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

All right. Good morning, everyone. Thanks again for joining us today. So it's my pleasure to welcome Philip Morris International back to CAGNY this year and we have Jacek Olczak, Chief Executive Officer joining us; Emmanuel Babeau, Chief Financial Officer; Stacey Kennedy, who's the President of Americas and CEO of PMI U.S. business; and then Stefano Volpetti, President, Smoke-Free Inhaled Products and Chief Consumer Officer. So please join me in thanking Philip Morris for their continued support for the conference including their sponsorship of tonight's dinner. Now it's been an exciting time for Philip Morris as the company continues to make strong progress on its smoke-free transformation with over 35% of its revenues now coming from reduced-risk products despite a challenging consumer and geopolitical environment, PM's twin engines of growth, IQOS and ZYN, continue to gain traction, fueled by the enormous compounding effect of new user acquisition, strong innovation and a powerful digital marketing model that really does continue to set Philip Morris apart from their peers. With that, I'm going to turn it over to Jacek so we can hear more about their efforts.

Thank you, Bonnie. Good morning, those in the room. Good morning, those who joined us on the webcast, we also are joined with [indiscernible], who is the Chief Operating Officer of our U.S. business. And I think Bonnie missed the person who is always behind us, James Bushnell, our Head of Investor Relations. We have issued a few moments ago, our press release reaffirming the 2024 guidance. And the materials which you will see today are available on our website, including the contents, obviously, of this slide. I draw your attention to our forward-looking cautionary statements, as always. And let me start with -- before we go to the Philip Morris performance and how we have been navigating this smoke-free transformation over the last 10 years and what's for us had -- let's have a bit a broader look at the industry -- the new industry, which is being created within -- like the old tobacco industry. I mean there is undisputed demand for the smoke-free product essentially in every part of the world. We have more than 1 billion smokers, people who smoke and that number, unfortunately, even recently announced by the WHO, is growing. Wherever we go and the people who are smokers are properly informed [indiscernible] and tried the product. I mean if that demands materialize, and this demand is growing, as you know, very well through every single year since these products were introduced to the geographies, right? So the opportunity, which is in front of us, 1 billion-plus people who smoke, who are at the different speeds, in different places, looking for the alternatives to solve the problem of smoking, is there. Obviously, the smoke-free product, however you count it, but presumably, there -- the history somehow started about 10 years ago initially with the e-vape products, very shortly followed by the heat-not-burn and also what we all excited these days about, the nicotine pouches but very few remember that nicotine pouches have been first introduced to the market exactly the same year as we did the first pilot city test launch in Nagoya in Japan in 2014. So the nicotine pouch is also in the market, especially in the U.S. for the last 10 years. So I said that there is a growth. There is a growing demand for these products in any geographies, obviously, with the different dynamics of this growth and a different economics. So when you -- when one designs the strategy, how to go and take this as an opportunity, this growing demand for the smoke-free products, the alternative to smoking have to be -- one have to be very selective with geographies, which product categories you go because the economics may not be on a combined basis, at least in the near -- short and the midterm, attractive. But wherever we go, what we see is that the heat-not-burn category grows at a number above the 15%. The nicotine pouches grow in the north of 30% per annum and the closed e-vapor products grows -- they're growing today at about the 10-plus percent per annum. This -- obviously, there is a difference in the growth rate as you just presumably noticed. However, these are the growth rates, if you go back into the history of the tobacco industry, unheard of. And especially if this growth rate maintained over the last 10 years with the outlook, which I just presented today, it makes this new category, this new industry extremely attractive. Obviously, the growth rates are impacted by the regulations. And I would volunteer the statement that definitely, over the last 10 years, the smoke-free industry didn't enjoyed or haven't enjoyed the strong tailwind of regulations. However, the popularization of these products, popularization of the science about this product, makes me believing that, hopefully, the next 10 years of the smoke-free transformation should be relatively maybe easier from that perspective than the first 10 years that everyone was a bit skeptical whether this product actually can do the job, whether there will be -- driving the acceptance of -- from a smokers -- whether the science really will be supporting existence of these products compared to they continue smoking cigarettes, et cetera. So regulations do play the role, but I think what is what is working into the advantage of this new industry is also the fact that there is more and more recognition that these products can rapidly accelerate the resolution of the problem of smoking. I mentioned that the different products in the different geographies may turn the different economics. They all will be better than the combustible cigarette. In our case, I think some of you know it very well, IQOS delivers about 2 points -- 2.5x better unit margins than a combustible product and on a product contribution level, is the factor about the 2x compared to the combustible product. And ZYN, if I take the U.S. ZYN will deliver on about 6x on above metrics