Philip Morris International Inc. (PM) Earnings Call Transcript & Summary

Thank you all for joining Deutsche Bank's Global Consumer Conference virtually in Paris and today's call with Philip Morris International. My name is Gerry Gallagher. I'm a member of Deutsche Bank's equity research team focusing on the consumer sector. Today, it's my very great pleasure to introduce Jacek Olczak, Chief Operating Officer of Philip Morris International; and Emmanuel Babeau, Philip Morris' new Chief Financial Officer. Jacek and Emmanuel, welcome.

Thank you, Gerry. Hi, everyone.

Hi, guys. Now today's call will take the form of a fireside chat, but it will be preceded by some introductory comments from Jacek and Emmanuel. The slides will be available on PMI's website. I'm going to have a series of questions for Jacek and Emmanuel, but we'd like to interject them with questions from the floor. You can all ask questions via the web page you are linked in. I will ask your questions anonymously, so please don't be shy. The greater interaction from you guys out there, the better. And we will aim to end today's fireside chat around 1:45 Paris Time. So with that, over to Jacek and Emmanuel for their opening comments ahead of me asking some questions. Over to you guys.

Thank you. So as always, our remarks contain the forward-looking statements. And accordingly, I direct your attention to the forward-looking and cautionary statement section of today's presentation. Please also note that we now also include additional forward-looking and cautionary statements related to COVID -- specifically to COVID-19. Let me start with one thing which remains our main focus, which is obviously the safety and well-being of our employees and the communities we operate in. And let me start my first remarks with what we observed at the consumer level with regards to the combustibles, the conventional cigarettes, if you like. So first of all, it still remains early to assess the post-lockdown industry trends in terms of speed of recovery, although we see some positive signs of recovery across different markets in recent weeks. Secondly, the consumer trends show the resilience -- have shown the resilience during lockdowns in Eastern Europe and the majority of developed markets, like Japan, Korea, Northern Europe or Canada, for example. We also observed the volume declines in the first 2 months of the quarter to be at the high end of our initial estimate due to stricter or longer lockdowns in certain markets. And if I can go very quickly for the couple of distinctive geographies. In certain Latin American markets, these volumes were down due to very strict or extended restrictions, like, for example, Argentina, Mexico, Colombia, Ecuador, with various temporary impacts, which are now improving, on closed retail outlets. So there was obviously these disruptions at the last end -- to the last mile of the supply chain. And obviously, we observed the impact driven by the consumer mobility. And in particular, in Argentina, we experienced quite an extended period of out of stock. In certain Southern and Eastern European markets, like Spain, Italy, Poland, Czech, Romania, the impact is driven by lower tourism, cross-border, reduced mobility. Obviously, the question is how long the impact will we see of less out-of-home occasions for consumption of our product. I mean this factor remains hard to measure at this time, although it is far assumed that, obviously, some of the impacts due to the lack of mobility and the occasions for usage of the product will be rather of the temporary nature rather than something which would stay for lever -- for longer. And obviously, the income time of the driven impact. I mean this remains to be seen. As expected, the daily consumption affected during the severe restrictions in certain emerging markets, especially those with high proportion of daily cash working. This has declined by around 1 stick per day, like for example, Indonesia, or as some initial readings indicate, in Philippines, up 2.5 sticks. We do not observe any changes in smoking incidents at this stage. Trends during the lockdowns are, by nature, short term, and we expect the industry volumes to recover from here. The separate impact on our results, the performance, obviously, is driven by our significant presence in Duty Free. And as we know, these channels in the Duty Free continue to be severely impacted by the lack of global travel. So that's on the combustible side. And if I can go to the consumer trends on the reduced-risk product. First of all, IQOS device sales and heated tobacco unit volumes are better than expected and improving sequentially in the recent weekly data after a slowdown in April, with very encouraging performance in geographies like Russia, or frankly speaking, the entire EU region. Device sales and the heated tobacco units are positive indicators for both, obviously, acquisition and conversion. So we see the sequential -- for the last few weeks, sequential improvement in the device sales. And that's the good proxy that our acquisition engine regains its pre-COVID momentum. And ongoing strong trend of -- with regards to the heated tobacco units is a very good proxy of the consumer staying during these most challenging times with IQOS. So we haven't lost anything with regards to the conversions, okay? So it's a very, very, very strong term. It's a very strong term. Obviously, you may recall, we covered the subject very extensively during the -- our latest presentations at CAGNY Conference in Florida. I think the commercial engines showed a lot of flexibility with regards to switching from off-line channels to online channels, which we can cover later on, where our discussions also creates the great opportunity for us with regards to the resource management. As I mentioned, retention and conversion rates remain unaffected during these most challenging times, and this all goes very well for the opportunities for IQOS going forward. As we know, we have the first time, Emmanuel. I have the pleasure to have my colleague in the first time with me as the CFO of the company. So to demonstrate the collaborative spirit, we decided that Emmanuel will take the next chart and will elaborate to you himself.

