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

Good morning. I am Pam Kaufman, Morgan Stanley's U.S. tobacco and food analyst. For important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to the Morgan Stanley sales representative. So for the next presentation, I'd like to introduce Philip Morris. 2020 has been an unprecedented year, but PMI has been resilient and executing on its long-term strategy of creating a smoke-free world. PMI has successfully adapted its IQOS commercialization strategy to the COVID environment. Evidence in IQOS' growing user base at over 16 million users and availability in over 60 markets. PMI has also been expanding its reduced-risk product portfolio with the recent launch of IQOS VEEV in New Zealand, lil SOLID in Eastern Europe and lil Hybrid in Japan. Here today to walk us through PMI's strategy and vision is Emmanuel Babeau, PMI's Chief Financial Officer. Thank you for participating. So I'll pass it over to Emmanuel for some opening remarks before we jump into Q&A.

Good morning, Pam. Hi, everybody. It's really a great pleasure for us to be with you and to share about PMI. Thanks for your introduction, Pam. And indeed, we have a few preliminary comment that we would like to share with you before we enter the Q&A session. I'm going on Page 2 of our deck, and I'm drawing your attention on important forward-looking and cautionary statement about what we are sharing with you today. And then I'm moving immediately on Page 3, where we've been highlighting a few preliminary comment that we think it's important to bring to your attention. And certainly, the first headline that I want to comment is the fact that despite, Pam, what you rightly called this unprecedented year 2020 with the COVID crisis, we are going to deliver a strong financial performance. We are today revising what, I would say, again, our guidance for adjusted EPS. We are now targeting for 2020 $5.10. We were before today targeting between $5.05 and $5.10. And if we deliver this guidance, that will mean an organic growth of about 6% of our adjusted EPS. I note that this is not that far away from our objective in the normal year, I would say, of growing this adjusted EPS organically by at least 8%. Now when we look at revenue versus our last guidance, we are at the same level. There are pluses and minuses that are offsetting each other. We have the Indonesian market that has been a bit better and that is, of course, helping us. And in front of that, we've seen the Philippines market being impacted by flood and typhoon. And also some potential impact coming from new restriction, new lockdown measure in Europe, although at a much more limited level than what we've seen in April and May. It is very clear that if we manage to deliver this strong performance in this very tough year, it's thanks to the very good growth that we are going to generate on IQOS in 2020. And Q4 is going to be another quarter of strong growth to lead us for the full year 2020 to volumes of between 75 billion and 76 billion stick, both for shipment and in market sales. To get there, of course, we are going to deliver a very strong Q4. We're going to be nicely above 20 billion stick. It's going to be a record high for a quarter for IQOS. And we expect very good growth coming from all our key markets: Japan, Eastern Europe and Russia. We expect on this market growth to be very nice year-on-year on -- in a sequential basis. We also expect in Q4 to reach for all these 3 big markets, Japan, Russia, EU, all-time high market share for IQOS, and that will be nicely illustrating the fact that throughout the year, we've been growing very nicely in all these markets even if, for some of them, we've seen some volatility because of seasonality or COVID impact, notably linked to the illicit trade. We finished the year, of course, in a very good position to enter 2021 and reach our objective of 90 billion to 100 billion stick. Now I want to say a word about the excise duty because we are in December -- November, December. This is a big period of the year in terms of government deciding excise duty evolution. And what we can say is that for the time being, the only material, unusual or unplanned increase that we have seen is actually in Russia with a 20% increase. Apart from that, the increase that has been decided for October in Japan was in line with the medium-term plan of the country. There was nothing new there. We are still waiting for the decision in Indonesia in terms of excise duty evolution for 2021. And I would say, in the opposite direction, actually, we have seen both France and Australia announcing a much more reduced increase of excise duty for 2021 versus all the years that we have seen before. Now I think the real good news of what we've been seeing so far is that in all key markets, we see the differentiated treatment between combustible cigarettes and RRP being maintained. That has been the case in Japan, that has been the case in Russia when these 2 countries have been announcing the evolution of their excise duty system. And it's, of course, very important for us. We believe that on the long term, this differentiation is going to stay. And notably, as we see growing knowledge and understanding of the fact that RRP in general and heat-not-burn, in particular, are much better product than CC. And I would like to take 2 examples of recent decision that we have seen in key market for us less than 3 months old taken by regulators or published by government that show that there is this growing understanding of the fact that heat-not-burns are better product. The first one is in Germany, where the Bundesrat has been changing, amending the tobacco law to recognize the reduced formation of toxicants. And this has been driving a different treatment in terms of outside advertising ban between traditional cigarette and heat-not-burn and vaping offering. Another example is Japan, which recently has been publishing -- the Ministry of Health has been publishing a study on secondhand smoking, which is the impact of people around a tobacco user, and clearly differentiating combustible cigarettes and heat-not-burn and vaping and justifying a different ruling for indoor usage between RRPs and combustible cigarettes. I'm now moving to the shareholder return, and you know how strongly committed we are to shareholder return. I don't think I need to repeat our unwavering commitment to the dividend. But I'd like to speak about share buyback. Actually, we were contemplating before the COVID crisis burst out at the beginning of 2020 options around being back on share buyback with the further rapid growth of our financial results and cash flow generation and the strengthening of our balance sheet. Quite obviously, with the crisis, we put this reflection on hold. But we hope that in 2021 if, indeed, we have the crisis of the COVID abating and if we resume this strong growth in financial results and cash flow generation and we continue to further improve the strengthening of our financial situation, we're going to be in a position to resume considering option around buyback. Last element I wanted to share with you, we are going to enter in the coming weeks 2021, and we're going to continue our exciting journey through this year. We thought it was the right moment to share with you our strategic priority, the key initiative and the key action that we are planning for the medium term, and we will do that during an Investor Day that we will hold on the 10th of February 2021. And we are really looking forward to this day, where we'll be sharing a lot about our ambition to unsmoke the world. That's it, Pam, for my preliminary comment. I'm super happy to answer your question now.

