Q4 2021 Philip Morris International Inc Earnings Call

Speaker 1: I'll turn the call over to Mr. Nick Crowley, Vice President of Investor Relations and Financial Communications. Please go ahead, sir. Thank you Wh bar Investigates the

Nick Rolli, Vice President of Investor Relations and financial Communications. Please go ahead Sir.

Welcome and thank you for joining US earlier today, we issued a press release containing detailed information on our 2021 fourth quarter and full year results you may access the release on Www Dot PMI Dot com.

Speaker 2: Earlier today, we issued a press release containing detailed information on our 2021 fourth quarter and full year results. You may access the release on www.pmi.com.

Speaker 2: glossary of terms including the definition for reduced risk products or RRPs as well as the just

A glossary of terms, including the definition for reduced risk products or rps as well as adjustments other calculations and reconciliations to the most directly comparable U S. GAAP measures and additional heated tobacco unit market share data are at the end of today's webcast slides, which are posted on.

Speaker 2: other calculations and reconciliation to the most directly comparable U.S. gap.

Speaker 2: and additional heated tobacco unit market share data are at the end of today's webcast slides, which are posted on our webcast.

Our web site.

Speaker 2: And, as otherwise stated, all references to Icos are to our Icos heat-up burn product.

Unless otherwise stated all references to Iqos are to our Iqos heat not burn products and all references to smoke free products are to our rfps.

Speaker 2: all references to smoke-free products are to our R.R.

Growth rates presented on an organic basis reflect currency neutral underlying result.

Speaker 2: Growth rates presented on an organic basis reflect currency neutral underlying results.

Speaker 2: Following the acquisitions of Fertin Pharma, Ota Topic, and Vectora Group, PMI added the other category in the third quarter of 2021.

Following the acquisitions of FERC and pharma.

Topics and Victoria Group PMI added the other category in the third quarter of 2021.

Speaker 2: Business operations for the other category are evaluated separately from the geographical operating section.

Business operations for the other category are evaluated separately from the geographical operating segments.

Speaker 2: Today's remarks became forward-looking statements and projections of future results. I 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 for forward-looking statements.

Today's remarks contain forward looking statements and projections of future results I 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.

Speaker 2: Please also note the additional forward looking and cautionary statements related to COVID-19.

Please also note the additional forward looking and cautionary statements related to COVID-19.

Speaker 2: It's now my pleasure to introduce Jasik Olchek, our Chief Executive Officer, and Emmanuel Babo, our Chief Financial Officer.

It is now my pleasure to introduce Jacek Olczak, our Chief Executive Officer, and Emmanuel <unk>, Our Chief financial officer over to you yet.

Thank you Anita and welcome everyone.

Speaker 3: Thank you, Nick, and welcome everyone. I hope you all save and win.

I hope, you're all safe and well.

Speaker 3: Our business delivered an excellent performance in 2021, reaching record net revenues, adjusted diluted EPS and cash flow, with growth in overall volumes, high single-digit organic net revenue growth and strong double-digit adjusted EPS growth.

Our business delivered an excellent performance in 2021, reaching correct correct Daniel.

Adjusted diluted EPS and cash flow with growth in overall volumes.

Go digit organic net revenue growth and strong double digit adjusted EPS growth.

Speaker 3: This illustrates the sustainable nature of our growth based on new products and innovation as demonstrated by continuous strength of cycles which delivers 31% fully organic growth in RLP net revenue.

The healer.

Payable nature of our growth based on new products and innovation as demonstrated by continued strength of Iqos.

10, 31% full year organic growth in RP net revenues.

Speaker 3: smoke-free products surpassed 30% of total net revenues in Q4 as we progress towards our ambition of becoming a predominantly smoke-free company by 2025.

Small group products, 30% of total net revenues in Q4, as we progress towards our ambition of becoming a predominantly smokefree company by 10% to 25.

We are especially pleased by the acceleration of our business in Q4 to deliver better than expected result.

Speaker 3: We are especially pleased by the acceleration of our business in Q4 to deliver a better than expected result.

Speaker 3: This acceleration was visible in organic net revenues, high-cost user growth, heated tobacco unit market shares across developed and emerging markets, innovation in devices and consumables, and commercial investments and combustible market share.

The acceleration was visible in Oregon, we can add revenues are equal to or better growth.

Tobacco unit <unk> shows across developed and emerging markets innovation and devices and consumer growth and commercial investments and combustible markets sharp.

Iqos user growth will recover in Q2 reached an estimated 20 to $1 2 million total users despite ongoing tightness in device supplies in the second half of the year.

Speaker 3: Ico's user growth recovered in Q4 to reach an estimated 21.2 million total users, despite ongoing tightness in device supplies in the second half of the year.

Full year heated tobacco unit shipment volumes go to 25% to reach 95 billion new needs.

Speaker 3: fully air-heated tobacco unit shipment volumes grow 25% to reach 95 billion units, with broad-based growth for both our volumes and the category across key geographies, with an especially positive rebound in the EU.

But all debates goodall for both our volumes and the category across key geographies.

And then especially positive rebound in the EU.

The growth outlook for Iqos remains very positive with outstanding gaming show results from Iqos in Japan and Switzerland.

Speaker 3: The growth outlook for Icos remains very positive, with outstanding initial results from Icos Illuma in Japan and Switzerland. There are only two launches so far and growing traction for Icos V in early launch market.

Only two launches so far and growing traction for our <unk>.

Launch markets.

In combustibles, we're essentially reach our goal of stable category share in the fourth quarter. Despite the impact of Iqos cannibalization.

Speaker 3: In combustibles, we essentially reach our goal of stable category share in the fourth quarter, despite the impact of icos-cannibalization.

During the day you added we have laid the foundation for our long term growth ambitions beyond clinical team in Latin America.

Speaker 3: During the year, we laid the foundations for our long-term growth ambitions beyond nicotine in wellness and healthcare, including the milestone acquisition of Ferti and Vectora, which provide essential capabilities for future product development.

In Colombia, the milestone acquisition of <unk>, and Victoria, which provides essential capability for future product development.

And last bolstered by strong operating cash flow, we continue to prioritize the return for shareholders for a five 2% increasing the dividend and ongoing repurchases.

Speaker 3: And last, bolstered by strong operating cash flow, we continued to prioritize returns to shareholders through a 4.2% increase in the dividend and ongoing share repurchases.

Okay.

Speaker 3: Turning to the headline numbers, our fully adjusted net revenues grew organically by 7.6% or 10.3% in dollar terms, including positive current.

Turning to the headline numbers, our full year adjusted net revenues grew organically by seven 6%.

Our 10, 3% in dollar terms, including positive currency.

