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

Okay. Let's please take our seats, we can start in just a moment. All right. A few people start trickling in from the breakout session. But good morning. I want to thank Philip Morris for joining us today. It's a pleasure to welcome them back to the CAGNY Conference. This morning, we are fortunate to have CEO, Jacek Olczak, with us today as well as CFO, Emmanuel Babeau. Fundamentally, Philip Morris has turned out to be a terrific story. PMI continues to execute one of the most successful smoke-free transformations in global staples today. With over 40% of its revenues and gross profit mix now derived from smoke-free products. The transformation is translating into sustained volume growth on a multiyear basis, margin expansion and accelerating free cash flow generation for the company. With leverage now declining, a clear framework is in place for durable double-digit EPS growth over the next several years with accelerating shareholder returns, Philip Morris is now entering the next phase of its investment thesis. With that, I will welcome Jacek and Emmanuel to the stage. But first, let's give a round of applause to Philip Morris for sponsoring this evening's dinner reception.

Thank you, Steve, for your kind words, for introduction. Because we're sponsoring dinner tonight is the only reasons why we could afford to bring so many members of my management team, otherwise, being cautious about our margin expansion plans, we wouldn't do it. Earlier today, 2 hours ago, we issued a press release reaffirming our '26 guidance given the earnings call 2 weeks ago. Materials on this presentation will be available on our website, including obviously, the content of slides, which you will see in a minute. I ask you to read our forward-looking and cautionary statements as usual in this type of communication with the investors community. Let me introduce my PMI executive team. It is not all but the very important people who are helping us in navigating the walk in a park of a transformation. We have recently implemented the new organizational structure. Hence, we brought with us today, Emmanuel, you know very well, our Chief Financial Officer; but also Fred de Wilde, who is heading our International business; Stacey Kennedy, who is heading U.S. business; Stefano Volpetti, who is our Chief Growth Officer; Massimo Andolina, who is running our very profitable and large European business; and Yann Guerin, who is our Chief Legal Officer. I will take -- we divided this presentation into 3 parts or 3 segments. I will cover 2. One is where we are -- where we started, where we are with the transformation to become a smoke-free company. We'll talk about the consumer, what we see, how we look at the market, trying to get a little bit deeper of the role of the different product platforms, heat-not-burn, vape and the pouches. And then I will hand over to Emmanuel to cover some of our financial KPIs achievements. And I think we'll summarize with my excellent slide of what the shareholders return Philip Morris has historically offered to our investors. So that's about 11 years of our journey when we started it. And I remember vividly in that sort of settings, large group CAGNY conference, or much smaller meetings with investors, 11 years ago, we were spending on average about 2 to 5 minutes on the innovations in the tobacco industry. Fast forward 10 years later, we're spending -- we're blowing our schedule time to talk about the innovations, how the different product platforms are penetrating very successfully every single market in which they appear. This generated for us today about $17 billion in our -- $17 billion in smoke-free revenues and 180 billion volumes. If you would compare it to some other players in the industry, this could have been a very important player in the tobacco industry just on a stand-alone basis. We now have exceeded our target, which we set for ourselves some years ago by 2025, be present in at least 100 markets. We are now present in 106 markets with our smoke-free portfolio. Now you know very well that we have put for ourselves also ambitious target to achieve 2/3 of our revenues coming from smoke-free products by 2030. Now obviously, one number is the consolidated global number for the group, but the change is happening at the market level, at the regional level. With the final progress and very important achievements of our European region, actually by the year-end of last year, by Q4 of last year, we have had the 3 regions. We already have 3 regions out of 4 regions, which have well exceeded the 50% mark of smoke-free products versus to the total revenues. More importantly, these 3 regions represent today 75% of our operating income. So this is not just the change coming from any sort of the markets, but the markets which also are very important contributor to the financial performance of the company. You could see today -- sorry, you could see on this slide, and this is a further support to my earlier statement that we also look at the quality of the markets in terms of the financial weight in the Philip Morris. In the top 5 of our operating income markets, the smoke-free products represent 62% of our total revenues. Obviously, the question is what is happening in the larger by geography regions, but also by underlying cigarette volumes region, the South, Southeast Asia, Middle East, Africa, everything, which is in this territory. But we're also very pleased that in every market in which we have a license to operate, i.e., the regulators open these markets for at least the 1 category, if not 3, we're actually making pretty nice progress. I mean this is just the example of a few of the many geographies in this region. This is Saudi Arabia, Mexico, Indonesia and Egypt. We're also very pleased and I highlighted on the slide what has happened in Taiwan. Some of you who follow us very closely, we've been talking about opening Taiwan for smoke-free products for many, many years. We finally got the license for IQOS for our heat-not-burn