Great. Thank you.

[Operator Instructions] So Emmanuel, you touched on this in your opening remarks, but I wanted to ask further about your midterm financial targets provided at the Investor Day 2 years ago. At the time, the company anticipated achieving at least 5% top line and at least 8% earnings CAGR from 2019 through 2021. And following the challenges faced this year due to coronavirus, how are you thinking about the key headwinds or tailwinds that can influence your growth prospects and ability to deliver on these targets over the coming year?

Yes. Thanks, Pam. Well, quite obviously, we've been putting on hold this objective for 2020 because of the COVID crisis. And notably, of course, we've been impacted severely on the possibility to grow the top line because of what has been happening in all our key markets, in duty-free and in some emerging countries, which have been very difficult because of this crisis. I note, nevertheless, that we managed to maintain a very strong growth on IQOS, which is certainly the sign of the very good strength, I would say, of our proposition around IQOS and around our RRP ambition globally. And when it comes to the adjusted EPS progression, I noted in my preliminary remark that, actually, with about 6% growth organically, we're not that far away from the 8%. And if you look at the combination of 2019 and 2020, we are, with this guidance of 2020, targeting about 8% growth if you take the 2 years in combination. Now when we put this crisis behind us, and hopefully, it's going to arrive, the sooner, the better, through 2021, we clearly flagged the fact that it is our ambition to resume our growth ambition for revenue growth and for growing our adjusted EPS. Clearly, the very good performance of IQOS in this terrible crisis is -- bodes very well, I would say, for what we're going to keep doing with IQOS once we've put this crisis behind us. And then regarding our combustible business, we will, of course, be in a more positive and favorable environment when the crisis is over. So with that, with the capacity that we are showing in 2020 on improving our margin despite volumes that are going down, we are showing the capacity to grow in the future nicely not only the revenue, but even more, and this is our ambition, our adjusted EPS. And that's what we will target as soon as we resume normal course of business, I would say.