compared to the cigarettes. So these products can be attractive from a financial perspective. Obviously, they do require some upfront investment. This investment is going into the R&D, into the product development, into the science, but also properly establishing this product in a marketplace with regards to the building awareness, generating a trial and helping consumer hopefully to fully adopt this product versus switch completely from a cigarette. Returns are attractive over time. However, as I said, one has to be relatively selective, which product at which time you introduce into which geographies to maximize the returns. We have been investing in this product for -- I mean different people at Philip Morris will tell you the different time when we should start counting, but let's start from the time when we became public. So from 2008, we have spent behind this product more than $12 billion. And it obviously goes into the prototyping, research and developing the product, but more so enormous amount of science, which we have generated -- produced in order to support these products and also pass them through the various regulatory regimes, including the U.S. FDA. Part of the spending also is when -- and it continues to go behind the building the brand because our aspiration was to -- not to fragment the portfolio also in view of the economic financial returns, but stay -- or [ borrow ], what Philip Morris historically always was very strong with by building the leading premium global brands. And this was our objective too while offering these products into the consumers, also have this brand-building objective on the back of our mind. So there's a lot of spending going behind the brand equity. Obviously, we built that over 10 years, we have built an extremely robust product development, but also scientific capability and commercial infrastructures that very few have realized that with this product when the relations with the consumers are very key in order to help them switching from the cigarettes, we need to -- we have to transform the business from a classical B2B areas to the trade and a little bit maybe of advertising on the back end, but start owning this relation. So actually, the company is more playing today on a B2C rather than a classical B2B with the above-the-line type of a pool created by advertising. So investments are paying off. And I think those who, again, follow our results, would see that the smoke-free products are becoming already for the last few years, accretive to our bottom line and they are the key engine of growth of PMI. So where do we stand? Bonnie mentioned 35%, last quarter, we crossed the 39% of our revenues coming from a smoke-free product. Within 10 years, we have introduced these products to the 84 markets. Very important for us internally, 25 of these markets, the revenues already have surpassed 50%. So in 20 -- in 25 markets of PMI, more than 50% of our revenues are being generated from smoke-free products. More than 20% of our total global volumes are coming for smoke-free alternatives and we have helped today, between a different proposition, more than 33 million smokers to quit smoking or to switch to this product. I mentioned that we have made an investment in building the brand. I think it's very clear to everyone that Marlboro is one of the very few in the entire CPG, FMCG space, global brands, on the top of these premium brands. Marlboro revenues holding well above the $10 billion and in a little bit less than 10 years, we have created -- built the brand, IQOS, which is our flagship heat-not-burn, which actually starts surpassing Marlboro. So we're sitting today not only on a global brand in the previous -- in old category of Marlboro, but also have built a second brand. And I remember, I guess it was also at CAGNY in one of the previous -- one of the previous years. And we had these conversations, discussions about why we're not using Marlboro. And how we're losing something that Philip Morris is not using -- leveraging the trademark of Marlboro into this new category, and I said something, if this company has demonstrated to have a power to build a global brand like Marlboro, we can build Marlboro 2. So here is IQOS with a $10 billion global revenues and growth. We estimate or expect that this year, the whole category of smoke-free products will generate about $15 billion -- will be approaching $15 billion of top revenues. And again, if you consider the time which took us to create this category and again, very important, concentrating among the very few brands. So it's not a very fragmented portfolio, which I think helps a lot when you build the plans going forward, it's a pretty -- it's actually very spectacular achievement. I should say. So we have the #1 brand in the heat-not-burn. We have a #1 brand in the nicotine pouches. And we continue to hold the #1 international cigarette brand. So that strategy which we needed some time to do it, but that we're delivering on that strategy that will hold these top brands in our portfolio, which obviously, as you know, over a period of time leads to the pricing power, leads to the better relations with the trade, leads to the better loyalty with the consumers, et cetera. It's a very important block of having -- not only transforming the company, but transforming it successfully. Our ambition are that by 2030, 2/3 of our revenue should come from smoke-free products. And again, most importantly, we estimate that by 2030, we should have about the 40 markets when the 3 quarters of our revenues will be essentially coming from the smoke-free product. So if you consider that this ambition again, back to where we started, it's about a 15, 16 years period, it's, again, the very strong -- very strong and successful transformation. Clearly, the growth of the smoke-free product is putting pressure, very significant pressure on the cigarette volumes. We estimate that from the 2015 baseline, so this is where we started the heat-not-burn journey, our cigarette volumes have been lowered by about 33%. If we continue