flagship product. And in Taipei, we have achieved a 6% market share of a combined cigarette and heated tobacco product within -- I think this is within less than 3 months. So it just tells you that even the market, we are still closed for the smoke-free products, when they eventually open, they actually start benefiting from all the work, popularity, awareness, et cetera, of smoke-free categories, okay, in this case, IQOS and how quickly you can start generating quite a significant sales and market share. What is very also for us important in Taiwan is an example of the market that Philip Morris historically had a very low or small presence in the cigarette category. And our share of the market was somewhere in the mid-single-digit numbers. With that achievement of IQOS, it means that within a year, we are on the path to doubling our share of the total nicotine space in this country. Now -- the critical consequences of our transformation, I think, is very well highlighted on this chart. So we essentially left behind the times of a classical characteristics of a tobacco very much the cigarette industry or cigarette company with declining volumes. And you know very well what was the growth algorithm. We obviously offset it with the pricing. You have a pretty very good margins because all flows to the bottom line. Actually, over the 5 years with the progress of a smoke-free, we have been -- we were able to offset the underlying declines on the cigarette, some of them which were purposefully triggered by our chasing -- offering the smoke-free products to cigarette smokers. And essentially, we put the company on the volume growth target which was answered, as I said, in the past, which obviously means that our very strong top line growth now is from a quality perspective of the composition of this top line growth is actually better than we used to have in the past because obviously, we tried without the strong pricing power, but now we're having much better volume performance. Now here is the example of what is happening over the last 5 years in the divergent, if you like, total industry trends and we differentiate the market, but those who have an access to the smoke-free products, this is what you have on the bar chart and those who don't. We put here arbitrarily the threshold that if Philip Morris products have at least 2% of the market, we classify them as a smoke-free product and the market which products are not existing. So Philip Morris is less than 2%, we classify them as an SFP market or cigarette market. So you could see clearly the divergence in the trends -- underlying trends for the volume. So on the 5-year period, the markets which are cigarette market essentially still continue to be combustible cigarettes market, you have a combined compound annual decline rate of 0.6%, you could argue it's essentially flat. But in the market when a smoke-free products enter the market, and remember, the bar is just the 2% penetration, that acceleration of a decline is the fivefold. So it's more than 3% on a compound basis. Now in the markets in which no smoke-free products are available due to the bans, restrictions, et cetera. Actually, last year, we saw the cigarette sales going up. Now this is from a public health perspective, counterproductive what everyone wanted to achieve. So I believe the more people are getting familiar with that sort of a divergence in the trends, the faster it will allow us to open remaining markets, which are still quite substantial in terms of underlying cigarette volume. Now what has happened also over the last 10 years and very much over the last 3 or 5 years that we observed more mature pragmatic science and fact-based conversations about the, a, potential of a smoke-free product; b, very importantly, key component or key denominator in all of these products, which is nicotine. So you can read the statements that will be, as I said, published on our website. But this is just a snapshot of hundreds, if not thousands of pages of statements made by the regulators, different health institutes, et cetera, across the globe. It's not just the U.S. driven that more will see -- more and more we will see. This is, as I said, very mature, pragmatic, science-based conversations about the product and the role of nicotine. So as I have said a year ago in this conference and in many other occasions, yes, nicotine is addictive, but we all know it's not the primary cause of smoking-related diseases. Nicotine does not cause intoxication and is not functionally impairing. It can affect mood, cognitive skills, especially in the area of focused memory. That's the reason why people in the past were smoking cigarettes as the people, that's the reasons why people can migrate to the same product prevailing the benefit or perceived benefit while drastically reducing the risk coming from the exposure to all toxicants, which a smoker has while smoking a cigarette. Nicotine is not classified anywhere as a carcinogen and has not been found to itself cause cancer. And obviously, all of the statements and all of the debate are translating into better and better operating environment, which we divided here into the regulatory policy, a product allowed, a product being regulated in a sense that the more and more product standards are being introduced. So it also helps with leveling the playing field. But how this also translates into the fiscal policy because it is unquestionable fact that the products which offer such a significant reduction in the risk profile compared to cigarettes should have -- should be treated differently from the fiscal perspective. And you can read the slide, and this is just the progress which we have achieved or was achieved over the last 2 years since 2023, but you could see the very strong momentum that the regulations, both on the product side and on the fiscal side are going in the right direction. I am by no means trying to say that there are not places in the world that we still have the battles that we still have to have conversations which are -- let