And actually we'll hear more at the Investor Day, but now that we're approaching 2021, which is the end of the time horizon for your midterm target, how are you thinking about the next phase of growth starting in 2021 and the following years?

Well, absolutely, Pamela. I think you will have to be a bit patient and bear with us, I would say, and we will elaborate a lot at the time of the Investor Day on outlook for growth and what's going to be the driver and the priority. But I think what is happening in 2020 is already giving a big and nice hint into what we want to do. It's going to be, of course, about growing further at a very high speed the IQOS business. We have started to enter into a new cycle on the RRP business. We are going to enrich our offering. We mentioned that. We have started to do that in terms of devices. We have started to enrich our offering in terms of consumable as well. We have HEETS. Well, we have Marlboro in Japan. We have a premium reference for HEETS in Russia. Now we have Fiit. We have Miix. So we are also launching new references. So we're going to nicely broaden the spectrum of our offering for the consumer. We, of course, want to enter into new markets. We want to develop other RRP categories. So we are launching IQOS VEEV. We have ambition in the vaping category now that we will also have ambition in the nicotine pouches category. So you should expect us to develop a thing in that direction. And then there will be, of course, next to all our RRP, fantastic outlook for growth. There will be the maintenance, the protection of leadership in CC with possibly some easy comps notably coming from duty-free and maybe some markets such as Indonesia that could show some improvement after a very tough year 2020.

And one of the standout metrics this year has been the company's operating margin expansion, and it seems to be one of the main drivers behind your updated guidance today. So can you discuss the key drivers behind the greater efficiencies and operating leverage that you've realized? And should we expect operating margin to continue to expand? Or have there been some investments that were deferred into next year?

You're right. I think that with the very strong growth of IQOS that we managed to maintain despite the environment, for me, the margin improvement, and I really urge people to spend time on that, is a big element because it is showing, I think, 2 things. First of all, why IQOS and RRP is a great business because now that we start to have more critical mass that we have made the early necessary big investment. We start to amortize these investments. We start to harvest all these investments. Fundamentally, we have with heat-not-burn a great business. We know that the gross margin on the HTU consumable can be even higher than on CC. We are managing the commercial engine in a more digital manner. We're going for more digitization, and that is making the whole model more efficient. So we really have a very powerful driver coming from the growth of this business, which is not only making an absolute difference in terms of impact on public health, but it's also potentially a better business in terms of margin than the CC business. And then on top of that, we are also working on our efficiency, on our cost, and we've been certainly simplifying, using more digital, reviewing the way we were operating. When it comes to our manufacturing footprint, we also have been working and generating significant savings. So for all these reasons, we believe that we have still some leeway to continue to improve operating margin in the future beyond 2020.

And so now we're starting to see a rise in COVID cases and increased restrictions in many countries over the past several weeks. To what degree are these measures factored into your outlook for the remainder of the year?

So clearly, what we are coming up with today in terms of revised guidance is taking our understanding of the impact of lockdown and more restriction as we have seen it at the end of November. So I don't know what can happen in addition in December, but we think that we have taken here into account really what we've seen in November. And I can report that we've seen some impact, notably in Europe, but much more limited, much more limited than what we've seen in April and May. So that's why we are able to revise upward the guidance, taking into account this potential impact coming from more lockdown or more restriction in some market and notably in Europe.

And then shifting to IQOS specifically, what have you learned from your experience in 2020 as it relates to the reduced-risk efforts and IQOS strategy? And how have this year influenced your approach to managing the reduced-risk business?