Thank you, Jacek, for welcoming me. And let's start with an update on the fiscal and regulatory environments. First, in Indonesia. The timing of minimum retail price enforcement remain uncertain, as it depends on the mobility of the tax inspectors. In Turkey, a new minimum excise tax has been introduced in May, and that is a positive development. In Saudi Arabia, VAT increase from 5% to 15% will be effective on July 1. And as expected, the EU menthol ban has become effective as of May 20. It's too early to assess what's going to be the impact. And just to remind you that menthol variants, including capsule, represented about 10% of the EU market in 2019. Now moving to the supply chain. Our production resumed last month in the Philippines with little, if no impact on sales due to out-of-stock situation. And in Argentina, where we've been more impacted with about 11 days of out-of-stock situation. We have today, in terms of capacity available, more than 95% of our capacity in combustible that is available. And when it comes to HTU, we have 100% of our capacity available. We continue to have adequate inventory across HTUs, IQOS devices and combustible product. Now regarding the guidance for our Q2 2020 and based on what we've seen so far in Q2 and based on our expectation for the end of the quarter, we believe that we are on track to deliver for this quarter, a reported diluted EPS towards the upper end of the previously communicated guidance range of $1 to $1.1. We now assume a currency-neutral net revenue decline around the high end of the previously communicated range of minus 8 to minus 12. And of course here, it is echoing Jacek's statement and information on the weaker-than-expected volume in the industry during the lockdown in certain markets. And regarding the currency impact, things have been evolving more favorably than they were at the end of April. And today, at the prevailing rates, we anticipate a currency headwind of approximately $0.07. Remember, at the end of April, we're expecting a negative impact of minus $0.12. Jacek, back to you for the slide.

Yes, to just close that -- our opening remarks, we expect the industry volume trends to recover when COVID-19-related headwinds will recede. The RRPs, reduced-risk products, vast growth opportunity remains undiminished with IQOS' great success during even this most challenging times. I think we observed the trends. IQOS clearly demonstrated a strong resilience and actually demonstrates the potential. We continue obviously working towards realizing this potential, this opportunity. Our progress into moving from a more dependent on off-line to online and all other forms of digital consumers activities and engagements are intact, and they open us further territory for the resource management improvements. We also continue with our very ambitious geographic expansions of the Platform 1. Obviously, to get that noted during this challenging time, but we have -- during this period, we have expanded IQOS presence to the places like Austria, for example, or Lebanon, when we had the full launch, and we're also expanding the distribution of HEETS in the places which were open before for IQOS devices, like Saudi, North Macedonia, Montenegro and Maldives. So I think despite, as I said, the challenging -- the challenges which we have during this period, we continue focus and delivered on the IQOS, grabbing the opportunity which lies in front of this platform. We, obviously, as you've heard, I think, when we closed first quarter of this year, we also plan to launch IQOS VEEV, which is our electronic cigarette, the Platform 4 product proposition still this year. And we're also working on extending our portfolio by some of the KT&G products as a result of our collaborations agreement which we have with our partners. We obviously -- we remain with very strong focus on cost efficiencies as we have a number of times spoke about it in the past. We are well on track to deliver over $1 billion of cost efficiencies by 2021. And I think the current situations also put in front of us opportunities actually to improve or exceed that target. And I think in the next opportunities, probably speaking, opportunities will give you more details on how far we can go with this. As I said, when COVID-19-related headwinds pass, we expect to resume the growth consistent with our targeted 2019-2021 coverage rates. And we have unwavering, as always, commitment to our dividend and continue to expect to generate cash flows in excess of CapEx and dividend payments. And I think, Gerry, at this time, I think we can turn into the -- into you and start the Q&A conversation.