Speaker 3: This reflects the continued underlying strength of IECO and the ongoing recovery of the combustible business in many markets compared to the pandemic affected per year.

This reflects the continued underlying trends of Iqos and the ongoing recovery of the combustible business in many markets compared to the pandemic affected per year.

Speaker 3: Our net revenue per unit grew 5.3% organically driven by the increasing propulsion of ICOS in our sales mix and price.

Our net revenue per unit grew five 3% organically driven by the increasing proportion of iqos in our sales mix and pricing.

Speaker 3: Combustible pricing was in line with our expectations at 2.7%, or around 4%, excluding Indonesia.

Combustible pricing was in line with our expectations at two 7% or around 4% excluding Indonesia.

Speaker 3: Our adjusted operating income margin increased by 200 basis points on an organic basis in line with our expectations, with continued positive effects from the increasing size and profitability of high cost, pricing and productivity savings.

Our adjusted operating income margin increased by 200 basis points on an organic basis in line with our expectations with continued positive effects from the increasing size and profitability of iqos pricing and productivity savings.

Speaker 3: through first half expansion, although strong health of expansions was tempered in the second half by the expected initial higher unit cost of Icosiluma, geographic and category expansion investment, and the Q4 resumption of consumer programs in a number of markets.

For first half expense, although strong kind of solid expansions was tempered in the second half buyback expected any shelter higher unit cost of Iqos illumina.

Graphic and category expansion investment and Q4, the resumption of consumer programs and the number of markets.

Speaker 3: Our resulting adjusted diluted EPS of $6.08 will present 17.6% growth in dollar terms and 15.3% currency neutral growth. This is well above our prior guidance as IECO's user growth, the launch of the Luma and Total Industry volumes exceeded our expectations.

Our resulting adjusted diluted EPS of $6 <unk> to represent 17, 6% growth in dollar terms and 15, 3% currency neutral growth. This is well above our prior guidance.

Iqos user growth the launch of the <unk> total industry volumes exceeded our expectations.

Speaker 3: And finally, we generated operating cash flow of $12 billion, reflecting excellent underlying cash conversion, in addition to strong Q4 business results and certain timing factors.

And finally, we generated operating cash flow of $12 billion, reflecting excellent underlying cash conversion. In addition to strong Q4 business results and guidance.

Timing factors.

Speaker 3: Looking at our Q4 performance, Net Revenues grew by 8.4% organically.

Looking at our Q4 performance net revenue to grow by eight 4% organically.

Speaker 3: This reflects the sequential improvement in IQOS user acquisition, the initial success of ILUMA in Japan, and strong overall volumes, including a further recovery in combustible.

This reflects the sequential improvement in a confused that acquisition. The initial success of Zillow Miami upon and strong overall volumes, including a further recovery in combustibles.

Speaker 3: We delivered a robust organic net revenue per unit growth of 4.1%, again reflecting our shifting business needs.

We delivered robust organic net revenue per unit growth of four 1% again, reflecting our shifting business mix.

We achieved this despite softer pricing in combustibles, a one 4% due to the factors previously of continued pandemic related challenges in some markets as well as comparison effect in Germany and Australia.

Speaker 3: We achieved this despite softer pricing on combustibles of 1.4 percent due to the factors flagged previously of continued pandemic-related challenges in certain markets, as well as comparison effects in Germany and Australia.

Speaker 3: Our Q4 adjusted operating income margin declined by 10 basis points on an organic basis primarily due to the same factors mentioned for the second half as accelerating business performance opened more opportunities for investment in future growth.

Our Q4 adjusted operating income margin declined by 10 basis points on an organic basis, primarily due to the same factors mentioned for the second half as accelerating business performance opened more opportunities for investments into its own growth.

Speaker 3: Despite that, our currency neutral adjusted value to DPS again grew strongly by 11.9%, also reflecting a lower interest cost and effective tax rate.

Despite that our currency neutral adjusted diluted EPS again grew strongly by 11, 9% also reflecting a lower interest cost and effective tax rate.

Turning now to 'twenty to 'twenty two guidance.

After the temporary slowdown in April is that a good all in the second half of 2021, the device supply situation is gradually improving.

Speaker 3: After the temporary slowdown in iQOS user growth in the second half of 2021, the device supply situation is gradually improving.

Speaker 3: While the situation remains fluid, we now expect a more limited impact, allowing us to gradually return to prior rates of user progression over the coming quarter.

While the situation remains fluid.

We now expect a more limited impact, allowing us to gradually return to prior rate of user progression over the coming quarters.

With the remarkable success of first to market.

Speaker 3: With the remarkable success of Illuma in its first market, a number of other innovations planned, and promising growth for ICOs in low- and middle-income markets, our 2022 growth fundamentals are strong and we look forward to an exciting year.

A number of other innovations planned and promising growth for iqos in low and middle income market.

Our 20% to 22, but our fundamentals are strong and we look forward to an exciting year.

Speaker 3: We note that the slower user growth in the second half of 2021, particularly in the third quarter, will have an estimated carryover effect on our growth this year of around 4 to 5 billion kitted tobacco units.

We know that the slope of the user growth in the second half of 'twenty to 'twenty, one, particularly in the third quarter. We will have an estimated carryover effect on our growth. This year of around 42 5 billion heated tobacco units.

Speaker 3: This is reflected in our 2022 expectations of 113 to 118 billion HTL shipments volume.

This is reflected in our 'twenty to 'twenty two expectations of 130 to 118 billion HD shipment volume.

Given this continued growth we expect that our full year <unk> shipments to again be effect of IMS volume.

Speaker 3: Given this continued growth, we expect our full year H2O shipments to again be ahead of IMS volume.

We expect to deliver between a photo.

Speaker 3: We expect to deliver between a 4% and a 6% organic net revenue growth, keeping us well on track to deliver our 2021-2023 compound annual growth rate target of more than 5%.

And a 6% organic net revenue growth.

Pink us well on track to deliver our 2021 2021 'twenty free compounded annual growth rate target of more than 5%.

Does the range program prudently incorporated the continuing uncertainty on the full device availability and the pace of the ongoing pandemic recovery.

Speaker 3: This range prudently incorporates the continuing uncertainty on full device availability and the pace of the ongoing pandemic recovery.

Speaker 3: For duty free, we assume no meaningful pickup in Asian travel, but a continued gradual recovery in our geography.

For duty free.

I assume no meaningful pick up in Asia, and travel, but the continued gradual recovery in our geographies.

We expect our <unk>.

Speaker 3: We expect our adjusted operating income margin to expand between a 50 and 150 basis point as the positive effects of our product transformation continue.

