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

Welcome to the Philip Morris International Conference Call to discuss the offer for Swedish Match AB. Today's call is scheduled to last about an hour, including remarks by Philip Morris International management and the question-and-answer session. [Operator Instructions] I would now like to turn the call over to Mr. Jacek Olczak, Chief Executive Officer. Please go ahead, sir.

Hello, everyone, and welcome. I am Jacek Olczak, Chief Executive Officer of Philip Morris International. I am joined by Emmanuel Babeau, our Chief Financial Officer. It is our great pleasure to be sharing some very good news with you today. I first direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements. The slide and script for the event will be posted at www.pmi.com/investors. We are very excited to be announcing the recommended all cash offer for Swedish March of SEK 106 per share. This would deliver a major acceleration in our transformation to becoming a smoke-free company and further position us to lead the transformation of the wider industry. This offer aims to join 2 leading smoke-free players to create a global champion. The visions of our 2 companies are aligned in working towards a smoke-free future without cigarettes. And this combination would accelerate our progress by switching more adult smokers to better alternatives that would be achieved as a separate companies. Our respective geographic footprint, R&D, commercial capabilities organizations and talent pools and excellent business and cultural fit. We are tremendously excited by the prospect of Swedish Match becoming a member of the PMI Group and the future together as one organization driving towards an aligned smoke-free, goal. If completed, we would have a comprehensive global smoke-free portfolio with leadership positions in heat-not-burn and the fastest-growing category of oral nicotine with potential for accelerated international expansion. Swedish Match has a full integrated platform focused on premium brands, which would fit very well with our business. An important part of the compelling rationale for this deal is the large, attractive and growing U.S. smoke-free market. Swedish Match already has a leading nicotine pouch franchise with ZYN, which we would plan to further grow and develop together. Moreover, it has a substantial operational platform in the U.S. which would help us unlock the significant opportunity across other smoke-free categories over the coming years. With further strength in smoke-free products in Sweden and other Scandinavian market and our intention to expand the portfolio into new geographies is what presents a highly complementary combination. We expect this complementarity would immediately benefit our top line growth profit. We are already a growth company, as demonstrated by the performance of our business over recent years, notably driven by the success of IQOS. By far, the world's leading smoke-free brand. The addition of Swedish Match's fast-growing business would further enhance the combined company's trajectory. Moreover, we will target significant revenue synergies over time from portfolio expansion in the U.S. and geographic expansions in new and existing international markets. The broader financial attractions of this bill are also clear. We expect the combination to deliver accretion to our OI margins and our adjusted diluted EPS. The significant boost of our operating cash flow would also include meaningful U.S. dollar income, improving our currency profile, combined with a strong strategic fit, this offers significant shareholder value creation over the mid and long term. Turning briefly to the details and time line of the proposed transaction. The equity value of approximately $16 billion and implied enterprise valuation of just under 17x 2023 consensus EBITDA represents the strategic acquisition of a fast-growing high-quality consumer staples business with excellent profitability and the potential for significant revenue synergies. The offer is recommended by the Swedish Match Board of Directors, and we expect the transaction close in the fourth quarter of this year, subject to Swedish Match shareholder acceptance and the necessary regulatory approvals. You will find further details in this morning's offer press release. Swedish Match has built an excellent smoke-free business with notable achievements towards the world without cigarettes. Over 2/3 of its revenues and around 3/4 of operating profit are from smoke-free products. This reflects strong positions in the U.S., which also makes up almost 2/3 of revenues and in Scandinavia. This majority to U.S. exposure, primarily in smoke-free products is notable due to Swedish Match driving the growth and development of the U.S. nicotine pouch category over recent years with innovative products and first start execution. This impressive delivery from Swedish Match management and employees have provided a robust leadership position in the fast-growing U.S. and global nicotine pouch category, where we have 0 or negligible presence. Nicotine pouches have strong appeal to adult tobacco consumers, providing convenience, taste and satisfaction with tobacco, inhalation or the need for a device. In the U.S., the phenomenal performance of ZYN has capitalized the category, which expanded volumes by around 80% last year alone. Despite the entry of large competitors, ZYN retains the #1 position with 64% share of the category in 2021. This is also the case on a global basis where the category is just starting or not present in many markets. The potential here is very exciting as ZYN continues to develop innovative products and strong brand equity while marketing responsibly to adult tobacco users. In addition, Swedish Match's leading and premium-focused brand portfolio in Scandinavian snus with almost 60% category show would provide an excellent platform for further growth both in this category and the Scandinavian nicotine pouch category. An established presence in the U.S. smokeless tobacco category completes the high-quality smoke-free business. Swedish Match is the fast-growing and highly profitable company. The success in nicotine pouches has been a notable driver of financial performance over the past 3 years. The currency-neutral sales growth CAGR of 17% from product categories is impressive by any standards in consumer staples and includes robust volume growth. Over the same period, margin expansion of 570 basis points and an outstanding 20% CAGR in operating cash flow also demonstrates the benefits this combination can bring to our growth, profitability and cash generation. Our mission of delivering a smoke-free future aligns perfectly with Swedish Match's drive for the world without cigarettes. The compelling rationale for this proposed transaction includes an acceleration in our journey towards becoming a smoke-free company. Our ambition is to reach more than 50% smoke-free net revenues by 2025 as compared to 30% in the first quarter of 2022 and essentially 0 in 2015 when we launched IQOS. The combination with Swedish Match would enable