Right. Thank you both. That was a really helpful introduction. I think it answered a lot of questions people may have had coming into today's presentation. So thanks very much, indeed, for that. I'm just going to get -- having said that, I'm just going to hit the guidance question or the inevitable guidance question out of the way. Today, you said CapEx for the second quarter is negative $0.07 and was negative $0.12. You have said you'll take your guidance up towards the upper end of the $1 to $1.10 for the second quarter. You haven't listed the range. Could I just clarify maybe if that's related back to your other comments that your revenue for the second quarter will be near or down 12% and then down 8%? Is that how I should make the link? And then also could you just take us through any specifics we should be aware of in terms of the CapEx guidance coming down by $100 million?

Sure, Gerry. Happy to take that one. Well, obviously, as we progress through the quarter, we are getting a better view of various important driver on performance of the quarter. And that's the reason why we are coming with this revised view on the objective for the quarter on this revised guidance. We've been, of course, giving some very careful consideration to it. We think that what we are coming up with reflect the -- with accuracy, the situation today. It does, of course, take into account what we've been describing in terms of evolution of volume in some markets in combustible, what we mentioned about the resilience and the strength of RRPs and it takes all the various parameters into account. And once again, we think that this is the most accurate reflection of our expectation and target today for the quarter. Regarding your question on CapEx, Jacek mentioned that in his preliminary comments. It is quite obvious that when you have such a significant evolution of the situation with a number of headwinds, a number of, I would say, volatile situation, well, you adjust the company and your actions and your investment, I would say, globally to the situation. So it's true for the CapEx. And there are a number of investments that are whether no longer doable or that we can postpone, and that explain why the CapEx is revised down. Jacek mentioned what we are doing on cost and making sure that we have an adjustment of the cost evolution to the situation. When it comes to cost, just to take a few examples, of course, travel costs are being significantly more limited given the situation. There are a number of investment that were planned in terms of commercial investment that given the situation are no longer possible. Jacek mentioned the fact that there is new approach using digital customer experience that we are using. And of course, that is having an impact on cost as well. So we are, of course, adjusting to the situation. That's true for CapEx. That's true globally for all the investment that we are making.

Great. So having asked the guidance question, now I'm going to ask the COVID question. But I feel your opening comments helped -- well, have answered my question in advance, really. But just to summarize what I took you to say, and please confirm or expand upon what I'm about to say. Effectively, Q1, you talked about Duty Free, acquisition of IQOS consumers and Indonesian pricing. If I was to summarize where we are today on those 3, based on what you said, we're all aware of where we are with the travel situation globally, so that will develop in front of us as time goes by. You made it pretty clear, from what I heard, that your acquisition of -- retention and conversion of IQOS consumers remains pretty strong despite the environment we're operating in, and you haven't got the situation on Indonesian pricing still remains relatively uncertain. Have I picked that up about right? Could you expand on that or make any comments?