Adjusted operating income margin to expand between 50, and 150 basis points as the positive effects of our product transformation continues.

Speaker 3: despite the expectation of a moderately lower growth margin.

Despite the expectation of a moderately lower gross margin.

Speaker 3: This is essentially attributable to temporary ILUMA-related factors such as the higher initial weight and cost of terrestrial consumables and the cost of devices, which we expect to decrease over the 18 to 24 months post-launch, as we have experienced with previous major innovations.

This is essentially attributable to temporary Loma related factors, such as the higher initial rate and cost of the consumables and the cost of devices, which we expect to decrease of 18 to 24 months post launch as we have experienced in previous.

With previous major innovations.

Speaker 3: We also account for higher logistic costs, where the tremendous uptake of Iruma in Japan has led to increased use of air freight, investments to grow capacity across our smoke-free platforms, and inflation in certain supply chain elements.

We also account for a higher logistic costs, what are the tremendous appetite of yellow mining, Japan has led to increased use of airfreight.

<unk> to grow capacity across our smoke free platforms and inflation in sand supply chain element.

Speaker 3: Operating income margin expansion and continued reinvestment in attractive smoke-free growth opportunities and in wellness and healthcare R&D will again be supported by our ongoing efficiency program. We remain on track to deliver around $2 billion in gross savings by 2023.

Operating income margin expansion and continued re investment in attractive smokefree growth opportunities.

And in wellness and health kind of RMB will again be supported by our ongoing efficiency program.

On track to deliver around $2 billion in gross savings by 2023.

Accordingly, we're further cost currency neutral adjusted diluted EPS growth of 8% to 11%.

Speaker 3: Accordingly, we forecast currency neutral adjusted diluted EPS growth of 8 to 11 percent.

Speaker 3: This translates into an adjusted diluted EPS range of $6.12 to $6.30, including an estimated unfavorable currency impact of around $0.45 at prevailing rates.

This translates into an adjusted diluted EPS range of $6 20 to $6 in therapy.

<unk> estimated unfavorable currency impact of around 45% at prevailing rates.

Speaker 3: This is primarily due to translation effects and this currency impact reflects notably the depreciation of the Euro, Japanese Yen and Turkish Lira versus the Dollar.

This is primarily due to translation effects.

This currency impact.

Notably the depreciation of the Euro Japanese yen and therapies MELA Sciences the Ghana.

Speaker 3: This guidance includes the impact of $785 million of shares purchases made in 2021, which were somewhat restricted by blackout period.

This guidance includes the impact of 785 million.

Dollars offsetting with purchases made in 2021, which were somewhat restricted by blackout periods.

Speaker 3: It does not reflect the impact of repurchases in 2022 as we continue to take an opportunistic approach within our target of between $5 to $7 billion over three years.

It does not reflect the impact of repurchases in 2020 tool as we continue to take an opportunistic approach within our target of between $5 billion to $7 billion over three years.

Our guidance also reflects the impact of the acquired businesses, which we expect to generate underlying operating income in line with our business plan, but with an operating loss of around $150 million or approximately 1% of adjusted diluted EPS, which one.

Speaker 3: Our guidance also reflects the impact of acquired businesses, which we expect to generate underlying operating income in line with our business plan, but with an operating loss of around $150 million or approximately 1% of adjusted value to DPS, which we'll come back to explain later.

I'll come back to explain later.

As outlined in today's release, there are a number of other assumptions underpinning our outlook.

Speaker 3: As outlined in today's release, there are a number of other assumptions underpinning our outlook.

Speaker 3: We expect the total industry volume of cigarettes and tobacco units, excluding the U.S. and China, to decline between a minus one and minus two percent.

We expect the total industry volume of cigarettes, and heated tobacco units, excluding the U S and China to decline between that.

Between a minus one and minus 2%.

Speaker 3: Given our leadership in smoke-free products, the structural growth of the category and its growing proportion in our business, we expect to gain share a target broadly stable total PMI shipment volume within a range of minus one to plus one percent.

Given our leadership in small crude products the structural growth of the category and it's a growing proportion in our business, we expect to gain share at target broadly stable total total PMI shipment volumes within the range of minus one to plus 1%.

Speaker 3: We assume full year combustible pricing of 3 to 4 percent with a softer first half and a stronger second half of the year and this is clearly above 2021 level.

We are still fully at our combustible pricing of three 2% with a softer first half and a stronger second half of the year and this is clearly above 20 to 21 levels.

The pricing environment is improving but still challenging capital market with the ongoing pandemic related impacts.

Speaker 3: The pricing environment is improving, but still challenging certain markets with ongoing pandemic-related impacts.

Okay.

Speaker 3: Our balance sheet is strong. We delivered excellent operating cash flow of $12 billion in 2021, reflecting robust underlying cash conversion, in addition to favorable timing and one of the impacts of around $500 billion.

Our balance sheet is strong we delivered excellent operating cash flow of $12 billion in 2021, reflecting robust underlying cash conversion in addition to favorable timing and one.

One of the impacts of around $1 billion.

Speaker 3: With further strong organic profit growth expected in 2022, we expect to generate around 11 billion of operating cash flow subject to year-end working capital requirements and after accounting for the reversal of timing benefits and prevailing exchange rates.

We're further strong organic profit growth expected in 2022, we expect to generate around $11 billion of operating cash flow subject to <unk> capital requirements and after accounting for the reversal of timing benefits.

Prevailing exchange rates.

Speaker 3: As a result, we raised our 2021 to 2023 operating cash flow target, communicated at the February 2021 investor day, at then prevailing rates from around $35 billion to the range of $36 to $37 billion.

As a result, we raised our 2021 'twenty free operating cash flow target communicated that the February 2021, Investor day at then prevailing rates from around 35 billion to the range of 36% to $7 billion.

We also expect full year capital expenditures of around $1 billion.

Speaker 3: We also expect four-year capital expenditures of around one billion dollars reflecting increased capacity investments behind our behind our small three platforms including Iluma and enhancing our digital commercial engine in addition to certain projects which were delayed due to the pandemic.

Reflecting increased capacity investments behind our behind our small <unk> platforms, including the Luna and enhancing our digital commerce LNG. In addition to certain projects, which were delayed due to the pandemic.

Speaker 3: Lastly, looking specifically to the first quarter of 2022, we expect adjusted diluted EPS of $1.50 to $1.55, including $0.15 of unfavorable currency at prevailing rates.

Lastly, looking specifically to the first quarter of 2022, and we expect adjusted diluted EPS of $1 50 to $1 55.

<unk> 15 of unfavorable currency at prevailing rates.

We expect robust organic top line growth and operating margins comparisons reflect above the very strong prior year quarter, which benefited from a high level of productivity savings and the relatively low levels of investment.