on our ambitions to 2030, by 2030, more than 50% of our volume -- cigarette combustible volumes from the baseline will disappear. This is an example of the slide just on the IQOS market we used at the Investors Day, but we can essentially do the same on other markets with other product categories being present, et cetera, whereever smoke-free categories is, they accelerate very significantly declines in the rates. Now a few words about the science because very often, especially also after a few weeks ago, a couple of events in the U.S., this notion about the science that this product is better or not and more science is needed. My thought on this one is that there is enough of the science to conclude that this product is a better alternative than continuing smoking. And it's very difficult to find what more of the science we need to produce in order to demonstrate the 2x2 is 4. The problem which we are confronted with that we have too much politics. So it's not too little science, it's actually too much politics which we have around this product, which unfortunately in some places and in some countries, results in such utmost stupidity as passing regulations or having the regulations when a combustible cigarettes, which are known as the most harmful method of delivering nicotine, are allowed while any alternatives are banned. And the same people who are behind these regulations tend to claim that they do follow the tobacco harm reduction. So illogical actions which are happening in some places -- in these places essentially slows or deprive you from the growth. But the fact of the life is that these products -- smoke-free products are better alternatives. We know it's not the nicotine, which is a prime source of the harm created by smoking. We know very well that the triggering point is the combustion and the release of all the deadly toxicants in the tobacco smoke. And therefore, any smoke-free alternative, if this is properly designed, produced and set to manufacture does offer a significant reduction in exposure to the toxicants better for leading to that, hopefully positive health effect. This industry also -- this product is also subject to innovations, right? So you know very well that we're innovating on a heat-not-burn. Swedish Match have historically made the significant inroads into the oral category -- smoke-free oral methods of delivery with the tobacco containing pouches, which is the famous Swedish snus product. They continue innovating, took the tobacco out of the pouches, now you have a nicotine containing pouches without the tobacco, which from the exposure to the some toxicants is even a better product than the tobacco-containing pouches. So this innovation is pushing this product further on the risk continuum in order to yield even better, hopefully, health outcomes among the smokers. So the takeaway from this whole thing is not that we need more science. We just need a less -- we need a significantly less politics about the science and start making the decisions based on the facts rather than some [ free will or type] of opinions. What has happened and some of you might have seen this slide, which we presented a few months ago during Investors Day. This is what's happened to Sweden that up till '80s, the cigarette sales was growing and they had the first version of oral tobacco pouches, the snus product, they improve it by changing the processing process, they significantly reduced the exposure to the tobacco-specific nitrosamines, TSNAs, which are very carcinogenic. The product changed, the form, et cetera, and the product starts getting an acceptance. Took about 35 years -- 30 years, the moment when the Sweden has dropped the smoking incidence to the -- this day it's about the 5%. 5%, by the way, is by many -- in many countries, recognized as the standard behind or below which the government, the regulators thinks that the problem of smoking has been resolved. I actually think we should go for this remaining 5% as well, but we leave this conversation aside. So it took quite a few decades for Sweden to essentially eliminate or reduce the smoking to the very low levels and just with the one product platform. So more than 3 decades in Japan. This is -- in Sweden. This is Japan, where we started the smoke-free journey with heat-not-burn. It took less than 10 years for the Tokyo volumes at this stage. And you remember then the trends in the key cities, trends in the capital cities later on are followed by the national with some -- a couple of years lagging effect. In January of this year, heat-not-burn category have surpassed the combustible cigarettes in Tokyo. This is 10 years compared to Sweden on an overall -- on more than 3 decades. So you could see the dynamics which is in a segment. I think it's very difficult to find the comparison in any other category and one product is being replaced by it's vastly better version without regulatory help that by the consumer demand, you will have such a fast transition. Now obviously, Sweden, which has the longest experience from moving from a combustible smoking into the smoke-free alternatives have already the best-in-class evidence when it comes from the real-world data, right, from the epidemiology. So this slide, I think, is also known to many of you. Sweden has the lowest smoking -- male smoking prevalence rates and has a -- lowest comparing to the -- in this case, to the -- to other European countries, lowest incidence of male deaths attributable to tobacco. So there is no more evidence, which you could see about this product. If you just look into the compared epidemiology from the countries where smoking is allowed and the countries where the alternatives are taking over smoking. Now -- and this is still on the Swedish snus tobacco-containing product because there is a too little of a time, which has passed to start seeing this on pouches. And remember what I said before, tobacco -- nicotine pouches, non-tobacco containing pouches, a product like ZYN in the U.S., is improved version, it's even better version than the traditional