us to become a smoke-free faster with over 3 million adult users of Swedish Match smoke-free products predominantly in the U.S. adding to the around 18 million IQOS users at the end of March, excluding Russia and Ukraine. An important aspect of this proposed combination is the opportunity in the U.S., which is the world's largest market for smoke-free products. We aim to provide better alternatives to continue smoking for the around 34 million adult Americans who smoke. Firstly, we would gain immediate access to ZYN in U.S. nicotine pouches and intend to strongly support its growth and development. Secondly, with over 500 salespeople access to over 150,000 points of sale and fully fledged manufacturing and support functions, Swedish Match has a substantial U.S. operational platform. We would provide an excellent base on which to build our long-term future in this critical market seizing the opportunity across smoke-free categories. We also note Swedish Match's diligent regulatory stewardship and scientific capabilities and demonstrated by the successful MRTP application for General snus. To this day, IQOS and General are the only smoke-free products to receive MRTP authorization, which emphasizes the quality of our respective product portfolios and expertise. We see a bright future for a combined business in the U.S. with Swedish Match's existing operations bolstered by our own development and commercial experience allied with our capacity to invest in smoke-free growth. I would like to further elaborate on the size of the opportunity in the U.S. smoke-free market. The total U.S. nicotine industry is already the world's biggest excluding China, with retail value representing around 30% of the international market. This is even more striking for a smoke-free product with the U.S. alone equivalent to more than half the retail value of all other countries combined, excluding China. This means our directly addressable market for smoke-free product would increase by around 60% with this transaction. In addition to its size, the U.S. smoke-free market is also growing strongly and comprised around 23% of total nicotine volume in 2021. While influenced by volatility in the e-vapor category, the smoke-free retail value CAGR of around 13% since 2018 also demonstrate the ongoing shift of American adult smokers to better alternatives. For our global smoke-free business, the addition of Swedish Match's innovative oral nicotine product, which provide us with a comprehensive global portfolio. In heat-not-burn, our continuous investment and innovation of a more than a decade has built the world's leading smoke-free brand with IQOS. As our investors know, the growth prospects for IQOS remains very exciting. With the latest major innovation of IQOS ILUMA showing exceptional early results in launch markets. If completed, we would now add Swedish Match's portfolio of oral nicotine products to this, with fast growth, attractive margins and leading positions in the U.S. and Scandinavia. Swedish Match's portfolio also includes Scandinavian snus, the smoke-free product was the largest body of epidemiological evidence on harm reduction over decades. Allied to our emerging presence in e-vapor with IQOS VEEV, we would have a strong position with brands across all 3 major smoke-free platforms with an integrated consumer journey catering to different consumer taste preferences, needs, segments and occasions. In addition, a combined and complementary oral development platform, building on PMI's expertise could work on a pipeline of further innovations to accelerate the development of the oral nicotine category and non-nicotine offerings. Another core pillar of the rationale for this deal is the potential of nicotine pouches in international markets. We see strong resonance with legal age smokers for the product features of convenience, specific use occasions, taste and satisfaction. As mentioned at our CAGNY presentation in February of this year, we expect the nicotine pouch category retail value to grow by 30% to 40% CAGR over the next 5 years. In volume terms, we expect the rest of Europe, including geographies such as the U.K. and Central Europe to overtake fast-growing Scandinavia in the next 3 years. In addition, we see significant promise in low and medium income regions, including South and Southeast Asia, where simplicity, affordability and ease-of-use are important attributes for adult smokers. If the transaction completes, this presents a significant opportunity for ZYN and other Swedish Match brands to grow substantially and accelerate the category progression beyond this projected growth rate. We are very optimistic this can be achieved, leveraging the extensive IQOS international commercial infrastructure and know-how and complementary development capabilities I just mentioned. We are ready to invest in the category as we have done for heat-not-burn to expand and develop the product portfolio and expand and grow in new markets. We also see great potential to grow in Scandinavia leveraging the combined strength of our respective nicotine offerings. A key principle to this offer is Swedish Match's strong commitment to responsible marketing, which PMI shares and which is critical for all nicotine product. Swedish Match is a sophisticated and long-established company with a long-standing focus on ethical business and commercialization practices. Rigorous standards include clear product information and the education of employees, retailers and distributors. Swedish Match targets full compliance with its policy to exclusively markets to adult consumers. Regulation has an essential role to play for nicotine pouches, where regulation is still being developed in many markets we advocate for strong measures, which maximize adult smoker switching while helping to minimize the risk of unintended deals. This includes differentiated treatment of the category with regards to taxation and communication with adult smokers in order to accelerate tobacco harm reduction. We believe nicotine adult smokers -- we believe nicotine pouches have the greatest harm potential reductions of all smoke-free alternatives, including snus. A recognition of the part flavors can play when responsibly marketed in switching more adult smokers is also important. However, this must be combined with robust measures to help prevent underage and other unintended use of the product. In the U.S., we support efforts by federal and state governments to further strengthen youth access prevention measures following the success of Tobacco 21 and we are committed to working with retail partners to ensure smoke-free alternatives for adults and not sold to underage persons. We remain committed to delivering a smoke-free future and we believe that in many countries, this can be achieved within 10 to 15 years with the right support from regulators and civil society. In Sweden, we are hopeful the government and other relevant stakeholders will enact the right regulation to enable the phaseout of cigarettes by 2030. I will now hand over to Emmanuel to cover the financial aspects of the transaction.