I guess some good has come out of the bad. So in front of that crisis, we've had to react very rapidly and very strongly. So we had, of course, on the agenda, a strong plan to invest on a much more digital commercial model and to develop a digital customer experience, digital trade experience to really make our tool for converting, acquiring new IQOS user and then keeping them within the IQOS universe very, very efficient. Clearly, we've been dramatically accelerating this effort because we know we lost direct contact in many countries with smokers. So it was very difficult without the help of digital to reach out to them and convert them. And I think there is certainly more we can do in the future, but we've been making a very good inroad in that respect. We have started, as I said, to nicely decrease the cost of acquisition, the cost of retention for an IQOS user. There is certainly more we can do. So it's not the end of the journey. There will be more efficiency generated in the future. We're going to keep sophisticating our digital tools. I would say that, certainly, what we've been learning -- or we have accelerated our learning through the crisis.

How are you thinking about the level of investment behind reduced-risk products in 2021? And what types of initiatives will you be prioritizing? Has the shift to digital changed your approach to invest it?

Pam, when you have a business with such a high growth and such a potential for further growth, of course, you invest behind it. And it is true that in 2020, we've been holding back some of the investment because given the situation of the market, investing would have had limited impact on our commercial performance. Hopefully, we're going to be back to normal in 2021. Let's see how things unfold. And when it is the case, clearly, we're going to reaccelerate in terms of investment. There is so much things we can do in terms of opening new markets. As I said, enrich the offering, segment the market, bring that in an efficient manner to the customer, make sure that this is understood by our customers. And therefore, there is a lot of investment that we can make with a great return. Having said that, you also have to take into account what I said before, which is we are also going to keep improving the efficiency of our investment. We're going to keep decreasing further the cost of acquisition and the cost of retention. We are generating efficiency through the organization. So even with accelerated investments, because that's what we want to do, we believe that we should be in a position to grow our top line at a faster pace in the foreseeable future than our SG&A globally, therefore, generating one nice driver for more profitability improvement, back to my earlier comment on do we have more headroom to improve profitability.

And then as you look forward over the next 5 years, how do you expect the reduced-risk category and your own offerings to evolve? You mentioned that the company has -- is looking to enter into the nicotine pouch category. So where are you in developing that product? Or is that an approach you would take through partnerships?

That's obviously Pam, a great question, but that -- a comprehensive answer will probably require the end of our session together. And here, again, you will certainly need to be a bit patient and bear with us until our Investor Day. But a few, I would say, answers already -- and probably my starting point is that 5 years ago, IQOS was hardly existing. We were at the very beginning of launching IQOS. Look at what it is today. I mean we're going to generate 75 billion to 76 billion of stick this year. It's an incredibly big business, where we are growing fast. So you can imagine the kind of ambition that we can have after the journey that we have already delivered for the past 5 years, the ambition that we can have 5 years down the road. And the first element that we should all have in mind is that we should target all collectively because it would have a massive impact on public health. That's the general understanding around RRP, in general. And of course, heat-not-burn category, in particular, will have been massively growing. And that -- all the discussion on how better it is versus combustible and so on will have disappeared, and people will say, yes, that's a great alternative. It's a much better product. It's having a much better impact on earth, and smokers should really switch to that if they don't want to quit. So that's going to be creating a very favorable environment. Then we are convinced that heat-not-burn is going to remain the biggest and most interesting category. I said it, we are going to broaden immensely the spectrum of what we're going to do in this category. More devices. We're going to cover from super premium to certainly simpler offer targeting emerging markets in terms of devices. We're going to enrich the universe of consumable. And therefore, we're going to keep growing massively this heat-not-burn category. Next to that, we also believe that there is space, there is room for vaping category, and we're going to invest. IQOS VEEV is the first thing. And then, yes, as I said, we are going to develop certainly nicotine pouches in markets where it's relevant. It's going to be an interesting market, but it's going to stay relatively small, we think, versus heat-not-burn as an example. But we will elaborate on that on the 10th of February. But clearly, the next 5 years are going to be super exciting.

Okay. And how are you thinking about IQOS' progression in markets like Korea and Russia, where we saw sequential declines in market share in the third quarter? Obviously, there is some seasonality and inventory movements that could skew the performance from quarter-to-quarter, but how much growth opportunity is left in those markets?