Swedish snus product. And these are just the epidemiological results from the Swedish snus. Now nicotine, there is a lot of misconceptions about the nicotine. I said nicotine -- and it's not only our language, Philip Morris or me or my language as the senior executive in the company. It's not the nicotine, which has this extremely negative harmful impact on the smokers. It's all the other substances as the result of a combustion. Yes, nicotine is addictive. But again, it's not the nicotine which causes the harm. So there is enough of the evidence to prove that these products are better than smoking. And anybody claiming that these products are equal or worse than smoking, I only can compare it to still a few people, which I've read in some of the research, who believe that the earth is flat. Very important is why these products are -- were designed to serve the adult smokers that we pay also attention that the audiences, which shouldn't have an access to this product. And I think it comes not just as the corporate policy, but I think it's something as we as adults owe it to our kids even that these products are not for the kids, these products are not for the people below the certain age. In the U.S. it's 21, in many international countries it's 18 years old. And everything what we've been doing so far in both Swedish Match from the very beginning is design the product and very importantly, market the product in a way that it will go as much as possible directly to adult smokers and you try to avoid any uptake or any sort of experimentation even with this product among the younger audiences. So we have all the robust marketing practices, which starts with the product development, testing of the product and obviously, commercialization. And the fact of the life is that despite the fact that IQOS is in the market for about 10 years, in none of the geographies we have triggered any worrisome levels of the youth uptake of this product. So we can deliver. We demonstrated that if you do the things right, you can go where you wanted to go, which is after the adult smokers and don't trigger any unnecessary excite among the younger people. And the same is with ZYN. And this is one of the reasons why we've been so excited about the -- pursuing the acquisition of Swedish Match because we knew also the alignment with -- for whom this product is designed for that they take it -- they were taking this very seriously. As an example, what we're doing in the U.S. As I mentioned, U.S. the legal age limitation is set at 21 years old. And what we're doing in terms of working with a response -- the enforcement, how do we do and actually, we don't [ deal ] with a social media, et cetera, et cetera. The very good thing is that again, ZYN being in the U.S. market for the 10 years according to the last year or the latest data available from the CDC has triggered the usage of underage people of about 1.5%, which is the lowest from nicotine products. And by the way, it's the lowest for many other substances, which unfortunately, the younger people are experimenting -- they're using with. Critically important for us is that during that period when we have not triggered the youth problem, we have also served as well, as I said earlier, more than 33 million adult smokers who could now move and they enjoy better products. 29 million are served by the heat-not-burn, about the 4 million by the oral propositions and about 0.5 million by vape in which we play very, very tactically with the like of -- with selective strategy in ordering which markets we go to. For this year, we estimate our IMS growth to be in the range of 14% to 16%, which is in line with our past growth. I always remind the audience that these are the growth rates despite the fact that we essentially don't have a growth from Russia and Ukraine. If we would just add to this what we would expect the normal course of access to the marketed investment, the growth rates would have been -- if we had Russia and Ukraine fully performing in line with the international, would have to add about 2 percentage points of growth rates to this number. Now this slide, I don't know how many times we produced this slide and it is -- essentially is the 2 purposes. In this case, so in the light blue here, you have our national shares in a given country, in a dark blue, we have a key city offtake shares, and we have established over a period of time that first focusing on the key cities, later on the national starts trending behind it and the strength continues. So we keep on growing in key cities and the national follows up. So this here is an example of Greece, Italy, Germany that for some years, we had a bit of a slower type of a dynamic, still growth but slower, and we see recently very nice acceleration. And I put here on this slide, the 3 other countries for the reasons that we're approaching, Taiwan will bring a heat-not-burn IQOS, [ to ] the U.S. and on occasions, I hear the conversations that the U.S. is different. U.S. is different, but let's not be too much different versus what it really is. And the -- one of the challenges we're receiving -- challenging statements we're receiving is that IQOS is going to perform in the market, which are penetrated by e-vape or other categories. IQOS is also not suited for the places which cigarette smoking is more on the full-flavor type of a taste direction. So U.K. is the market which is very much penetrated by the e-vape. You see the growth of IQOS different than in other places, but you have a growth in IQOS, I think opportunity for IQOS is in -- is not being -- or will not be hampered by the fact that the U.S. has a e-vape market. Sweden, which is oral category market, you could see IQOS growth rates. And Spain, which in Europe is the market which is characterized by more flavor -- full-tobacco flavor, full proposition. You see also recent uptake of Spain. I have to admit very much helped recently when we switched the platform from the blade, the IQOS 3.0, to IQOS 4.0 ILUMA, which is the internal induction proposition, which help