Speaker 3: We expect robust organic top-line growth and operating margins comparisons, which reflect both the very strong prior year quarter, which benefited from a high level of productivity savings and relatively low levels of investment, and the Q1 of 2022 dynamics of increased device sales, commercial investments, Irma-related costs, and increases in some inputs such as freight.

And the Q1 of 'twenty to 'twenty two dynamics of increased device sales commercial investments neuroma related costs and increases in some inputs such as freight.

Speaker 3: Let me now hand over to Emmanuel, who will give you more details about our performance in 2021. Thank you.

Let me now hand over to Manuel who will give you more details of our performance in 2021. Thank.

Thank you.

Turning back to our 2021 reserves total shipment volumes increased by plus four 2% in Q4 and by plus two 2% for the year. This reflects continued strong broad based growth from HQ use of plus 25%.

Speaker 3: Turning back to our 2021 results, total treatment volumes increased by plus 4.2 percent in Q4 and by plus 2.2 percent for the year. This reflects continued strong broad-based growth from HTUs of plus 25 percent or 18.9 billion units for the full year, comfortably exceeding the decline of 3.6 billion cigarettes.

$18 9 billion units for the full year comfortably exceeding the decline of $3 6 billion cigarettes.

Speaker 3: The plus 2.4 percent increase in our Q4 cigarette volume reflects the continued sequential recovery of the total industry and of our category share in addition to a 2.7 billion stick favorable inventory movement which mainly reflects inventory reduction in the prior quarter.

The plus two 4% increase in our Q4 cigarette volumes reflect the continued sequential recovery of the total industry and of our category share. In addition to a $2 7 billion stick favorability.

February brought inventory movements, which mainly reflects inventory reduction in the prior year quarter.

Due to the remarkable performance of Iqos heated tobacco units comprise almost 14% of our total shipment volume in the fourth quarter and 13, 2% for the year as compared to 11% in full year, 2028% in 2019 and 5% in <unk>.

Speaker 3: Due to the remarkable performance of IQOS, eated tobacco units comprise almost 14% of our total shipment volume in the fourth quarter and 13.2% for the year, as compared to 11% in full year 2020, 8% in 2019, and 5% in 2018.

2018.

Speaker 3: Our sales mix is evolving rapidly, putting us on track to become a majority smoke-free company by 2025.

Our sales mix is evolving rapidly putting us on track to become a majority Smokefree company by 2025.

Speaker 3: smoke-free net revenues made up over 30% of our adjusted total revenue in Q4, and 29% for the year as compared to 24% in 2020.

<unk> revenues made up over 50% of our adjusted total revenue in Q4, and 29% for the year as compared to 24% in 2020.

Speaker 3: In 10 markets, we have already surpassed 50 percent.

In 10 markets.

<unk> already surpassed 50%.

Speaker 3: ICOs devices accounted for over 6% of the $9.1 billion of 2021 RRP net revenues, with a step-up in H2 reflecting the ICOs Illuma launch, outweighing the effect of supply constraints on other ICOs versions.

Iqos devices accounted for over 60% of the $9 1 billion of 2021, arguing that we renewed.

We just step back to reflecting the iqos into my lunch hour, bringing the effect of supply constrained on other acquisitions.

Speaker 3: We delivered plus 7.6% organic growth in 2021 net revenues on shipment volume growth of plus 2.2% reflecting the twin engines driving our supply.

We delivered seven 6% organic growth in 2021 net revenues.

Shipment volume growth of plus two 2%, reflecting the twin engine driving our top line.

Speaker 3: The first is pricing on combustible and in certain markets on H2.

The first is pricing on convertible and in certain markets on HD.

Speaker 3: Second, is the increasing mix of HDUs in our business at higher net revenue per unit, which continues to deliver substantial growth, an increasingly powerful driver as our transformation accelerates.

Second is the increasing mix of Skus in our business.

The revenue per unit, which continued to deliver substantial growth and increasingly powerful driver as our transformation accelerates.

Speaker 3: Let's now turn to the driver of our 2021 margin expansion.

Let's now turn to the driver of our 2021 margin expansion.

Speaker 3: Our gross margin increased by 190 basis points on an organic basis due to product mix, pricing, and cost savings, while our adjusted marketing administration and research costs were 10 basis points better as a percentage of adjusted net revenues.

Our gross margin increased by 190 basis points on an organic basis due to product mix pricing and cost savings.

Our adjusted marketing administration and research costs were 10 basis points better as a percentage of adjusted net revenues.

Speaker 3: We generated over $800 million in gross cost savings in 2021, with around $550 million in manufacturing and supply chain productivity, and more than $250 million in SG&A efficiency before inflation.

We generated over 800 million Delta in gross cost savings in 2021 with around $550 million in manufacturing and supply chain productivity and more than $250 million.

In SG&A efficiency before inflation.

Speaker 3: This represents strong progress towards our target of around $2 billion for 2021-2023 and allows us to reinvest in top-line growth while continuing to deliver robust margin progression.

This represented strong progress towards our target of around $2 billion for.

For 2021, 2023 and allows us to reinvest in topline growth, while continuing to deliver robust margin progression.

Speaker 3: While OI margin expansion was lower in H2, this reflects the positive dynamic of our business and the ability to return to normalized investment levels compared to the pandemic-affected prior year.

Oi margin expansion was lower and it's true.

Liquidity dynamic of our business and the ability to return to normalized investment levels compared to the pending <unk> prior year.

Speaker 3: Illuma device and HTU shipments commence with higher initial unit cost, and we re-accelerated investment in our commercial program, digital engine and R&D, as well as a number of growth opportunities across categories and geographies.

Illuminate device and hte shipments commenced with initial unit cost and we re accelerated investment in our commercial program digital engine and R&D as well as a number of growth opportunities across categories and geographies.

Speaker 3: we intend to continue investing in such opportunities in 2022. But with the benefit of scale, operating leverage, and accelerated efficiencies, we continue to target organic SG&A increases below the rate of CSGO.

We intend to continue investing in such opportunities in 2022, but with the benefit of scale operating leverage and accelerated efficiencies. We continue to target organic SG&A increases below the rate of sales growth.

Speaker 3: Moving now to market share, our share of the combustible category recovered and was essentially stable in Q4 on a year-over-year basis as our portfolio initiatives bear fruit and pandemic-linked restrictions recede in many markets.

Moving now to market share our share of the convertible category recovered and was essentially stable in Q4 on a year over year basis.

Our portfolio initiatives.

And then Denise Lynch restriction received in many markets.

Speaker 3: Our leadership in combustible has to maximize switching to smoke-free products and we continue to target a stable category share all the time despite the impact of high-cost cannibalization.