Well, thanks for the question, Pam, because I would like to really clear any misunderstanding. And notably on Russia -- and clearly, Russia and Korea are 2 different markets with different situations. Russia is an outstanding market for us. I mean we're going to grow IQOS by more than 50% this year in this market. It's just growing incredibly fast, and we're going to finish the year, I said it for Japan and the EU, it's going to be the case in Russia, with an all-time high market share in Russia. You said it, in Q3, there was some market share impact because of seasonality and also because of impacting to the COVID and how you take into account illicit trade. But that is a very fast-growing market for us for heat-not-burn. And we have been very successfully launching lil SOLID in Russia. We are very pleased with the start of a lil in Russia, and the level of cannibalization seems to be limited. So that's really new smoker that we convert to heat-not-burn because lil is cheaper and is coming as a simpler offering, which is meeting its customer. So Russia is a great market. And I can tell you, despite the excise duty increase in 2021, we have a very nice ambition for next year in Russia. Korea is a different situation. In South Korea, it's not a problem for the IQOS', I would say, performance. It's a problem of the category because the authority are not convinced that heat-not-burn and RRP globally are better alternative to combustible cigarette. They've been publishing a number of reports on that. They've been reducing, because of that, the gap between CC and heat-not-burn in terms of excise duty. And that has been weighing down the growth of the category because clearly, authority do not want heat-not-burn and RRP in general to grow fast in the country. But it has -- really here, it's linked with the government position and not really with IQOS. So I hope between Russia and Korea I have been able to clarify the situation on these 2 markets.

That's helpful. And now IQOS is available in over 60 markets with recent launches outside of the OECD. What kind of trends are you seeing in terms of consumer adoption in emerging markets like the Philippines? And how are you thinking about adoption and trial in markets where affordability may be a greater hurdle for consumers?

You're right, Pam. So we've started very nicely in the OECD market. I mean we have a few non-OECD markets like Russia which are doing very well already. But our ambition is to unsmoke the world globally. So it means that we also want to be very performant and develop RRPs in general, heat-not-burn in particular in emerging markets. We are starting in a few markets. You said it, we started in Philippines. But for the time being, it's on Manila. And of course, we start with people with -- the most affluent people, the ones who are able to access to the IQOS premium offering. There is probably a significant thing that we can do there, and we are starting gradually to ramp up. But certainly, if we want to cover more broadly the emerging country, we will need to come with devices that are going to be cheaper, simpler, more value for money experience. The consumable will be different. It won't be the same flavor and overall sensorial experience. But we're going to put that together to be, I would say, relevant globally for all the population, I would say, in smokers in emerging market. When I look at the future, that's obviously one very good area of growth that we're going to pursue, and it will certainly be part of our ambition for the coming years. But let's be very clear, we have ambition to go in emerging market. I want to draw your attention on one point, and it is a fact that in emerging market, at least in many of them, there is this per stick consumption issue that we need to address. And we need to find the way to develop our devices and the usage of devices in this specific market, where, clearly, people are not consuming necessarily by the pack, but by stick. And we need to make experiment to test how we can address that, how can we make -- how can we put together a relevant proposition for people consuming by the stick also having access to heat-not-burn. That could go through on-premise consumption, for instance, but we are making a number of tests about that.

And just switching over to the U.S. market. IQOS has been in the market for about 1.5 years at this point or over a year. Can you comment on how it's tracking versus your expectations? And have there been any surprises or differences in the markets -- in the U.S. market versus international markets?

As you know, Pam, Altria has a license to market and commercialize the product. So I will have to limit my comment there. I think the strategy is to go gradually, starting by a few key cities. I think that it is important that we get the PMTA for IQOS 3 to come with a better -- or the best offering that we can have today in terms of devices. And then it's going to be a gradual ramp-up, but you have to discuss that in detail with Altria.

And any thoughts on where we might hear an update from the FDA on IQOS 3 PMTA approval?

We're hopeful that this can come in the short term, but I don't have any information about it that I can share today.