Thank you, Jacek. This is also a compelling deal for our shareholders. The addition of the current Swedish Match business would enhance our organic top line growth profile. What's more, the significant potential for revenue synergies in the U.S. And internationally, which, Jacek explained, would come on top of this trajectory. Swedish Match also has attractive operating margin, which would be accretive to PMI's current operating income margin before synergies. This proposed transaction is about complementarity rather than overlap. Therefore, we do not expect material cost synergies, but do assume a modest procurement savings would be achievable. Critically, the proposed combination represents a substantial savings in cost and time for entering the U.S. smoke-free market compared to an organic route. We expect this combination would be nicely accretive to our adjusted diluted EPS with low to mid-single-digit accretion in the first year from closing before synergies and excluding onetime deal-related costs and the amortization of acquired intangibles. Given the increasing magnitude of such noncash items, we now intend to exclude the amortization of acquired intangibles from our non-GAAP adjusted measures. We would also expect healthy returns on capital and target a return on invested capital on WACC crossover within 5 years assuming a weighted average cost of capital of around 7%. Importantly, our cash generation capacity should also expand as demonstrated by the $0.7 billion Swedish Match operating cash flow in 2021, growing at 20% compounded annual growth rate since 2018. This includes substantial U.S. dollar cash flows. And if completed, this transaction will increase the proportion of U.S. dollar revenue towards 10% of the combined group, which we would intend to grow over time as our U.S. business develops. I am pleased to report we have a comprehensive and robust financing package in place. This is an all-cash transaction with an envisaged blend of debt market and bank financing. Although we are announcing a major proposed transaction today, our balance sheet remains strong. We expect pro forma net debt to adjusted EBITDA of approximately 3x at the end of this year and to see quick deleveraging thereafter. We continue to target a strong investment-grade credit rating over time as a growing and highly cash-generative business. With regard to capital allocation, we remain firmly committed to our progressive dividend policy as a top priority. As previously communicated, we intend to grow our dividend annually while gradually reducing the adjusted diluted EPS payout ratio to around 75% over time. The rapid decrease in our payout ratio from 2020 to 2021 while growing our dividend is an example of how this can be achieved. Given our aim of deleveraging while continuing to grow our dividend, we have suspended our 3-year share repurchase program and expect to consider restarting once we have made sufficient progress on deleveraging. Turning now to our growth outlook as PMI stand-alone. We remain committed to our 2021-2023 CAGR target, excluding Russia and Ukraine of more than 5% growth in organic net revenues and more than 9% currency neutral growth in adjusted diluted earnings per share. To be clear, we expect to meet this target excluding any impact from this transaction. It is also clear that the attractive growth profile of Swedish Match and additional potential revenue synergies has the ability to provide future upside. Illustratively applying Swedish Match growth over the last 3 years would have added at least 0.5 points to our top line growth and almost 1 point to the adjusted diluted EPS CAGR on a pro forma basis before financing. While we are not providing any further update to our midterm growth outlook today, we look forward to updating you in the months following the close of this transaction.