So maybe I take this one? Well, the fact that we're having this conference for the technology [indiscernible] is the best testimony that the travel retail business is still under pressure, right? So that's pretty obvious. On the conversion, I think we're clear in our remarks. I think, initially, when we're guiding the investors for the quarter, we expected that our acquisition rate will drop in that period by about 50%, if I recall properly. And I think we today already have a number of weeks that I believe our acquisition rates are actually higher than the initial drop, which we predicted at 50%. So as I said, if I use the device sales -- weekly device sales in a number of geographies, we already start hitting the run rate which we use in some geographies, the run rate which we used to have from before the COVID situation. And Indonesia, absolutely right. Technically speaking, the governments have delayed the implementations of a minimum reference price till the end of June. But as we know, Indonesia has different waves and different dynamics of COVID and corresponding restrictions. And obviously, in order to implement and reinforce that regulation, it very much relies on the visits and audits of tax people, IRS, into the -- in a point of sale. And I mean, it's questionable whether they will make this implementation and enforcements at the end of June at this stage.

Okay. Could I just clarify on the device sales? Yes, you're saying -- you're saying they're down, but not down as much as you initially expected them to be? Could I just clarify that?

You mean the IQOS sales? Device sales?

Device sales, yes.

No, no, no. Well, obviously, we had a slowdown in the device sales because, in any period, you have 2 types of purchases over the life of the devices, one which goes to the existing converted users just because they want to have a second, third device, or their device, due to the battery life cycle, stopped working or it's less efficient, therefore, they want to move to new one. And I believe that part of the sales, thanks to our very well-run infrastructure on the post-purchase service, was actually -- we haven't lost much of that demand coming on the device. And obviously, all the front activities, which are more geared towards acquiring new users, in other words, taking existing adult smoker and offering them an IQOS and introducing him or her to the IQOS world. I mean, because we had the shutdown of many of our retail operations, our sizable number of cultures which we operate, however, given today, due to the restrictions, we couldn't deploy them. Obviously, that engine has slowed down, as I now look from the data, temporary. So as I said, if I take a total device sales, we start in some geographies, we're almost reaching the periods of the weeks from before the COVID. So it tells me that acquisition engine is coming back.

Right. Understood. Very clear. So I've got a bee in my bonnet about the next question, and I keep getting pushed back by people on it, but I'm going to ask anyway. I've got a concern -- or I think there's a concern out there around pricing over the medium term on the back of the fallout, potentially, of COVID. Now industry pricing has been robust alongside mix in combustibles. But given the current environment, what is the -- how do you think about the industry may being robust on headline pricing? But given the economics of the world, consumers may trade down more aggressively. And the reality may be that what historically has been an industry that has done very well out of the combination of price/mix may not be able to rely on it quite as much in the future as it has in the past, just because of the economic fallout that we may see from COVID?

Well, I would address your question, Gerry, in twofolds. First, there are 2 types of the dynamics which we observe in the current situations. One which is purely driven by the restrictions, lockdowns, severely impacted mobility, number of the moments for which the consumers weren't using -- smoking our products, obviously has changed, right? It's a different dynamic. See, if you have a cigarette in the bus stop at the morning on the way to work, that sort of a situation. And obviously, this created some impact in some places, negative, as I mentioned, the impact of the daily consumptions. I think I call out Philippines or Indonesia is more of the question -- more of the impact of lack of the situations in which normally people would use our product. I believe a similar trend, one presented -- you already observed in other industries, right? I mean your morning coffee or other products which you consume during the day which is driven by the situation. And second thing is, obviously, the income pressure. And I think it's too early to say whether the income pressure already has the accelerated or showing in some geographies, there -- or showing the signs of a presence in terms of a down trading. Obviously, we know it from the past crisis situations that usually the economic type of pressures may last for longer. Nobody knows -- everyone knows that the GDP is declining. Nobody knows for how long the GDP will be in the negative territory. So as I said, I mean we don't observe anything with regards to the longer-term type of trends in terms of declines in a prevalent range. Yes, we do observe in number of places, decline of a daily consumption. And this is presumably more driven by the situation -- the lack of the situations in which people can feel free to consume the product. And I don't observe -- but we don't observe anything which would translate into the mix erosion. Now your questions about the price increase there. Well, definitely until the COVID -- well, pricing, which we've had assumed for this year, for this period, for that part of the year, which is behind us, we essentially realized all pricing as per plan. And some of the price changes have been taking place during the last 2-months period. As you know, in our policy, our approach is we never put the pricing to the devaluation, but we do believe that we have pricing power to do the pricing to the inflation in a given geography. So it's difficult to predict really the future with regards to how the economic outlook in the various geography is going to look like. We -- you can refer to the crisis -- economic crisis, 11, 12 years ago, Europe and other places. And I believe, even in that time, the industry has surely demonstrated that the pricing is the important component of our growth -- global growth.