Okay. And switching over to combustibles. Can you talk at a high level about how you're thinking about industry volumes for 2021 and the pace of recovery in emerging markets in particular?

Yes. In particular, because we know that emerging markets, when there is a crisis, are hit in the hard way, and they are more impacted than mature economy. And once again, this has been the case. We also know that they have the capacity to rebound stronger. And therefore, that's what we're going to see when this crisis will be coming to an end. Do we see many of this market? I can mention many of them in Asia, in Africa, Middle East, Eastern Europe and of course, Latin America that have been quite hardly impacted by the crisis. Are they able to really rebound as all the restrictions are being removed and that people are back to their normal life? There are a number of better sentiment around emerging markets recently. And I think we've seen many of their stock exchange performing very well. And the fact that their economy could rebound nicely after the COVID, let's see what happen. But that could provide, of course, a nice rebound for our own business. As you know, in many of these markets, we've been impacted quite negatively. I would say, for us, certainly, a nice contributor to a rebound could be duty-free as well because we've been losing the vast majority of our volume in duty-free. Any improvement because a vaccine would be available, people being back on business trip -- I'm not talking, of course, of being fully back to normal because probably this is going to take many years because -- or at least many quarters before we get there. But any rebound versus this very depressed situation would be good news for us. So I think we can expect once the crisis is over -- and again, let's not necessarily assume that it's going to be the case on the 1st of January 2021 because it doesn't seem to be the scenario. But when things are getting back to normal, yes, there will be a rebound and easy comps that we will be facing at a certain point in time. Let's see how it materialize.

And can you provide an update on what's happening in Indonesia and the implementation of the minimum retail selling price and the excise tax discrepancy in the market?

Not much new news, I'm afraid, on that front. So I mentioned the fact that we don't know yet what's going to be the excise duty increase for 2021. That has not been announced yet. We haven't seen the implementation of the minimum retail selling price being enforced. So we're hopeful it's going to happen in 2021, but that won't be done because of the sanitary situation because the end of -- before the end of 2020. And therefore, we are still in this market where we see some of the market benefiting from a reduced excise duty in what we think is an unfair treatment of some of the players. And therefore, a market that is difficult for the time being, even if, as I mentioned, the overall market improved a bit globally, and we benefited from that in the past few weeks.

And you did touch on excise taxes in your earlier remarks. But, I guess, how are you thinking about the outlook for excise tax increases more broadly for next year? And how does this influence the outlook for pricing?

As I said, so Russia, of course, has been standing out as an unplanned and unusual big increase with 20%. We haven't seen anything else of that magnitude and for a significant market. We'll know by the end of December exactly what is the situation. For us, what is important is to see in big market this differentiated treatment between CC and RRP being maintained. Now quite obviously, when we have a big excise duty increase, that is creating some headwind in terms of price increase. And what is happening in Russia is going to have some impact as what has been happening in Indonesia in 2020 has had some impact on our capacity to increase price. So we have to take this headwind on the short term. We have to see what are the economic impact in 2021 of the crisis. But fundamentally, we believe that we keep a very strong capacity to increase price on the long-term on CC. And not only on CC. By the way, we have probably a relatively untapped potential on heat-not-burn as well to increase price. But we believe that in the long term, that's going to remain together with volume growth, optimization and strong growth on the IQOS business, that's going to be -- and that's going to remain a nice driver for our top line growth.

So you touched on share buybacks in your opening remarks and I just wanted to follow up on that. So just to clarify, what would be the timing on potential for reintroduction of share buybacks? Given the way the business is performing and your expectations for next year, would that be more of a second half 2021 possibility? Or should we expect it beyond next year?

On that one, Pam, you will allow me not to be more explicit than what I said, i.e., we are hopeful that in 2021, we're going to see the end of the COVID crisis. And if it is the case, we are going to target resuming strong growth, both in financial results, in cash flow generation, and we're going to keep increasing the strength of our balance sheet. And at that stage, we would be in a position to reconsider option around buybacks. So I'm not saying it's for the very long term. I'm saying, hopefully, it's going to be possible to look at option in 2021, but I cannot be more explicit at that stage because we need to see what's going to happen next year.