Thank you, Emmanuel. Another essential component of this offer is the shared vision, purpose and values of our 2 companies as we work to phase out cigarettes. This is visible in the aligned approach to sustainability and ESG. With regard to product impact, the short drive for tobacco harm reduction, awareness building and a responsible marketing is critical. For example, both companies committed over 90% of the R&D spend to smoke-free products in 2021. We also both acknowledge and are seeking to address the environmental impact of our product. For the impact of our operations, eradicating child labor and reducing our carbon footprint, are further example. Critically, we have a shared focus on providing an inclusive and empowered working environment for all our employees. This will make due to the strong business and cultural fit of this proposed combination which we believe will bring attractive prospects for Swedish Match employees. Our keen focus on diversity, equity, common capital development and lifelong learning is a key component. We are proud of our status as a global top employer and our equal salary certification. Swedish Match has a complementary organization with a talented, dedicated workforce, excellent culture and a strong base of skills in Sweden. The U.S. and in oral, cigars and lights products areas across the world. We would intend to nurture this talent and provide additional opportunities as we grow together. As an important employer in its local communities and an established operator in its key markets, we intend to maintain the Swedish Match name and identity. PMI intends to continue and further develop all of Swedish Match's key locations, including manufacturing and global management of the oral nicotine category in Sweden. Our 2 companies have a history of positive collaboration and with Swedish Match as part of the PMI Group, we will look forward to working together once more. I will now conclude with our key messages from today's announcement. We are proposing to join 2 of the world's leading smoke-free companies to form a global smoke-free champion. We see a major current and untapped future opportunity for growth and harm reduction in the critical U.S. market. And we would be assembling a superior global portfolio of smoke-free products with a significant international growth opportunity for Swedish Match's oral nicotine offering. We would enhance our top and bottom line growth profile through this transaction and for investing in the combined businesses. We would be accelerating towards our ambition to be a predominantly smoke-free company by 2025 and a completely smoke-free company as soon as possible thereafter. This proposed transaction is financially attractive, with expected short- and long-term EPS accretion and attractive return on capital over time and enhance cash generation. The result would be significant value creation for our investors. In short, this is compelling for both sets of shareholders, both sets of employees the advancement of tobacco harm reduction and for wider societal stakeholders. Thank you, and we will now take your questions.