Our leadership in convertible as to maximize switching to smoke free product and we continue to target a stable category share overtime.

The impact of Iqos cannibalization.

Speaker 3: As ICOs through the growth re-accelerate, we target at worst a slightly decline in 2022.

As iqos user growth accelerates we target at.

A slightly decline in 2022.

Okay.

Speaker 3: For the combustible category overall, the improving total market volume backdrop includes notable Q4 recoveries in Indonesia, Mexico, and Turkey, close to stable industry volume in the EU region, and a modest recovery in duty-free driven by sales outside Asia.

For the convertible category overall, the improving total market volume backdrop includes notable Q4 recoveries in Indonesia, Mexico and Turkey.

Stable industry volume in the EU region, and a modest recovery in duty free driven by sales outside Asia.

Speaker 3: Daily consumption remains below pre-COVID level in certain markets, such as the Philippines, where our share of market is influenced by mobility and social consumption.

Daily consumption remains below pre COVID-19 levels in certain markets, such as the Philippines, where our share of market is influenced by mobility and software consumption.

Speaker 3: In Indonesia, our share was again broadly stable on a sequential basis, despite the continuous growth of the below Tier 1 segment and our volumes grew over 4% for the year.

In Indonesia our.

Our share was again broadly stable on a sequential basis. Despite the continued growth of the <unk> segment and our volumes grew over 4% for the year.

Speaker 3: The reduction from 10 to 8 excise tax year in 2022 represents a step in the right direction and the industry-weighted average excise increase of around plus 13% is slightly below the prior year. However, the playing field remains unequal between industry players and the pricing environment remains challenging.

The reduction from 10 to two eight excise tax here in 2022 represents a step in the right direction and the industry weighted average excise increase of around plus 13%.

Slightly below the prior year.

However, the playing field and equal between <unk> and the pricing environment remained challenging.

In terms of our overall share ongoing.

Speaker 3: In terms of our overall share, ongoing gains for our ICOs portfolio create positive momentum going into this year and we expect to resume overall share growth as well as achieving broadly stable total shipment volume. PMI-HTUs now have a 7.1% share in the markets where they are present, making them the third largest tobacco brand.

Ongoing game for our Iqos portfolio create positive momentum going into this year and we expect to resume overall share growth as well as achieving broadly stable total shipment volume.

PMI edge to US now at seven 1% share in the markets, where they are present, making them the third largest tobacco brand.

Speaker 3: This includes the number 1 position in 5 markets and the number 2 in a further 6 markets.

These include the number one position in five markets.

And remember too in a further six markets.

Speaker 3: Moving now to iCloud performance, we estimate there were approximately 21.2 million iCloud users as of December 31st.

Moving now to Iqos performance, we estimate Jay aware, approximately $21 2 million Iqos user as of December 31st.

Speaker 3: The improved user growth of plus 0.8 million in Q4 reflect our agile commercial model, which allowed us to rapidly adjust our consumer program and assortment.

Improve user growth of plus zero point $8 million in Q4.

Reflects our agile commercial model, which allowed us to rapidly adjust our consumer program and assortment.

Speaker 3: As demonstrated by the performance of Inuma in Japan and Switzerland, the underlying momentum of the IKO brand remains strong.

As demonstrated by the performance of in mind, Japan and Switzerland.

And momentum of the Iqos brand remains strong.

Speaker 3: While we don't get a full visibility over the full year of 2022, as device shortages ease, we expect to gradually return to user growth at or above the prior run rate of around 1 million per quarter.

While we don't yet have full visibility over the full year of 2022.

Device shortages ease, we expect to gradually return to user growth at or above their prior run rate of around 1 million per quarter.

Speaker 3: We estimate that 72% of total users, or 15.3 million adult smokers, have switched to IPOS and stopped smoking with a balance in various stages of conversion.

We estimate that 72% of total user or $15 3 million adult smokers have switched to iqos and stop smoking with the balance in various stages of conversion.

In the EU region.

Speaker 3: Fourth quarter, H2U share reached 6.4% of total cigarette and H2U industry volume.

Fourth quarter extra you share reached six 4% of total to Garrett and hte industry volume.

Speaker 3: 1.4 points higher than Q4 last year.

One four points higher than Q4 last year.

Speaker 3: underlying IMS growth trends remain excellent.

Underlying IMS growth trends remain excellent.

Speaker 3: This very good performance include strong growth across the region, with Italy reaching the milestone of 2 million users and positive contribution from Germany and Poland.

This very good performance included strong growth across the region with Italy, reaching the milestone of 2 million users and positive contribution from Germany and Poland.

Speaker 3: I also want to highlight Hungary, where our Q4 national HPU share exceeded 20% following Japan and Lithuania in reaching this important threshold.

I also want to highlight and Gary.

Our Q4 National HEU share exceeded 20% following Japan, and Australia in reaching this important threshold.

Speaker 3: To give some further color on our progress in the EU region, this slide shows a selection of the latest key cities of tech shares.

To give some further color on our progress in the EU.

This slide shows the selection of the latest TCT offtake shares.

Speaker 3: While Vilnius continued to lead the way with 37.5% share, the 20% level was also reached in Budapest, Rome, and Athens.

While values continued to lead the way we serve seven five.

Sure the 20% level was also reach in Budapest.

Anything.

Speaker 3: With strong progress across the region, we are especially pleased by Vienna, almost doubling to 4%. There's strong traction in London at almost 6% share and an acceleration in Zurich with the introduction of IQOS Illumina.

With strong progress across the region, we are especially pleased by the Gina almost doubling to 4% with strong traction in London at almost 6% share.

And acceleration in Zurich with introduction of Iqos Arena.

Speaker 3: We show further HTU shared data in the appendix to this slide.

We show further edge can you share that <unk> previous slides.

Speaker 3: Share growth continued in Russia with our Q4 SQ share up by plus 0.8 point to reach 8%.

Chevron continued in Russia, with our Q4 <unk> share up by <unk> eight points to reach 8%.

Speaker 3: For both Russia and the overall region, sequential growth in adjusted INS slowed in the last two quarters, partly reflecting the more acute device shortage and limit on commercial programs.

For both Russia, and the overall region sequential growth in adjusted IMS slowed in the last two quarters, partially reflecting the more accurate device shortage and limit on commercial program.

Speaker 3: In addition, the region was affected by the outing of cells in Belarus, which impacted sequential IMF growth in Q4.

In addition, the region was affected by the <unk> of sales in Belarus, which impacted sequential growth in Q4.

Speaker 3: In this context, as mentioned in the last quarter, we have seen some increased consumer triumph in Russia of discounted competitor offerings and disposable e-vapor products.