Right. That makes sense. And a question from the audience. So over the next 5 to 10 years, can profit for cigarette in emerging markets outgrow inflation in those markets overall?

Well, I -- we can be hopeful that with the economy of these countries improving and the GDP growing fast, you will have more and more middle class, more affluent people and people able, therefore, to go for more premium offering. And especially, of course, if we -- so it's true for the CC business. But if we manage to bring many of these smokers to our heat-not-burn business, we're going to bring them a great world of premium offering with absolutely unique consumer experience, and we are able that more and more on this population are going to be able to afford more premium price positioning. So I would say the answer is yes. That's something that we should be targeting, acknowledging that for the time being many of these countries are facing a tough economic situation. But that does not necessarily bodes for what's going to happen on the medium and long term.

And have you seen any material impacts from the EU menthol ban on the combustibles market?

Well, I don't know what the authority were expecting from that. But if it was for people to quit, it didn't work. I would say that broadly, 85% plus of the people have switched to other CC alternative, and probably about 15% and probably a good half of that has been switching to heat-not-burn or globally RRP alternative. But that has been the result that we've seen in Europe.

And another question from the audience. So would it be too optimistic to target annual profit growth in emerging markets of mid-single digits?

Well, so I don't know whether we're talking about revenue or that's probably the case. The question is on revenue?

Profit growth.

Profit. So bottom line, I suppose. Well, I think that we are extremely ambitious for our growth in emerging markets. The great news, I think, with PMI, that we can be extremely ambitious for growth in mature market as well because of IQOS. But we certainly don't see a kind of 2-speed growth in the future. We think that we can have 2 powerful engine to our growth in the coming years. One being obviously the mature market, the developed countries with further development of IQOS. And I don't need to come back on why IQOS is a great business potentially in terms of profitability. But certainly, in the emerging country, there is this possibility to continue to do well on CC and fully, as I said, with capacity for more people to go for more premium offering. And at the same time, to develop heat-not-burn offering and drive also nicely the business. So we certainly don't see emerging country as a drag, but as a powerful contributor to our overall ambition on growth on bottom line.

And just coming back to your reduced-risk strategy. Can you give an update on your partnership with KT&G? You recently launched lil SOLID in Ukraine and Russia. What learnings have you had about the market or your partnership in general? And what are the plans going forward?

Yes. Well, I think this partnership with KT&G is really with this view that the time has come when we need to enrich our offering for the consumer both, I repeat myself, in terms of devices, but in terms of consumable as well. We are, of course, going to come with more innovation ourselves in terms of devices and consumable. But it was great to have this partnership with KT&G, which was coming with a product that is simpler than IQOS, but which is a good experience, more value for money, simpler and that is fitting very well in a number of markets. Russia, Ukraine for lil SOLID were 2 good markets. And as I said, the confirmation that we have, which is really nice, is the fact that when we launched lil SOLID, we see really for most -- the majority of the customer no cannibalization, but really new smokers because they were at a different price point, if you want, exceeding the category and moving into heat-not-burn. So I guess, we are both happy with our partnership. And so far, it has been answering our expectation.

And is there any risk to IQOS pricing in markets where you've launched products with KT&G?

No, we don't think so. As I said, it's really -- the 2 experiences are not the same. So you're going to talk to different population, and we are here -- we talk about -- let's not forget. It's about pleasure, it's about indulgement, it's about social moment. And we are here coming with different product that are proposing very different experiences and self benefit. So they're complementing each other well. I cannot say that there is 0 overlap, but we think it's going to be quite reduced.

Great. And we're just running out of time. So I wanted to thank Emmanuel and PMI for participating in the conference.

That's really been our pleasure, Pamela. Thank you.

Thanks. And I hope that everyone has a healthy and happy holiday season and end of 2020. Thank you all for joining in.

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