us accelerating the performance. Japan deserves a slide on its own because we also have -- nobody has done the smoke-free before, right? So this is a little bit of a challenging thing because you're going first and some people expect that you have an answer to all of these questions, and you can predict the future. Philip Morris is a great company, but we are not the fortune teller. So we are learning along our investors also how far these categories can go and what are the potential challenges we can have. Some were thinking that maybe at about 20%, 30%, you will have a resistance level in the terms that more smokers will not consider this platform, they will look for the other proposition. Well, if you look at the Japan and you may remember a few years ago, we had a little bit of a slower growth rate, and we had to regroup, talk -- learn how to talk to the consumers differently. But since then, we put, obviously, IQOS which is the key driver of the category growth in the very good growth path. So category is approaching 40% in Japan. I mentioned Tokyo, 50%. Very importantly, our IMS, which you see on the right-hand side of the slide, has accelerated to 14% last year. And we continue to grab and that's something which came better than we ever have expected in planning our transformation that despite being that long in the market and having obviously the lion's share of the segment, about the 70%, then we can continue to capture the growth of the segment above our underlying segment share. If you would go to many experts in the first-mover advantage, et cetera, by about this time, we should be in a much different position than we are. So somehow, IQOS in terms of brand innovations, which we have deployed around IQOS, behind IQOS continues yielding the results. So this is a very strong performance, which we have in Japan. We obviously have moved to ILUMA, which over the last 2 years, almost all markets, except again Russia and Ukraine are converted now to this new technology, which is absolutely well received by the consumer. It's also coming at a time that we need to start shifting the engine of innovations, not just from a device perspective because IQOS ILUMA has essentially established itself as the -- as what else you need in order to enjoy noncombustible product to switch more into the innovation. So you already have seen and you will see more this year and the years to come, Philip Morris innovating around IQOS ILUMA on the combustible levels, which we're talking about the different -- tobacco taste direction is different, nontobacco containing heat sticks, botanicals, but also trying to build the portfolio in a sense that allows us to capture more price points in the markets to continue facilitating the flow of smokers from combustibles to the new alternatives. In emerging markets, some were thinking, okay, this is the proposition, which is -- may be only attractive when you're living in a developed countries. We said that our ambition is not to leave the smokers -- any smokers behind, so we'll also go behind developing countries. Out of 84 markets in which our smoke-free alternatives are present, half of this market are essentially the so-called low middle income countries. And you could see the progress which are there. We, obviously, in accordance with our global strategy, focusing first on exploiting the growth and establishing the IQOS as a reference point in a capital, in the key cities. And then we're holding the expansion beyond the key locations until we really saturate -- not really saturate but establish the proposition where -- in these key geographies. You can see the very strong growth rate in all those different examples of the capital cities in the low-middle income countries. Now our strategy, again, is -- well, it's not very simple, but it's -- everything is simple when it works, if it doesn't work you -- but the strategy which we're deploying is okay, IQOS ILUMA is the reference brand, it is the reference point in a market. We try to establish IQOS ILUMA as historically we have established Marlboro as the leading global premium cigarette and everything else is just a different version, but definitely -- or cheaper version, if you like, also of that proposition. So it's very important for us that once we establish IQOS, later on, and we already start doing this either through the collaboration with KT&G when we have an access to also the innovation engine, et cetera, we can complement the portfolio in a different price points for the different audiences with the lead proposition and our BONDS proposition, which is continuously being developed to cater to the smokers, which are looking for the more impactful type of a heat-not-burn proposition than what the IQOS ILUMA at the upper segment is offering today. So it allows us not only now to -- let's say, we build a premium brand and that brand continues to grow. We also are now trying to create a portfolio of the brands, which allow us to cater to the future growth opportunity because it's difficult actually to assume that you can achieve your full smoke-free type of target only with the one brand because this will imply the one price point, et cetera, et cetera. So we'll be losing the competitiveness in the marketplace. Now I move quickly to Swedish Match, which was by any standards -- Philip Morris historically have made a lot of great acquisitions, very much in the CC space. But if I would rank all acquisitions which we have done in the history of Philip Morris and I put the Swedish Match here, definitely Swedish Match would be on the podium, presumably very high on the podium. So what we expect is that the crossover we should -- normally we're thinking we'll achieve in about year 5, I think now, it seems that we can achieve the crossover in the year 3, the growth of ZYN in the U.S., I mean, you're familiar with -- we make the very strong progress on the integration, organization, et cetera, with the Swedish Match organization. We'll now have to very rapidly grow, when I think about the diversifications and expanding