me put it that way. Somebody very recently interested in this category and the opportunity of smoke-free products told me, yes, your problem is not that there is too little science about this product. Your problem is that there is too much politics about this product because the science is very undisputable what this product offer versus the cigarette. It just takes a while until it really starts penetrating and open the last, if I may say, closed mines in the world. Now this is an example of a very large countries in terms of underlying cigarette volumes, India, Turkey, Brazil, Vietnam. Altogether, there is more than 440 billion cigarettes consumed annually in these places. Very much in these countries, you will see the cigarette sales going up and the characteristic is none of these countries is allowing any of the smoke-free product. I think with this growing momentum around the regulations and the recognition of the tremendous potential this product offers to individual consumer and public at large, this market will get open as well because they're getting very isolated in what we see today. There are also some other smaller markets important to us, which we are pursuing our regulatory strategy. I mentioned I have here on the slide, Hong Kong, Singapore, Australia. And there are some other markets that may be 1 or 2 of the categories within a smoke-free product portfolio still is somehow fully restricted. We have a case in Germany, Belgium, Canada, Ireland, Holland, Netherlands and France. Now let me move now to the consumer. Now as I mentioned earlier, 10 years ago, 2 to 5 minutes innovations in the tobacco industry, what are you doing? And do you have any meaningful innovations? Are you doing something on the fringe? We took it the hard way. We went into the product, how we can drastically change the performance of the product, offer consumers the same benefit, but drastically reduce the exposure to the toxic and therefore, it should lead to the reduction of the harm. The focus which we have, and this is what gives us a lot of further encouragement and how brightly we look at the future of PMI, what has been achieved so far is just barely not even 20% of the total cigarette market. I mean, if I take a global basis, including U.S., obviously, for obvious reasons, excluding China, I mean, 81% of -- 81% of the total nicotine space is still occupied by the combustible cigarette. So we're all very excited and rightly excited about the heat tobacco categories, e-vape category, and we know that the e-vape category depends on the geography very much, unfortunately, also in the U.S., we need to recognize that there is quite a significant element of the illicit products in the market and the nicotine pouches, which are barely on the global basis, 1%, very rapidly growing. But still we operate within a 20%, not even 20% of the total space. Good thing is that this space grows at a double-digit number year after year. And again, this is a result of regulations, products getting better and better, but more importantly, the consumer demand, right? Because in today's world, consumers are learning about this product very often irregardless of the regulators will allow those products in the market or not. One of the criteria which we cross, which we watch very carefully is how many people start interacting versus smoke-free product versus what is the current share of the volume of the smoke-free product. And we consistently year after year, see that there is a growing penetration of these products, in this case, past 7 days use, doesn't matter whether the consumer is immediately fully adopting this product as we know potential for adoption varies from a category to category. But it's a very important thing that if a smoker is trying to try the product, is trying to interact with the product, maybe today doesn't find the right product, but it means that his or her mind is open to jump into this category just a matter of time. So we have a growing usage of penetration measured by the past 7 days across the globe. And obviously, the volumes are trailing or following this trend. Now if I have a different look and I divide now from PMI perspective, international and the U.S. and there's 2 separate blocks, we obviously that the U.S., by the way, is a smoke-free country, if I measure this by the penetration of a smoke-free product, still bearing in mind there is a lot of illicit vape, et cetera, which I believe one day, the issue is going to be resolved. The counter side of the -- opposite side of this whole thing, how many exclusive cigarette use is still there. And obviously, on the international is much higher in the U.S. We're talking about the exclusive use of a cigarette. And obviously, you can see a rapidly declining numbers in the U.S. Now there is one difference between U.S. and international from our perspective, which is in many of the countries on the international, we have a presence of all 3 categories. So again, the heat-not-burn, e-vape and the pouches and each of them are offering a different conversion potential to the to cigarette smoker. I mean obviously, inhalable products are somehow closer to the ritual of smoking, heat-not-burn is very close, e-vape is slightly similar, but slightly different. And oral category, obviously, pouches, if you like, requires a little bit longer runway for the consumers to adopt fully the category, but doesn't stop consumers from interacting with the category. And I think this is behind the explanation. While on the international, we see the much higher percentage of a smoke-free product, exclusive use, doesn't matter now which category they're using, are they using one or they mixing a few categories together versus what we have in the U.S. as you know, heat-not-burn is still not present. Nicotine pouches, as I mentioned a few times, have an important role in the switching consumers, switching smokers. We know also that the nicotine content pouches are not only obviously sourcing from a traditional oral products but also offer a good alternative for