[Operator Instructions] We'll take our first question from Gaurav Jain from Barclays.

So I have a couple of questions. One is on potential divestitures. So in Sweden, and it obviously depends on how regulators define the market. But if it is defined as tobacco and not cigarettes and smoke free separately. Then it does appear to me that the HHI concentration will go from about 2,000 to 2,700, i.e., the market will move from medium concentration to a high concentration. So would you be faced with some divestitures in Sweden?

No. Actually we have a high ground -- we have a very tiny presence, frankly speaking, in Sweden with regards to the oral category as essentially we're not existing. And we are not the market leader when it comes to the cigarettes, if you want to look at the broader market. Worldwide, obviously, everything is after the regulatory approvals, but I don't expect that we'll have any major constraint challenge and so.

Sure. And a second question on the IQOS distribution or invest with Altria. So clearly, there is a lot of -- I mean there is clearly a conflict and how the 2 companies are interpreting the thresholds in that agreement. Can you just help us think about what could potentially happen now with IQOS in the U.S.?

Yes. Look, we have a number of discussion points with Altria. I would characterize it like that, and they're spanning from the outcome of the ITC ruling for the -- to date performance of IQOS. So I believe that we will find a resolution, which should be good for both parties. We also recently heard that Altria announced their plans to develop their own portfolio of products, Altria as their stake Juul-- I think smoke-free opportunity in the U.S., I mean it's actually a sizable opportunities for many participants, not just by one. So I will leave it like this.

Congratulations.

Thank you, Gaurav.

Our next question comes from Vivien Azer from Cowen.

So I think you guys have been pretty clear on your aspirations around lowering the dividend payout ratio to 75%, but given some of the investor questions that I've got this morning, can you be very specific about your intentions for the dividend? Is there any risk that the dividend would need to be lowered from its current level with this acquisition?

Vivien, you know what is our long-lasting position of the dividend. It's important for you as the investors and it's important for us, and we have on a number of occasions, through ups and downs of the business demonstrated a commitment to the dividend. What we are talking about is obviously over a period of time, we need to bring the payout ratio to something which is in the range of a more sustainable payout ratio and the manual referring to 75%, but this will be not plan from one quarter to another. I mean, we demonstrated in the past, how we can, over a period of time, bring it to the most sustainable level. Emmanuel, you want to?

No, absolutely. I think just to complement that. So we are crystal clear on the fact that we stick and with an unwavering commitment to our progressive dividend policy. So that means that for the dividend there is only one way, which is up. And when we refer to the 75%, we will give, and we don't put any pressure on when we get there, it's a kind of long-term vision. If you look at '21 versus 2020, in fact, in one year, we decreased by 10% the payout ratio when we still managed to increase nicely the dividend. So we still -- we are a high-growth company. We still are going to be a high-growth company and even more where we explain if we close this transaction. And therefore, we keep absolutely the same philosophy as the one we've shared so far with our investors. Absolutely. And for completeness and eagerness, we all know very well. Dividend is there, is the board decision, but we are aligned with our board than what we just shared with you.

Absolutely. Thank you for making that crystal clear for everybody. My follow-up question, please, is on your aspirations around vapor. It seems like from the press release, you're still committed to that. But just in terms of kind of the pacing of your investments on vapor, does this more diverse noncombustible portfolio change your approach to vapor at all?

No, it doesn't. I still believe that we still deliver actually that ultimately need to have combination of all known to us 3 platforms. I mean, oral, as we know it today and inhalable noncombustible platforms. Look, we need to look -- the way we look into this whole thing is around 1 billion smokers out there. And the thinking that they are like one person with the one preferences is absolutely one consumption. The market will have a lot of segments, subsegments, there will be different preferences by the change of behavior where I want to go from smoking, the satisfaction levels, the other attributes of the product convenience, affordability. Ultimately, you need to start building the portfolio, which will respond to all of the business. You all have a geographical differences and preferences. So I think that if you -- if we say and we're saying mid to long term, not just the next couple of years, I think we need to be prepared to have the full fledge portfolio across all products, which delivered nicotine in a much less harmful -- vastly much less helpful way than a traditional figure. You remember, you actually -- I know you should remember because you were the participant of one of our investors meeting at the very beginning of our consumer journey is obviously smoke-free journey. And we have presented very clearly at the time that ultimately, there was a room for all of these platforms, how do we deploy them at which stages of readiness of consumers, regulatory, et cetera, readiness. I mean, that's the different way. But ultimately, we need to have all platforms available.