the manufacturing footprint in the U.S. to support the growth, which is in front of us for the ZYN. So that's something which I have to admit at the time we were doing the acquisition, we thought that it's a little bit -- we still have a couple of years of a birthing space but now we have to rapidly go and start working on a manufacturing expansion. And one thing which we have put on the shelf at the time of acquisition, for about a year and it's now about a year after acquisitions, we'll look back into the strategy and trigger -- initiate the strategic review of our U.S. cigar business. We'll let you know in not that too long time, which directions we want to take, that we want to hold it or we want to make other decisions around the cigar business. So this will conclude essentially the whole program around full integration of Swedish Match into Philip Morris International. I know that many of you are very precisely tracking the performance, Nielsen -- not Nielsen, of ZYN . We can leave it on a Q&A session. The fact is that ZYN today is about the $2 billion retail value brand in the U.S. market, which I think is in a perfect trajectory to join one day, the club of $10 billion or more of Marlboro, $10 billion more of IQOS. And I think ZYN could be a very powerful brand going forward in the oral space. With the very strong share of our category, about the 73% at the end of the last quarter, shipment volume growing about 60%. There were some dynamics last year, which may or may not repeat this year. So I know there is some debate over Philips Morris 520 million target is a no bowling -- high bowling, that's the target which we have put so far. We'll be looking into the target as the year unfolds, but the only thing which we want to be -- the audience to pay attention that there were some dynamics of last year, which may or may not repeat this year. Having said so, this is still a [ fine ] business growth trajectory. What is important is also, where is ZYN sourcing from, obviously, it is oral proposition. So traditional roller in the U.S. is still the largest group of the people coming -- users coming to nicotine pouches, very strong sourcing from vape and cigarettes, and we expect that over a period of time this proportion of the cigarettes and vape will be growing in the composition of where the users are coming from. Also very importantly, is again, the tracking, what is the average age, et cetera, is triggering an unintended consequences, but I think so far, we're delivering very squarely where we wanted to be. IQOS in the U.S. So we have said it very clearly in the past that knowing what we know about the IQOS ILUMA performance on international and the gap which we have established between a blade product and ILUMA. Our best strategy adoption is to do the full-blown launch of heat-not-burn in the U.S. based on ILUMA technology. And the only thing now which is standing in our way to do it, is FDA. We have very recently also resolved the long-lasting IP conflict, if you like, which we have with BAT, which allows us now to essentially have the freedom to operate on the blade, but also on the ILUMA product going forward with the full access to international supply chain, which allows us to very rapidly tap into the economic benefit, which we have from the economy of scale on the international rather than start the whole IQOS presence in the U.S. from scratch. So we will end up having a manufacturing footprint in the U.S. for IQOS. But at least now we have a freedom to plan it, what makes sense from the more financial economic perspective and immediately go and leverage what we have built on international. The first city test on still the blade product is planned, IQOS 3 is planned for the Q2. But again, our strategic attention and the focus is bring as fast as possible ILUMA into the market, because then we know it's a completely different way of commercializing the product, different, even better than IQOS blade uptake, et cetera. So it gives -- it should give us -- ILUMA should give us a path to the breakeven in the U.S. faster than we'll have otherwise achieved if we start with the blade product. VEEV, I said, we're very focused on the few geographies, few consumer segments. There are more than 60 million adult vape users in the world, well, to be precise, excluding Russia and China, but in accessible world. We have very recently regrouped, redesigned, et cetera, our portfolio. We have a 2 propositions. One is in the -- both, in closed systems. One is the disposable one, it's cartridge-based, we enter few quarters ago, Italy and Czech Republic and in that period of time, our propositions get to about the 1/3 of the segment. So we know that we can play, but again, for us it's very important -- this is presumably the most challenging category from also when it comes from the penetration of illicit rate, very challenging, wobbly regulatory environment, perceptions about youth, et cetera. So you have to be very careful how you want to play this category because obviously, all these dynamics also translate in some more attractive and less attractive economics. So we're not trying to burn our fingers too much on this, knowing that in the resource allocation, IQOS is yielding the returns and that's almost a guaranteed sort of returns as we have in now ZYN. So let's play this here where it makes sense rather than try to try to be [ abrupt ]. I used to say that always the name of the game is not to be big, but to be rich. And sometimes people start confusing the things and the results may not be as palatable as one would like to have them. And last slide from our side, on the combustibles, yes, there is a pressure, but we said that we'll not give up the share of the combustibles, not only -- over the last 2 years, we demonstrated we can hold the share of combustible, but we think this whole thing, we -- we maintain the leadership and the strong share performance of Marlboro, the flagship brand. Emmanuel will give you a few slides more on the financials, and I'll come back for the last slide. Thank you.