Right. And just a follow-up on that with a related question. My sense is that governments -- well, government is going to come under some form of fiscal pressure, so that is clear that they already probably are. But my sense is that taken in totality across your portfolio of markets, in general terms, governments understand that pushing the excise button too much can backfire on their own revenues. Clearly, that is probably not a universal comment, and there may be 1 or 2 jurisdictions where they do press the fiscal button too hard. But would it be fair to say your view of things is that if taken in combination across the totality of your business, while excise remains a risk against the totality of the business, it'll probably be isolated and probably manageable from a group perspective? Could you talk to that?

Yes. Look, at this stage, we don't observe any excise pressure in, frankly speaking, any geographies, okay? Now it might be too early, but as I said, at this stage, we don't see anything coming out there. Look, the obvious -- the risk exists that in 1 or 2 geographies, the government or the regulator may decide to increase the taxes disproportionally for a variety of reasons. Obviously, these reasons exist today because a number of the support, which various governments have quite rightly over the economy, creates the -- increase the fees, et cetera. I also know that from the past, and again, even if I go back to the financial crisis signs, and you may recall, this was also a similar type of economic impact. If I remember well, we didn't really have something unblocked type of a disruptive tax increases. Yes, I remember, we had Greece, which had a series of the very drastic fiscal adjustments, but majority of the market's fiscal policies were more focused on the gradual but manageable, from a price perspective, tax increases. So obviously, nobody -- none of us ever went through the situations like this one, but I don't think that the governments will or it is in the interest of governments to show some unreasonability and jack the increase -- their excise taxes by enormous proportions, which, frankly speaking, will result in the diminishing return on their side annually. There is another aspect of that thing, that a number of geographies have, today, in the current situations, benefit from the lower illicit trade, and that's nothing else than an outcome of border closure -- essentially border closure, less traffic, cross-border traffic. So by definition, collections in some markets have increased without changing the tax rates.

Okay. Now just on -- could I just jump into the heated tobacco units and the guidance for 2021. Could I just clarify and confirm that, as it stands today, you're retaining your 2021 volume and revenue targets for that business?

Yes. So our target for 2021, for the audience to remember, was 90 billion to 100 billion units. I mean clearly, a couple of weeks or months during this period, not helpful. But frankly speaking, I believe it is still a very attainable target for us to achieve, taking into consideration again the resilience, which we had with the existing users of IQOS, I mean, demonstrated by the HEET sticks trends and regain ability to acquire consumers. I think, from a longer-term perspective, I hope it will be just a blip in our performance. And I think that the target of 90 billion to 100 billion units is, at this stage, attainable.

Great. I'm going to move on and ask Emmanuel a direct question. You very recently joined Philip Morris International from Schneider Electric, but also you have a background in consumer with your time at Pernod. Could you talk a little bit about why you took the role and what perspectives you can bring to the business? And I appreciate it's very early days, but are there any first impressions you would like to share?

Yes, very happy to do that, Gerry. What I've been doing both at Pernod and at Schneider was really to contribute to 2 great transformational journey. I mean at Pernod Ricard, it was about building a global leader from a regional player, and we did that through a lot of investment and M&A. At Schneider, it was about shifting technology to move towards digital and software, and that has been a great success as well. So I've been immediately extremely seduced by the amazing journey that PMI has started towards a smoke-free world and truly impose a reduced-risk product. There is probably one big difference that I see is that when I joined Pernod or Schneider, the journey was just starting. What I can see at PMI is that the journey is already well started. And I'm really impressed, you were asking my first thought, I'm really impressed by the IQOS franchise already. What the team has been building is super impressive. And the commitment from everybody within the company to the success of IQOS and the global success of the company on reduced-risk product is very impressive. So I think that it's -- there is a kind of homogeneous traction behind it, which is, for a newcomer, super impressive.