Our next question comes from Owen Bennett from Jefferies.

And congratulations. Just sticking with the great question there. Obviously, a big opportunity with this distribution for, obviously, a broader RRP portfolio in the U.S., as you said. Could you just give us the latest on your vape, PMTA timing into the U.S.? And then with some interesting comments from the FDA on the Android approval around it could likely allow flavors with Bluetooth age-restricted technology. I was just wondering, will your PMTA you put into the U.S. be based on this new Bluetooth technology you're about to roll out?

Yes. We admit that the submitting our PMTA to FDA with regards to the P4 IQOS be like Q2 of -- in the first half of next year, Q2 of next year. And then we're also testing the remote locking of the device for the age verification authorization purposes. We'll see how do we play it ultimately with the submission to FDA. But I believe the technology is about to be able to be scalable and reliable. There are times that, on the one hand, you achieved, obviously, the objective of not letting this product go in the hands of underage people, but also don't unnecessary put the burden of adult smokers or adult users of the product. That is our plan. Q2 next year, we should be ready with the PMTA for the U.S. FDA.

Okay. Great. Then just one quick follow-up is how are you thinking about the broader asset base of Swedish Match's cigars and chewing tobacco and lights. Just some perspective there would be helpful.

I believe as you know, I guess, very well, I mean at Swedish Match put some time, effort and thinking on their view of the strategic fit into the cigars and what they could or should do about this business. I think the right call, in the due time we'll have the conversation to this margin. I mean I first would like to have an opportunity to listen to Lars and the CEO of Swedish Match and their management team and then cross-check our reviews on digital. And we'll communicate the decisions once we will be focusing on the parts of the Swedish Match. Other than that, there is no plan to divest the business as we've signaled it.

Okay. Very helpful. Congrats again.

Thank you, Owen.

Our next call comes from Bonnie Herzog from Goldman Sachs.

Congratulations on the transaction. You mentioned that you aim to provide better alternatives to smoking in the U.S. market by leveraging ZYN. But could you expand further on how fast do you think you might be able to, I guess, introduce more RRP technology in the U.S. market. Also, could you expand a little bit further on the opportunities you see for expansion of ZYN in other markets globally. And then curious what this means for your own or nic pouch products, Shiro, that you just, I think, recently relaunched in the Nordics. How do you plan to maybe position those 2 products relative to each other?

Yes. So maybe I, Bonnie, will start with the last question. Okay, Shiro is at a very, very early stages and it's very tiny, frankly speaking, in the whole category. Now I think ultimately, once we successfully closed the transaction that we aim is, objective is that the Swedish Match as is today is becoming the owner of what we call the platform or our platform, and they will have to manage the integrated portfolio with this across the different product versions, dry wet pouches, et cetera, or moist pouches, the snus obviously, and a brand which are around. We will then integrate with products like ZYN or other brands or other products into our consumer journey, which is targeting the smokers and how we get them out of smoking combustible cigarette smoking into and platform also with the view that we know there is quite polyusage between different RRP platforms and the cigarettes. And I believe it's a complementarity, gives another -- actually removed another excuse for the smokers for the users of the alternatives to go back to smoking on occasional or on a more permanent basis. So at the end of the day, as category growth, and we know it from even IQOS history that ultimately, we will get the products which catered to the different affordability, for example, needs. So you will need to have a product which are more on the upper side of the market and product where -- which are more on the lower part of the market, obviously introduced in the right time. So you can better manage your growth opportunity. And with regards to U.S., I guess the question is that -- look, I think ultimately, if you want to be a player in the smoke-free or alternatives which is there at smoking, you need to go and have the all other platforms availability to other structure you can have it. Now the beauty of the U.S. market is that this is such a sizable market that you can have a growth trajectory for 2 or 3 platforms for the many years to come. So I always look at a difficult market from the opportunity perspective regarding smoke-free.