smokers and the users of the e-vape products. The only thing which you have to bear in mind that the runway, as I mentioned, for adoption is longer. So here is the example of the changes in the consumption of a daily consumption measured in the number of pouches per day among those who are just 1 year in the category or those which are 3 years. This is -- there is a progress. It will take a time. And I put as the reference today, the average daily consumption in Sweden, which in today's world is the standard, if you like, for the oral category to quite a while in Sweden to get to that level. But I think if you take it from a perspective, this is an opportunity which one day at that number or closer on that number, the market can go is a matter of fact. Now it's much more difficult. So I think where we're going to land, where the industry is going to land is essentially given. The question is now how much time it will take that we land into that sort of a range of numbers. Now the multi-category strategy, and we observed it after 2 years of pursuing multi-category strategy is definitely accelerating the growth. In the markets when we are present with more than one product, we could see that our in-market sales, the IMS grows more than 15%. In the market when we're present with one smoke-free category, there is still a very strong growth, but it is 10%. So we clearly see advantage that offering the smokers, offering the adult consumer a choice of 3 distinctively different product categories yields the better results than just offering one. There is a lot of polyuse, but I think it's on a positive because as long as consumers will stay away from cigarettes and will become exclusive smoke-free product use, there's an opportunity not only from a health perspective, obviously, opportunity for a company like ours. Now over a period of time, very often we get the question, are you investing? When you will stop investing or do you -- should you invest more, et cetera? Over a period of time, we have built, I don't think, essentially unparalleled infrastructure to support the smoke-free products, representing very much our very global footprint. So we have 1.5 million points of sales, which -- in which the PMI products, smoke-free products can be found. We run close to the 8,000 of our own brand retail networks, different formats, boutique, flagship stores and other arrangements with the consumer not only can try and enjoy the new products, but they are experiential points when the people are not just coming for a transaction, there is more which is happening in the stores. We have more than 500 million interactions through this experiential touch point. Obviously, there is a lot of data involvement around this whole thing, which starts with the fact that we very much want to register users of our products very early in the journey, which allows us also later on to deploy much better targeting, marketing, and support of a conversion activity. That infrastructure was very much until very recently serving only one product, one brand, which was IQOS. Now obviously, when we're rolling out the multi-category, we're getting to the point of the products like, they are not the products like VEEV, our VEEV proposition, essentially enjoying this platform with very little, if not at all incremental cost to that platform, which we have built. Now I think our smoke-free product strength is very clear and is demonstrated by the share across the different category. What is very important in this whole thing -- in this picture is that our combined share of smoke-free products as is today stays at the 65%, which is 2.5x higher than the share which we had on the cigarette category. Obviously, the situation is dynamic. There is a competition. There will be a lot of innovations. There will be regulatory interventions, et cetera. But that's the success of this transformation that we didn't create that category 11 years ago as in addition to, but as a replacement to, actually here is the results because we're building not marginally better business, but by the factor of X much bigger and the better business that we used to have. Now there is innovation. We today, the way we look at the innovations that behind each of the product platforms, again, heat-not-burn, pouches and electronic cigarettes. We try to have a 2, if not more, distinctive propositions, not necessarily competing with each other, but very nicely complementing our portfolio vis-a-vis the vast number of the cigarette users. So we have two propositions on IQOS. One is sold per se under the umbrella brand name of IQOS and another is the BONDS and BLENDS. And you know that we have the plans of rolling this more broadly to the number of geographies this year. ZYN when we play in the dry and moist and the VEEV, which we play in the classical version of electronic cigarettes, but also we have the first ever induction heating. So we essentially removed the electronics from a cartridge, which offers a variety of advantages to the consumers and obviously gives us much better cost profile of the proposition. We still have cigarettes. We have allocated massively our resources behind the smoke-free products. You know very well that 99.8 or 99.9% of our R&D spend is behind the smoke-free product. The vast majority of our commercial spend is dedicated to the smoke-free products, but we still hold the fort when it comes to our presence in the cigarette market. And I think the market share of Marlboro and evolution of Marlboro market share is the testimony that we still use the cigarette category as the value creation, which better supports our transformation to smoke-free products when we can still leverage our existing cigarette infrastructure, but still deliver a very strong result. By the way, this is the record highest share Marlboro ever had on international. I think this is the moment when Emmanuel will come on the stage, and we'll share with you a few of the financial performance criteria, and we'll close with our shareholders with that. Thank you very much.