In this context as mentioned in last quarter, we have seen some increased consumer choice in Russia of discounted competitor offerings.

Disposable E vapor product.

Speaker 3: We continue to see high interest in the category and with the pipeline of exciting innovations planned, including the launch of Philuma, we aim to resume strong growth this year.

We continue to see interest in the category and with a pipeline of exciting innovations plan, including the launch of Sema, We aim to resume strong growth this year.

In Japan now.

Speaker 3: In Japan now, the adjusted total tobacco share for our HTU brand increased by plus 1.7 points to a record 21.8% in Q4 and an off-tech exit share approaching 23% with Q4 adjusted IMS sequential trends incorporating the pull forward of consumer off-tech into Q3 before the price increase.

Total tobacco share for our <unk> brand increased by plus one seven points to a record 21, 8% in Q4.

And uptake exit share approaching 23%.

Q4, adjusted IMS sequential trends and corporate teams a pull forward of consumer uptake into Q3 before the price increase.

Speaker 3: This performance reflects the strength of our portfolio and the launch of ICO Siluma, which I will come back to shortly.

This performance reflects the strength of our portfolio and the launch of Iqos edema, which I will come back to control.

Speaker 3: The overall e-tobacco category continues to grow, making up over 31% of the adjusted total Japanese tobacco market in Q4, with ICOs maintaining a high share of segments and capturing the majority of the category's 2021 growth.

The overall heated tobacco category continues to grow making up over 31% of the adjusted total Japanese tobacco market in Q4.

These iqos, maintaining a high share of segment and capturing the majority of the categories 2021 growth.

In addition to strong progress in developed countries, we see very promising iPhone growth in low and middle income market.

Speaker 3: In addition to strong progress in developed countries, we see very promising icon growth in low- and middle-income markets.

Speaker 3: prime example of this is Egypt, where off-tech share in Cairo is approaching 4% within six months of launch.

An example of this is <unk>, where offtake sharing taro is approaching 4% within six months of launch.

Speaker 3: with other notable successors including Lebanon, Jordan, the Dominican Republic, and the Philippines, despite funding restrictions in Manila.

These other notable successes, including Lebanon, Jordan, the Dominican Republic, and the Philippines, Despite funding such action in Manila.

This low and middle income market TCT performance is especially encouraging as we achieved it despite the premium position of the current iqos portfolio.

Speaker 3: This low and middle income market TCT performance is especially encouraging as we achieved it despite the premium position of the current ICOs portfolio.

Speaker 3: We do intend to bring a new complementary range of heat-not-burn products tailored to emerging markets toward the end of this year, which I will come back to.

We do intend to bring a new complementary range of seasonal product tailored to emerging market towards the end of this year, which I will come back to.

Speaker 3: With this potential in mind, we continue to drive the geographic extension of our smoke-free product as we aim to be in the Android market by 2025.

With this potential.

We continue to drive the geographic expansion of our smoke free products as we aim to be in market by 2025.

Speaker 3: During the quarter, we launched ICOs in both Morocco and Tunisia. This takes the total number of markets where PMI smoke-free products are available for sale to 71, of which 30 are in low and middle income markets.

During the quarter.

We launched Iqos in both Morocco and Tunisia.

This takes the total number of markets, where PMI smoke free products are available for sale to 71 of which 13 are in low and middle income markets.

Speaker 3: We plan to add more markets this year as we also meaningfully broaden our product offer and price segmentation within existing geography. This includes the extension of fleas and feets which are now available in over 20 markets across multiple regions and our expansion of e-vapor and nicotine pouches.

We plan to add more market. This year as we also meaningfully broaden our product offer and pricing mutation within existing geographies.

These include the extension of Slimline seats, which are now available in over 20 markets across multiple regions and our expansion of E vapor and nicotine pouches.

Speaker 3: Following the implementation of the ITC's importation ban, IQOS is not currently available in the US.

Following the implementation of the Itc's importation done Iqos is not currently available in the U S.

Speaker 3: We continue to work on contingency plans, including domestic manufacturing, and hope to be able to resume U.S. supply in the first half of 2023.

We continue to work on contingency plans, including domestic manufacturing and hope to be able to resume the U S supply in the first half of 2023.

It is important.

Speaker 3: It is important to remember that the ICC's decision on this patent is an outlier.

So remember that the ITC decision on this patent is an outlier.

Speaker 3: We were encouraged by the U.S. Patent Office's recent invalidation of one of the two patents included in the ITC ruling, and we take a decision on the second patent by April the 2nd, though the decisions are subject to an AP process.

We were encouraged by the U S patent office recently and validation of one of the two patents included in the ITC ruling and we expect the decision on the second patent by average the second decision.

These decisions are subject to an appeal process.

Speaker 3: The AG has been universally unsuccessful in asserting the same two-patent family against ICOs in Europe .

The AG has been universally unsuccessful.

It seems you're saying 2% against Iqos in Europe .

Speaker 3: Separately, in December , a German court ruled that BAT's blow-hyper cold-cold-heat-not-burn device infringes our patent and that we are entitled, among other things, to an injunction against BAT sales of the device.

Separately in December the German court ruled that Glu, IP holdco heat not burn devices in treatments, our patent and Thats. The untitled among other things to an injunction against <unk> T cells of the device.

Moving now to Iqos illumina.

Speaker 3: We are delighted to report the outstanding success since its launch in Japan and Switzerland, with sales performance and consumer reaction exceeding our expectations.

We are delighted to report the outstanding success since its launch in Japan, and Switzerland, We said performance and consumer reaction exceeding our expectation.

Speaker 3: In Japan, the uptake of Philuma devices and consumables among both existing IQOS users and legalized smokers has been rapid, with more than 20% of the large user base switching since the August launch, and over 20% of sales to legalized smokers new to IQOS.

The uptake of <unk> devices, and consumables among both existing Iqos user and legal age smokers is been rapid with more than 20% of the large user base switching since this launch and over 20% of sales to legal age smokers to.

To iqos.

Speaker 3: Moreover, the enhanced and consistently high-quality user experience, better reliability, and no need for cleaning has led to significant observed increases in conversion rate, retention rate, and net promoter score.

Moreover, we enhanced and consistently equity user experience better reliability and new need for PD.

Led to significant observed increases in conversion rate retention rate and net promoter score.

Yes.

Speaker 3: bodes well for volume growth, and indeed, premium-priced stereo consumables have been the fastest-growing launch in the smoke-free category, reaching an offtake share in the three main convenience store chains of 8% within three months of national launch.

Well for volume growth and indeed premium priced theory consumables has been the fastest growing launch in the smoke free category, reaching I must take share in the three main convenience store shelf change of 8%.