Thank you, Jacek. Good morning, everybody. I have 7 minutes, a bit less to be honest versus what I thought I would have to share with you how are we going to translate this successful journey to become a smoke-free company into great financial performance. And here, you have the key component of our powerful financial model and how we intend to deliver this great performance. First of all, we have volume growth. That's quite a change of paradigm, of course, for a company in the tobacco industry. We believe that today, the growth that we can generate on our smoke-free portfolio is able to more than offset the decrease that we're going to see on our combustible business. Second, the very positive mix that is coming from our smoke-free portfolio. And bear with me, I'm going to elaborate on that in the coming slide. Third, of course, very strong pricing power. You have seen what we've been doing with combustible in 2023, close to 9% price increase. We are targeting to generate mid-single-digit increase in the future for our combustible portfolio. And when it comes to smoke-free products, well here, the name of the game is to maximize the volume because they are coming with this positive mix on which I'm going to elaborate. But it doesn't mean that we're not going to target some price increase looking, of course, on a case-by-case basis. And here, it's going to be more targeting low single digit. Then it's time for us to harvest. We've been investing a lot behind our successful smoke-free portfolio. ILUMA has been launched more or less in all key markets with very, very few exceptions. We're going to be now able to generate productivity. We're going to be able to leverage our commercial strengths, our digital commercial engine that we've been setting up everywhere. And we're going to be in a position to keep, of course, investing to accompany the growth of our business but at the same time, reducing over time the SG&A on revenue ratio, and therefore, generating extra profitability. And that's going to enable us to generate both strong top line growth and strong bottom-line performance and investing and rewarding our shareholder in the coming years. Something that is really important to have in mind when it comes to the growth of our smoke-free portfolio. Not only are we growing fast in terms of volume. But these products are also coming with a very powerful positive mix. And here, you have for IQOS, including the device and ZYN in the U.S., the differential in terms of dollar per unit, so stick or pouches depending. And as you can see in terms of revenue, we generate 2.5x more revenue per unit on our smoke-free portfolio than on the average of our combustible business. So we grow volume fast and they are coming with much more revenue per unit. But we also enjoy a higher gross margin rate today on our smoke-free portfolio. That is the new milestone that we have reached in 2023. And therefore, that means that this differential on a per unit basis in terms of dollar is even higher for the gross profit, 2.6 versus 1. And I believe that the strength of our smoke-free portfolio and the very powerful impact on our P&L is reflected in the 3 pie charts that you have here. Volume today, we reached 20% of our global volumes that are smoke-free product. But if you look at the revenue in the Q4 and these are the Q4 numbers, we have reached 39% of our revenue in -- on our smoke-free portfolio. So more or less twice versus the volume. And when it comes to gross profit, it's even higher. We are now north of 40% -- 41%. And please bear in mind that on this 41%, the oral business is not small. It's actually already around 20% of the combined gross profit generated by smoke-free products. And of course, with the success of ZYN in the U.S., it is growing fast. Now let's look at how combustible and smoke-free products have contributed to our growth in '23. And let's have a look at what we expect for '24. Combustible did grew around mid-single digit in revenue in '23. But because of a negative mix and very, very strong inflation in our COGS, their contribution to the gross profit expansion has been almost nothing. So that means that almost the entirety of the growth of the operating income in 2023 has been generated by smoke-free products, which grew fast on volume, fast on revenue. And because we've been expanding our gross margin rate in '23, even faster when it comes to the gross profit. And here, you have the average gross margin rate for smoke-free versus CC and you see that smoke-free is now higher than combustible. Now when we look at 2024, we believe that for combustible it's going to be a year with lower headwind when it comes to COGS but still inflation on the cost of the leaf and also the new single-use plastic tax in the EU that is going to impact us negatively. And therefore, we still believe that, that's going to limit the contribution that combustible can -- the