Thank you, Jacek. Good morning, everybody. As always, great to be here. So indeed, Jacek, over the last 30 minutes has been leading you through why do we have such a powerful growth model between the very strong growth that we generate on our smoke-free portfolio and the resilience that we are enjoying on our combustible business. If we look at the past years, thanks to this strong growth model, we've generated very dynamic growth. And actually, we believe that we are going to continue to deliver such a dynamic growth in the coming years. And this is the reason why we have been confirming a few days ago the growth algorithm for the year '26 to '28 at a similar level than the one we were targeting for '24 to '26. So first, let me lead you through this growth algorithm. Of course, it starts with a very strong performance on our smoke-free portfolio and Jacek has been giving plenty of details of that. We are targeting for '26, '28, high single-digit to low teens growth for our smoke-free volume. And this we expect is going to more than offset the decline on combustible, generating overall positive growth for our volumes. Then -- and I'm going to elaborate on that in a minute, we are going to, on top of the growth of the volume, add a number of powerful driver to generate an organic revenue growth between 6% to 8%. Then as we are progressing and improving our profitability, again, I will provide detail about that. We are targeting an organic growth of our operating income between 8% and 10% and finally, we are targeting a growth, excluding Forex of our adjusted EPS between 9% and 11%. So now let's enter into the detail of this algorithm and the growth model. As I said, everything is starting with our dynamism on our smoke-free portfolio. And actually, if you look at the last 4 years, there is a very dynamic and consistent pattern of growth. Everything is starting with IQOS. IQOS is at the very core of our growth. And as you can see, since 2022, the growth, in fact, has been quite consistent. We talk about an additional 15 billion sticks every year in a very consistent manner. But as we are increasingly now playing the multi-category approach, we are adding on top of the IQOS growth, the growth that is coming from ZYN and VEEV. And look at the acceleration that these 2 categories, these 2 brands are bringing to our growth. You see that it has been growing to a record high of 20 billion stick growth in 2025 because we are accumulating the dynamism on 3 categories. So let's move now to the revenue growth. And indeed, of course, volume is the first -- volume growth is the first pillar of this growth. But then we're adding 2 very powerful growth pillar or growth driver to this revenue progression. The first one is pricing. We have significant pricing power. It starts with combustible. As you know, over the past few years, we've been growing our price more than 7%. For 2026, we've been guiding to around 6% growth, and it is showing our capacity with an attractive desirable portfolio of brand, of course, centered around Marlboro, but very focused on a few brands to increase power and this is -- to increase prices, and this is acceptable to our customers because of the strength of our brand. We are also growing price on our smoke-free product. But here, the name of the game, and I will explain why in a few seconds, is more to maximize volume. But nevertheless, we've been delivering around low single-digit growth on our smoke-free portfolio as well. The third pillar of our growth is the very positive mix that we are generating with our smoke-free portfolio. And I'm going to give details and elaborate on that because this is very important to understand this performance. Then you have a negative element. This is the negative geographical mix coming from the fact that on combustible, the countries that are doing well on average are coming with a lower revenue per stick. And actually, as you can see, this is giving, again, a very consistent pattern of growth. First of all, the organic revenue growth itself versus the last 5 years and what we delivered in '25. Remember, '25, we had a technical impact of the change of business model in Indonesia. Otherwise, it would have been 7.9%, very much in line with the 7.8% that we delivered over the last 5 years as a CAGR. And then if you look at the 3 components I've been describing, volume, price, positive mix from the smoke-free, it's very consistent as well, 3%, 4%, 1.5%, which is showing the robustness of this growth model on revenue. Now let's pause on why we have such a positive mix coming from our smoke-free portfolio. And look, here, you have the data. If you look at the revenue per stick per unit equivalent, and here, I'm speaking about dollar, okay? I am in dollar terms. We are generating on average 2.5x more dollar per unit than on our combustible portfolio. What does it mean? Well, it means that if we are just replacing, even not growing in terms of volume, which, as I said, we are intending to do, the simple fact of replacing our combustible by a smoke-free business is