Within three months of National launch.

Speaker 3: and driving the growth of the Ethanol dump category following the October tax season price increase.

And driving the growth of the Ethernet done category. Following the October tax driven price increase.

Speaker 3: early results in Switzerland have been even more remarkable with over one-third of sales to new users and Theria making up over one-third of H2 sales after only two months of commercialization.

Early results in Switzerland, I've been even more remarkable with over one third of sales to new user and theory I'm, making up over one third of HD sales after only two months of commercialization.

Speaker 3: our HTU share growth has accelerated accordingly from 6% in September to 7.9% in December .

Our <unk> share growth as accelerated accordingly from 6% in September to seven 9% in December .

Speaker 3: This raises the heart of Iranian co-aging for the wider rollout of Illuma in the EU region and around the world and we plan to roll out gradually to more market this year mostly in H2.

These results are very encouraging for the wider rollout of Illumina in the EU region and around the world and we plan to rollout gradually to more markets. This year, mostly in Asia.

Speaker 3: While we continue to manage device supply constraints, the unprecedented growth in Japan also means we have had to accelerate both the supply of Terra consumables using air freight and the conversion of our production line to support new market launches.

While we continue to manage device supply constrained.

Precedent of growth in Japan also means we have add to accelerate both the supply of theory consumable using air freight and the conversion of a production line to support new market launches.

Speaker 3: with Enuma, ICO3DUO, and Leel, we know of three is not done technology under the ICO's umbrella to serve different consumer needs and segment the market. We have an exciting pipeline of innovation on devices and consumables across our technology at different price tiers.

With the Newmar Iqos redo Aneel, we know of three is not them technology under the iqos umbrella to different consumer needs and segment the market.

We have an exciting pipeline of innovation on devices and consumables across our technology at different price tiers.

Speaker 3: As I mentioned, we also plan to enhance our portfolio for future growth with the introduction of a new complementary technology toward the end of this year. This will be targeted at smokers in low- and middle-income markets, catching to the consumer need of simple, high-quality, affordable devices, and consumable, and specific local test preferences.

As I mentioned, we also plan to enhance our portfolio for future growth with the introduction of a new complementary technology towards the end of this year.

This will be targeted at smokers in low and middle income market catching to the consumer need of simple high quality affordable devices, and consumables and specific local test performances.

Yes.

Speaker 3: In terms of HTUs, after launching over 15 new non-ILUMA HTUs in Q4, we plan to continue expanding our portfolio across platforms, geographies and price points this year.

In terms of age to use.

Launching over 50, new non Illumina Skus in Q4, we plan to continue extending our portfolio across platforms geographies and price points. This year.

Speaker 3: We continue to commercialize ICOSV with very promising results in the first group of markets, where we started in our own channel with a limited range of test variants and nicotine levels. ICOSV is a premium product providing a superior experience and the commercial infrastructure of ICOS allows us to deploy efficiently and at scale through a bespoke route-to-market approach.

We continue to commercialize Iqos Z with very promising results in the subgroup of market, where we started in our own channel with a limited range of test volumes and nicotine levels.

<unk> is a premium product, providing a superior experience and the commercial infrastructure of Iqos allows us to deploy efficiently and at scale through bespoke route to market approach.

Speaker 3: As we start to expand distribution and the consumable offering, we observe signs of increased uptake and clear positive consumer feedback relative to competitive products. We see encouraging success in Italy and the Czech Republic, reaching double-digit offtake shares of closest employees, with rapid progress also visible in Croatia within three months of launch.

As we start to expand distribution and consumable offering we observe signs of increased uptake and can be a positive consumer feedback relative to competitive product, we see encouraging success in Italy, and the Czech Republic, reaching double digit offtake shares of crude system.

With rapid progress also visible in Croatia within three months of launch.

Speaker 3: After launching in Canada and Ukraine in the fourth quarter, we plan to add more markets in 2022 with timing subject to device availability.

After launching in Canada, and Ukraine in the fourth quarter, we plan to add more markets in 2022 with timing subject to device availability.

Speaker 3: We also continue preparation to apply for a PMTA from the U.S. FDA and now prudently assume readiness for filing in early 2023 and further clarity on the required preparatory steps.

We are also continuing preparation to apply for PMT from the USDA and now prudently assume readiness for filing in early 2023.

Further clarity on the required preparatory steps.

Speaker 3: An additional exciting mid-term growth opportunity is in the nicotine pouch category, where we aim to become a leading player with the Shiro brand.

And additional exciting mid term growth opportunity is in the nicotine pouch category, where we aim to become a leading player with a hero brand.

Speaker 3: Nicotine pouches provide a convenient smoke-free alternative for adult smokers, and while still early in many markets, we see Shiro playing an important role in our smoke-free portfolio over the coming years.

Nicotine pouches provide a convenient smoke free alternative for adult smokers and while still early many market.

This year, we're playing an important role in our smoke free portfolio over the coming years.

Speaker 3: Following the acquisition of Aegis News and Certain Pharma, we have established a base of product development and manufacturing expertise.

Following the acquisition of <unk> news on certain pharma, we have established base of product development and manufacturing expertise.

Speaker 3: Although we are still learning about the promising category, our high-cost commercial infrastructure allows for a fast rollout and we plan a number of launches over the coming quarters.

Although we are still learning about the promising category, our iqos commercial infrastructure and those for a fast rollout and we kind of number of launches over the coming quarters.

Speaker 3: The first major activity is the full relaunch of the revitalized Shiro portfolio in the Nordic this month from its more limited prior presence with full commercial activity and a broad portfolio of flavors and strength variants.

The first major activity is the full relaunch of the revitalized CLO portfolio in the northeast this month from its more limited prior presence with full commercial activity and a broad portfolio of flavors and exchange volumes.

Speaker 3: Separately, following feedback from the 2021 consumer test of our platform 2 carbon key product, the design of our current technology has been discontinued. We are assessing alternative design for this consumer segment.

Following feedback from the 2021 consumer test of our platform to carbon key product. The design of our current technology has been discontinued we are assessing alternative design for these consumer segments.

Speaker 3: Turning now to our nascent business beyond nicotine, the 2021 acquisition of 13 Vectura endocytopics provides the base for building critical respiratory and overall product development capabilities in tandem with our existing expertise. This opens up opportunity to deliver the positive effects of existing wellness and health care molecules in a fast and effective manner.

Turning now to our <unk> business beyond nicotine. The 2021 acquisition of 13 victory and OTT peak provide the base for building critical respiratory and overall product development capabilities in tandem with our existing expertise.

This open up opportunity to deliver the positive effect of existing awareness and this can molecules in a fast and effective manner.