Okay. That makes sense. And then I did want to circle back to IQOS in the U.S. market, especially based on what you just said about having, of course, the 2 or 3 platforms in the U.S. And given the announcement today, do you still have plans to build IQOS production in the U.S. market given the current import ban on the product? So I'm just thinking about this? If that's true, is there an opportunity to build IQOS production in the existing Swedish Match facility, possibly in Richmond? Just what are your -- what's your approach to this or strategy?

No, I think we continue -- no, this doesn't divert us from our strategy of building the manufacturing in the U.S. and just the size of the market, even in addition to the consequences of ITC, et cetera, rolling in community will ultimately needs to have a much question in the U.S. Now Swedish Match manufacturing and our manufacturing is not that one is better, one is worse. They are just completely different. It's a different process, different product. As Emmanuel mentioned there is some degree not very sizable of the upstream supply chain in purchasing in 5 of the synergies. And obviously, depending on how you want to look at this, who's going to benefit from this contract, but not on the operations, the manufacturing type of size. So as you remember, we are having the core existence of cigarette factories with IQOS consumable factories, but those are similarity between the processes. They can report as the same employees, et cetera. But between the oral product and the inhalable products, they don't really exist. So I don't think we are -- we will be changing our plans and we stick to one.

And just to clarify, is it still targeted for later this year? Or what's the timing of this, Jacek?

No, not always. We said -- they want me to be correct, we said this will be Q1 '23.

That's still on track. All right.

Thank you, Bonnie.

Our next question comes from Priya Ohri-Gupta from Barclays.

Congratulations on the announcement. I was -- Emmanuel, I was wondering if you could perhaps give us a little bit more context as to how we should think about the split between your bonds and bank financing and how we should also think about the currency split, just given the geographic exposure.

Sure. So, of course, we are today providing certain funds. So we have a certainty that the money will be available. It will be then for the detail and how we split the final financing depending on a number of market conditions, support that we're going to receive from the bank. But that will be basically a split between bonds, okay, that we're going to finance on the traditional debt capital market and term loan with a pool of banks that will be lending us, let's say, with the medium-term maturity. And for the currency, we are still working on it, but there will be certainly some new and some part of dollar as we traditionally do for our financing. So that's the plan as they are today. As you can imagine, the compass for us, our North Star would be to make sure that we have a very robust financing in place with a sufficient maturity and some good visibility on fixed rate versus variable rate to ensure that we have a good control of the overall envelope of the financial interest.

That's helpful. And I guess, 2 more follow-ups. One, is there a potential for you to consider utilizing any sort of an ESG or sustainability linked overlay, just given your financing structure that you have in place?

Yes. That's a possibility. As you know, we have a framework now in that respect. We've been quite successful in renewing credit line with the bank. I think that we've seen the bank extremely supportive and wanting to come along with us in accompanying us in this smoke-free ambition and defining clear target to get there. So while today, I'm not able to come with the kind of final plan in that. I think you should assume that in a lot of things that we're going to do, including in terms of financing the structure, there will be an ESG component.

And then do you -- should we think about your Tier 1 CP access as a result of the transaction, would that sort of shift down to Tier 2 for some time being. And how could that affect your ongoing CP access in terms of size and pricing?

Well, it's too early to say. We believe that through this transaction, we are becoming, as we explained, an even stronger company we see what is the access that we have the impact on the access to the CP market, but we would expect to stay a very attractive company for CP investors.

This does conclude the question-and-answer session. I will now turn the program back over to management for any additional closing remarks.

Well, thank you very much for your attention. We appreciate this was on short notes, but sometimes timing increase not fully up to us. Thank you, and have a great rest of the day. Thank you for your time. Thank you. Talk to you soon.

This does conclude today's program. Thank you for your participation. You may disconnect at this time. Have a great day.