generating a significant growth in our revenue. And if you look at the level of the gross profit per unit, here again in dollar terms, it's equivalent. It's even a bit higher. We generate in dollar terms 2.6x more gross profit in dollars on our smoke-free portfolio than on our combustible business. And the positive mix effect doesn't stop there because if you look at the gross margin rate, smoke-free portfolio is also coming as an enhancer of our overall gross margin. So here, you have over the last 3 years, the progression of our gross margin rate, both on smoke-free and on our combustible business. We're growing on both, okay? So we have a positive trajectory on the 2. But look at the growth on our smoke-free portfolio. We've been reaching almost 70% with a very dynamic growth over the last 3 years, and we are generating 4 percentage points of differential in growth between smoke-free and combustible. So of course, we're growing volume fast. They are very profitable in terms of dollar per unit, and we are improving the margin. No surprise that in 5 years, we've been doubling up the share of our smoke-free product in our gross profit from about 22% to close to 43%. We grow, we are profitable. We are increasing the profitability with all the drivers I've been mentioning, and that is explaining how we have been delivering close to double digit and even in '25, above double-digit organic growth in the past years. And we have been very consistent in the performance once again between '25 and the last 5 years. As I explained, this is coming with an improvement in our gross margin that has been coming at a Climax versus the past years in '25 with 140 basis points improvement of our operating income margin, and we've been passing 40% OI margin. There is one element in this performance that I have not been commented so far, and that is the fact that over the last 3 years, we managed to increase our gross profit faster than our cost, our SG&A. And here, I want to clarify the fact that we make a big difference between what we call productive investment when we build a brand, when we invest in marketing, when we invest in our commercial impact, where we are indeed increasing a lot our investment. I won't elaborate by how much, of course. And then the G&A, the back-office cost, where we are relentlessly looking for efficiency, looking for simplification. And of course, the next wave of big saving here is going to come from leveraging artificial intelligence. We are happy to grow very fast in terms of organic performance. But at the end of the day, of course, we want to deliver strong growth in dollar term. And look at the performance since 2020, we've been moving from $5.17 our adjusted earnings per share to $7.54. And we've been reiterating our guidance this morning, and we are targeting at the prevailing rate when we announced our full year numbers, $8.38 to $8.53. If we deliver this guidance, that would be the third year in a row where we deliver close to double-digit or even above double-digit growth in dollar term. We grow fast. We are very profitable. We are even further increasing profitability, and we deliver in dollar term. We are also highly cash generative. Last 2 years, '24 and '25, we generated operating cash flow of more than $12 billion. And for the next 3 years, so '26 to '28, we are targeting to generate an operating cash flow of around $45 billion. And at the same time, we're going to stabilize our CapEx with an average between $1.3 billion to $1.5 billion. This strong growth in profit, strong cash generation is enabling us to deleverage first, and we confirm that we are targeting to be close to 2x net debt to EBITDA at the end of 2026. That is also allowing us to reward our shareholders. We are today about our target in terms of payout ratio, which is 75% of our net profit into dividend. And that means that in the future, we're going to be able to be increasing the speed of our dividend growth as we're going to be much closer to the profit growth when it comes to the dividend growth. And it has started already in 2025, where we've been increasing by almost 9% our dividend. Needless to say that this very strong cash flow generation, increasing profitability is giving us extra flexibility in our capital allocation, including shareholder reward. And I want to finish on this one. We grow fast. We are profitable. We increase profitability. We are highly cash generative. We are rewarding our shareholders. This is translating into total shareholder return that has been extremely high in the last years. Whatever the reference you take, if you take since the spin, if you take last 3 years, last 5 years, as you can see, we've been beating the MSCI Tobacco Index, the S&P 500 and the U.S. Staple, confirming our status of best-in-class company when it comes to total shareholder return in the consumer goods space. Thank you very much. We may have time for one question maybe. And after that, anyway, we have the breakout session, and I would really encourage you to join us to answer all your questions. Thank you very much.