Great. I just want to move on a little bit. I was talking to somebody the other day, and he accused people of looking at your business sometimes with the heat-not-burn blinkers on. And I think that individual's accusation was probably very fair. And so let's try and avoid that. Could you talk a little bit about how you see the role of combustibles in your business, how they dovetail with reduced-risk products? And maybe loop into that your smoke-free distribution deal with KT&G. Just give us a feel for just how important the combustible business remains for you guys, even though people like me are guilty of focusing on the heat-not-burn aspect of the business.

Great. Gerry, I think we always said, and I will say that again, that our objective is to maintain the leadership in the conventional cigarettes category as long as the category is obviously of any significance. We continue to compete in a combustible cigarettes category and obviously allocate the resources accordingly. And obviously, most of our resources today on the R&D side, by far, and on the commercial side, is allocated behind RRPs because we also believe that the RRPs is a better opportunity for the company, most importantly for the smokers and all other stakeholders, even if you take it from a perspective of a sustainability -- from a sustainability perspective. So we're not -- And I run the operations of the entire PMI. I have a sale forces in countries which are focused on a combustibles. I have a dedicated sales forces which watch our progress and deliver our progress on RRP. And my attention is properly allocated both to the CC when I am not, by far, trying to create a freelance for the competitor situation. And obviously, I think our objective and we're delivering to this objective is still to gain as much of the opportunity which is in front of us with regards to RRPs. And as I said, I think it is good for the consumer stakeholders, including the investors.

Great. I'm very conscious. Time is moving against us. And I'm going to -- I've got a few questions on combustibles, but I am going to put the heat-not-burn blinkers on and I'm going to move to heat-not-burn. So in Q1, if you look at your...

Gerry? Gerry, sorry to interrupt you. If you look at -- okay, now it's the COVID situation. But if you look what Marlboro, combustible Marlboro has delivered in 2019, which is, if I recall, the historical record of Marlboro International share of 10%, I think it's the best testimony that we are not taking the eye off the ball of combustible business. Sorry to interrupt you.

No. No, it's a fair interruption because I fell into my own trap of moving away from the combustibles, and I fully accept the point you're making there. Perhaps quickly then, you could -- could you talk about what's driving that share of Marlboro being -- it's best share globally, ex China, was at an all-time high. What's driving that?

The right focus in organization, but this Marlboro remains the most aspirational premium proposition global brand. And I believe that we have this ongoing trend in a number of geographies going towards the international. People do value the quality of Marlboro and Marlboro means a lot to that. Obviously, and I have to say, in a COVID type of a situation, because of the Marlboro aspirational status, obviously, creates a lot of -- Marlboro is also most frequently used brand during a social situation. So one can expect that in absence of the social situations, temporary, we might have here and there some blip on the share of Marlboro. But if I look at any parameters of the Marlboro equity -- from an equity perspective, I mean, Marlboro is really in the very strong and very good shape.

Right. Okay. So I will move now to heated tobacco units. And taken as a brand, they were the third-largest brand in markets where they're available in Q1 of this year. Now that's nothing other than impressive. So how should we think about that in terms of the potential? And how should we be thinking about geographic expansion? I think you've been saying that, over the immediate future, perhaps it's more about growing where you currently are rather than expanding into new markets and maybe COVID sort of backs up that previous comment. Could you talk about that a little bit?

