave think that make better we commercial from see the I the think our is that conversion. clearly device doing and versus with a it then maybe that some getting is I here. it we we're of And

of -- is launched creating level that device we IQOS rapid in So, wave we a ILUMA. acceleration of one-off replacement IQOS replacement existing in the device. ILUMA, the markets a see strong And this very where of by When behind on people us, that that negative a temporary impact on be through that. consumer be margin. will will again, we go have having, the is core be but will a equipped when to the blade And equipped basis,

Operator

take next with Vivien question our Azer will Cowen. from We

Your line open. is now

Vivien Azer

proposed the secondly, for in So of menthol on EU Thank some on outlook of the my that your timing that menthol proposal? an you please heat-not-burn the products. to mix and then first you. in variants has do question offer color Could geography, elimination with

Emmanuel Babeau

the Look, I'm disclosed we menthol. not component of sure

we Of in that's our minority TPD is Europe. have the about course, that business. understand in a is What that this that to of I from say move can application a

be based automatic on the So not circumstances TPD decision. it's an a XXXX, in ban a of implemented. kind application for to It's was of which certain planning

be business still very and almost impact. on very to and by we'll will already limited that this later combustible Council European Now be To on decision. the in needs has it bodies no clear, approved of be in impact two a by XXXX, or front the happened what the these with parliament see is final

impact. reorganize isn't this heat-not-burn So, taste consumer they happens products, impact have business. that limited meaningful but the will very on And it our clear their to other a therefore, if and it switch

the taste of our superiority that of the competition. addition versus In have to we competition, technology that, superiority our believe IQOS in with technology that's we and the tobacco versus

product, our go on have new So flavor. may if that for taste mean with for tobacco we that will look competition left people if who they abandon will are decide versus product to great to

have as you on hear, matter. are what we the that of limited are, guess, my I can to we see So course, waiting development. concern comments, from But

Vivien Azer

into question my IQOS the is U.S. the that timing of product If can Certainly. you. please? marketplace, in Thank we on just follow-up the reintroducing revisit And

Emmanuel Babeau

Yes.

of to in this more to IQOS introduce at stage. XXXX. precise HX I a cannot be position expect be We in

continue We reintroduction date. do have course, to and that. more be posted of you to we'll to on able And clarity more work precise the when plan we keep

Operator

from question Gaurav And Jain we will take our last Barclays. with

line is open. Your

Gaurav Jain

questions So of couple me. a One is from Russia. on

now just had year QX. including are the you're and guiding, Russia included way Russia the for you earlier, for So, full you

have pay also, are to out still Russia, into paying devices you USD? there? export Russia you in take shipments still you you of can IQOS can cash devices which IQOS because So And the dividends,

Emmanuel Babeau

Gaurav. you, Thank

many And the supply business how our of that on not is So chain, impacted. can that disrupted this being sanction. of device, still know time never yes, confirm the can the therefore, you have one export I by not we that you but parts for covered evolve, course, are because,

to the the did On dividend, you to try because of not I'm we pay not payment able dividend. tell a

subsidiary between kind What terms not of you normally. making So for can our procurement usual terms intercompany is and in in or I of royalties been we've the time any able I'm to answer. the being, tell of that payment

that So stage. what tell at I that's can you

Gaurav Jain

Canadian And on is Okay. second my question market. the

the So Canada, but you volume consolidate not do numbers. give clearly, you

then you is to market mentioned XX% you device the launched retail QX. down which 'XX Canada. out cannibalization have XH X%, think, of ordinary. not in in the and e-cigarette is have pricing, disposable I And X% the and in So And in Viva, XX% the is

now and understand So what's very are Canada? exactly Could growing happening help in that cannibalizing that? Is e-cigarettes fast just it the us market? you

Emmanuel Babeau

Yes.

to down fast nicely are develop product, go a vaping, on smoke-free to substitute including that reference think don't I a have which market. for may clearly you heat-not-burn of business That's trend clearly, comparison things our some moving and also to one-off the trend but as combustible element, but the is ambition grow to for But a a the is combustible. market where is is rapidly. take as some market XX% minus basis and for the

Operator

to now additional management turn would to like remarks. I any closing back over for program the or

Emmanuel Babeau

today. of We becoming to challenges on share that on are very look the talk Well, IQOS to were course, And we this company smoke-free delighted you much. for soon. you making to to much Thank and participating despite a know. thank you that very the of we good progress very call fact, all you forward

James Bushnell

concludes you us. for again Thank That joining call our today.

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

Operator

This does for conclude today's program. participation. your Thank you

have day. time, disconnect at may You a any wonderful and