Thank you. I think I have time for one question from the room. Perhaps Eric?

Eric Serotta from Morgan Stanley. Jacek, with the increased focus on the multi-category SFPs, is there a need for increased investment or moving these into more markets? It always seems like that's been less of a focus than obviously IQOS and even VEEV lately. How is your view towards the e-vape category evolved? And how do you look at that going forward?

Yes. So in the countries when IQOS already has established strong position, obviously, the requirement for the additional investments or incremental investments are much lower. So if I take Japan, it's more the function of competitive dynamics rather than infrastructure and the heavy lifting has been done. I mentioned Taiwan, obviously, we'll have to invest a little bit, especially that our cigarette presence was very small. But on the other hand, every new market, which will open these days or in the coming period is benefiting from the halo effect, which the brand has already built, carrying with its from abroad. So obviously, if you go to the Taiwan, the 6% after 3 months is not happening by miracle because the Taiwanese consumers was well aware about the product in Japan and many surrounding places. Yes, I mean, if we open a large geographies, I mentioned a few of those, 4 of those, Turkey, India, et cetera. I mean we have some infrastructure in some of these countries. So maybe the incremental again is there less of the spend needed to build awareness because the product already somehow is bringing this awareness from abroad and there is some retail investment. But this is nothing in the magnitude I would argue that the step-up in the investments, which we had to have on the very beginning of the transformation coming back to the e-vape. The way I look into this whole thing, and I know there's a lot of focus on the U.S. and the illicit market and how these things can be cleared up. And there's a lot of similar type of dynamics in many international countries. Hence also our strategy for the e-vape is to engage when we think that there is more near term, not immediate, but near-term path to the sustainable from an economic perspective business model and don't enter into the places where there is no level playing field and we better allocate the resources to the few other places when we can make more meaningful also from an economic perspective impact. Having said so, I always encourage everyone to take the view of the consumer. If the consumer U.S. and international is using e-vape product, the fact that today, they're using this product from illicit market or legal market is a secondary. That problem has to be resolved. But a very important fact is that there is a demand for the e-vape product. And now it is up to us, the industry and regulators, law enforcement to go and clean up the market. Remember that illicit -- use of the terminology of illicit product for e-vape products is different than when we're talking about the illicit on the cigarette business, which still perceive they are at 11% or 12% on a global basis. But that illicit was very much driven by the tax avoidance, tax evasion, that sort of the thing, a little bit of an arbitrage between the pricing between the market. Illicit on the smoke-free product, it's not driven by the fact that you have the differences in the fiscal treatment in the tax rate. It is driven by the fact that the regulators is not paying enough attention to create the legal market, the FDA in the U.S. Should the FDA be issuing more authorizations to whoever are the players in the market, then you can address the illicit part of that market very quickly because I believe most of those people would like to go into something, which is consumers would like to go into something which has some reputation, has some assurance of the quality standard, okay, has been reviewed, authorized, et cetera, with the appropriate regulatory bodies, et cetera. So you have 2 different illicit, and cigarette illicit is very difficult to resolve because you have this massive tax distortion, which creates some opportunities for some criminals, unfortunately. But this is not a fiscal-driven illicit for e-vape. So again, I look at this, there is a demand for e-vape product. The demand stays and will grow, which is a very nice problem to have. What has to be resolved is how you bring this -- how you create the legal market. And I believe by mere fact that -- by sheer fact that this legal market is being created, the problem is resolved. We've been a very -- there's nothing wrong with having some luck in the business as well, but we -- we're in a very good spot when it comes to heat-not-burn that the market definitely is not as much "corrupted" from the illicit products or by the illicit products. I think we have a pretty good hold on the pouch categories. So the one category which has to be resolved is the vape product, but I think it's a very promising category. It is just today and unfortunately, for some years, economies of the whole things, et cetera, is unbearable for the reputable legal players. But I think it's going to -- one day, it's going to be resolved.

All right. Thank you, Philip Morris, and please join us in the breakout.

Thank you.