I mean the global growth of IQOS is still -- I think there is still a lot of opportunity to grow the IQOS in the geographies in which IQOS is present today. And obviously, we -- all of us have an ambition to broad it today even a larger international global footprint. And since we open in the market which, on some occasions, may be regulations, we're not allowing go to -- go in the first or second wave of IQOS, but as regulations have improved. And as I said, I think IQOS has an opportunity -- organic growth opportunities in the places where we are today because still in a number of locations, we are much more focused on key cities, capital cities. And I'm also pleased that in a number of locations we have the average share, IQOS share, even during this times, it's double-digit -- across the double-digit numbers. And the national shares are trending at the level, on average, about the mid- to single-digit numbers. So if you -- we know it from the past that once you have such a strong positions in key cities or key geographies, the other geographies over a period of time, given a country, will tend to follow the same trend. So it's one way of demonstrating the potential of IQOS. And obviously, as I said, there are still geographies that IQOS is not present today. And we, too -- and we're looking forward of opening, as I said, still the number of markets, a few markets towards the end of this year, once these restrictions, as we observe it, are being relaxed. And obviously, we didn't talk today, but I do believe IQOS still has the untapped great opportunity in the U.S.

Right. So well, we haven't talked about it yet, but we are going to now, albeit we've got about 3 minutes left. Just on the U.S., could you -- how big a deal is the MRTP stake ascribed cost in the U.S., both in the U.S. market but maybe a halo effect around the world? Will it really make that much difference to the consumer?

Well, I think that first of all, I mean, FDA is in the final stages of processing our MRTP applications. Obviously, MRTP can help in the U.S. and also has some value outside, I mean, outside the U.S. This provides the clarity to consumers, which we believe is very important. On the U.S. territory, if you have assessment of your applications by FDA. But obviously, the clarity with regard to what IQOS is, and it's not and what does that help or high reduction potential of IQOS is also important for consumer with international. Obviously, facilitates further our ongoing dialogue with the regulation -- regulators or regulatory bodies in other geographies. So yes, it is important, but we continue our strategy, engaging with the number of authorities on international, even in absence currently of MRTP. So I think it's important. Every assessment of this category of the product within these categories by any regulatory bodies somehow solidifies the evidence, mounting evidence, which we have today, but also third parties, that this product is a much better opportunity than continuing smoke.

Great. I've got time for one more. I'm going to jump to the dividend. And I appreciate you made some very strong comments as to your policy around the dividend in your opening comments. But the world's pretty uncertain at the moment. I appreciate for Q2 that the currency has actually gone your way since you last talked to the market. But I was just thinking about the dividend and then future growth, given the potential for FX to move around and where we are in terms of the macro environment. In terms of how the Board thinks about the dividend, perhaps you can help us, should we think about the dividend, at least growing in real terms, in U.S. dollars, except in real terms may not be a big number moving forward? Or should we consider it possible that maybe the dividend growth may be relatively subdued for some period of time?

I'll take that one, Gerry. Well, the Board will talk about the dividend in September. So the time is not now. But as you've well noted, we've just reiterated our unwavering commitment to dividend. I think that our Chairman and our CEO talk about sacrosanct dividend. So I don't think we can be clearer than that on our commitment behind the dividend. And today, we have absolutely no issue in paying the dividend, and we have a cash flow that is absolutely sufficient for that. So I don't think that this question is relevant to us.

Great. Emmanuel, thanks for the...

Gerry, I know that we have presumably last 15 seconds, you haven't talked to us or asked us about the sustainability. By the end of the June, we will issue our first integrated report. It's 180-pages read, but I think it's a very interesting read when we're summarizing what we have achieved with regards on our journey to unsmoke, what our objectives are for the future. And there's a lot of important components what the company is doing with regards to the climate, agriculture and many other important topics.

And yes, like, we'll make sure that we share a slightly more condensed version of this ESG report with our shareholders.

Great. Thank you very much, guys. As you say, time got against us. I could have asked a dozen more questions and beyond, but the time beat us. It just leaves me to say Jacek and Emmanuel, thank you very much indeed for your time, your opening comments that were extremely helpful. Wish you all to stay safe. Thank you on behalf of Deutsche Bank for attending our conference. But more importantly, thank you on behalf of our clients who have dialed in to listen to your very insightful comments. And it leaves me to say thank you very much, and goodbye, everybody.

Thanks, Gerry.

Thank you all for attending.

Thank you all.

Talk you to you soon.

Bye-bye.