limit of what it can generate to the gross profit expansion in '24. For smoke-free product, we expect another year of strong growth of volume, of course, an acceleration on the growth of the revenue. And again, another year of margin expansion for smoke-free products and very strong growth of gross profit, therefore. I want to spend here a couple of minutes on what is our -- one of our key headwinds that we've been facing over the past few years, which is the strength of the U.S. dollar versus most currency worldwide with, in addition, a few emerging country currency that face specific difficulty and decrease. That has been clearly limiting our performance. And we want to be very clear, our objective is to generate growth in dollar. And we are going to use everything that is available to us to mitigate as much as we can the impact of a possible continuation of the strength of the dollar in the future. It starts, of course, by maximizing the revenue that we are making in dollar term. And in that direction, the acquisition of Swedish Match was obviously very important. We are today north of 10% of our revenue made in dollar. And because of the success of ZYN today and tomorrow of IQOS, we believe that this percentage is going to grow nicely and fast. We are also using other mitigation measures. We have more than 60% of our debt that is in euro directly or indirectly. And of course, we generate a large part of our cash flow in euro, which means that there is a good match between cash flow generation and the debt in terms of currency. We have a rolling forward hedging program on the Japanese yen to smoothen the volatility of the yen versus the dollar in our P&L. And we are working on everything we can do in order to align as much as we can the currency in which we invoice and the currency in which we have our costs. We cannot get, of course, to a perfect alignment, but there are things that we can do, which will limit, if you want, the impact of possible continued strength of the dollar in the future. And I repeat, our objective is to deliver strong growth in dollar terms in '24 and beyond. We all know that today, there is no performance if the performance is not sustainable. And sustainability is at the core -- at the very core of our journey to become a smoke-free company. We track that through our PMI Sustainability Index. Here, you have a few parameters of this index. Remember, there are two pillars to our sustainability approach, one that is similar to any corporate, which is the impact of our operation and the other one, specific to PMI and where we have a particular mission to deliver on that one, which is the impact of our product on the 1 billion smokers through the planet and the impact on public health. I don't have the time, unfortunately, to elaborate on our road map where we stand on the '25 aspiration. I just want to retain one element, one objective, which is absolutely fundamental for us. There is zero tolerance and no compromise on the underage usage of our product. And one of our objectives is to be essentially with a youth access prevention program in all countries and where we are working with the indirect retail channels to build an efficient youth access prevention program. Strong commercial performance, strong financial model that has been enabling us to deliver strong performance over the last 3 years, '21-'23, actually above what we said we would be targeting to deliver back in the first days of 2021. We've been growing volume, revenue and operating income, growing north of 7%. And adjusted diluted EPS growing, excluding currency, at 12%. And now when we look at '24-'26, well, we simply want to continue to deliver this fast growth, this very successful financial performance, and we even want to accelerate on a few parameters. We want to continue to grow volume. We have the ambition to grow organically net revenue 6% to 8%. We want to accelerate on operating income growth organically 8% to 10%, which clearly is signaling the ambition to expand margin over the next 3 years. And then we want to increase our adjusted diluted EPS excluding ForEx, 9% to 11%. That is at 2023 corporate tax rate. And this would be in line with the operating income growth and even a bit higher possibly despite the fact that we have increased cost of financing because of the yield curve evolution and because of the cost of financing the Swedish Match acquisition. I've been a bit fast, sorry, but I'm going now to hand over back to Jacek for the conclusion. Thank you very much.

So considering how much we over -- we're over the time allocated, I suggest we stop here. We move to the next room for the Q&A. I mean, always the last slide is relatively obvious. It's reconfirming what we have said before, the most important is we are confident in achieving our '24-'26 targets. Thank you very much for your attention.

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