Speaker 3: For the time being, our reported numbers in the other segment show the existing acquired business which delivered $101 million in net revenue in the fourth quarter and a marginal operating loss of $1 million.

For the time being our reported number in the other segment should the existing acquired business, which delivered $101 million net revenue in the fourth quarter and the marginal operating loss of 1 million.

The underlying performance is in line with our expectation with reported operating expenses, reflecting the amortization of intangible deal related item on our planned investments.

Speaker 3: The underlying performance is in line with our expectation with reported operating expenses reflecting the amortization of intangible deal-related item and our planned investment.

Speaker 3: Around 39% of Q4 revenue were derived from 13 smoking cessation products and nicotine botch operations.

39% of Q4 revenue.

Derived from 13 smoking cessation product and marketing operations.

Speaker 3: While we intend to continue the CDMO activities of the acquired company, the most significant value to PMI is in this ability to develop and commercialize new products in the wellness and healthcare segment over time.

While we intend to continue that should be more activity on the acquired company. The most significant value to PMI eog's ability to develop and commercialize new products in the wellness and discuss segment over time.

Speaker 3: We plan important R&D investment over the course of the coming years to support the aim of delivering meaningful incremental revenue starting two to three years from now as we pursue our ambition of at least one billion dollars of net revenue from wellness and healthcare products by 2025.

Plan important R&D investment over the course of the coming years to support the aim of delivering meaningful incremental revenue starting two to three years from now as we pursue our ambition of at least $1 billion.

Net revenue from wellness and escape for them by 2025.

Speaker 3: As I mentioned earlier, we expect an operating loss of around $150 million in 2022, with revenue of around $250 million, including smoking cessation products.

As I mentioned earlier, we expect an operating loss of around $150 million in 2022.

With revenue of around $250 million.

Smoking sufficient product.

Speaker 3: We recognize investor interest in our future product plan in these new areas and plan to provide more color at our CABNI conference presentation on February the 23rd.

We recognized investor interest.

Future product plan in these new areas and plan to provide more color at our Cagny conference presentation on February the 20 <unk>.

Speaker 3: Moving to sustainability and our ESG priorities, I'm happy to share that we recently completed a new sustainability materiality assessment to update and recalibrate our priorities in accordance with our biggest impact on society, double materiality, and extensive stakeholder input.

Moving to sustainability, and our ESG priorities and attuned to share that we.

Our recently completed a new sustainability method ecosystem to update and recalibrate our priorities in accordance with our biggest impact on society definitely much ADT and extensive stakeholder inputs, while addressing the impact of our products remain by far the biggest focus we also.

Speaker 3: While addressing the health impact of our product remains by far the biggest focus, we also identified a number of topics which are emerging in importance or require an evolved approach. We will publish the results next week.

Identified a number of strategic which are emerging importance are required and evolved approach we will publish the results next week.

Speaker 3: It is increasingly important to align management incentives with sustainability, materiality, performance, and impact.

It is increasingly important to align management incentives with sustainability at ADT performance and impact.

Speaker 3: We will strengthen this link in 2022 with a new sustainability index and plan to provide more details in the near future.

We will strengthen the fleet in 2022 with a new sustainability index and plan to provide more details in the near future.

Speaker 3: Our progress on sustainability continues to be recognized by leading external stakeholders with repeated inclusion in both the Dow Jones Sustainability Index North America and the Bloomberg Gender Equality Index and receiving CDP's AAA score for the second year running.

Our progress on certain ability continue to be recognized by leading external stakeholders with repeated intrusion and boost the Dow Jones sustainability Index, North America, and the Bloomberg gender equality index, and receiving Cdp's Triple H score for the second year running.

Speaker 3: We also published an Agricultural Labor Practices Report marking 10 years of the program. Since its introduction, we have successfully eradicated systemic issues related to child labor while improving living conditions of farmers and farm workers. It also outlines our ambition targets such as 100% of farmers supplying tobacco to PMI making a living income by 2025.

We also published an agricultural labor practices report, making 10 year, marking 10 years of the program.

Its introduction, we have successfully eradicated systemic issue related to chine level, while improving leading condition of farmers and farm workers.

It also outlines our ambitious targets such as 100% of pharma supply into the code to PMI, making a leasing income by 2025.

Speaker 3: On our most critical priority of product impact, the growing penetration of smoke-free products around the world is accelerating the end of cigarettes as legal smokers switch to better alternatives.

On our most critical priority of product impact the growing penetration of smoke free products around the world is accelerating at the end of cigarettes as legal age smokers switch to better alternative.

Speaker 3: I am also pleased to report further recent positive regulatory developments. For example, as part of its Beating Cancer Plan, the European Parliament Special Committee recognized and featured arm reduction in its draft report, for which a plenary vote will take place next week.

I'm also pleased to report further recent positive regulatory developments for example, as part of its beating concept plan. The European Parliament Special Committee recognize and future harm reduction any draft report for which the plenary vote will take place next week.

Speaker 3: in New Zealand, the government published its smoke-free action plan expressly excluding smoke-free products from the proposed measures.

New Zealand the government published its military action plan expressly excluding smoke free products from the appropriate measures.

Speaker 3: In addition, a number of countries, including Poland and Russia, have announced new multi-year excise tax plan with taxation of smoke-free products clearly differentiated from cigarettes, making 15 markets globally with such plans. There is a growing body of scientific and real-world evidence of the substantial risk reduction potential of smoke-free products compared with smoke-free.

In addition, the number of countries, including Poland and Russia.

New multiyear excise tax plan with taxation of smoke free products, clearly differentiated from Crs, making 15 market globally.

Yes.

There is a growing body of scientific and real world evidence of the substantial risk reduction potential ultimately coded compare with smoking.

Speaker 3: While challenges in some markets are to be expected, we continue to support the regulatory and fiscal framework that recognize this critical arm reduction opportunity. I will now turn it back to Jacek for some concluding remarks.

While challenges in some markets are to be expected, we continue to support regulatory and fiscal framework, that's recognized as critical and reduction of cooking.

I will note and invest when we get sick for some concluding remarks.

Frankly I'm antelope.

Speaker 3: Overall, we are very pleased to have delivered excellent growth last year in 2021 with a strong underlying momentum for ICOs as well as a record adjusted EPS, net revenues and a cash generation.

Overall, we are very pleased to have delivered excellent growth.

Last year in 2021.

Strong underlying momentum for Iqos as well as our record adjusted EPS net revenues and our cash generation.

Speaker 3: The consistent quality and sustainability of our organic top and bottom line delivery has been clearly demonstrated over the last two years, which I believe we all acknowledge were pretty turbulent years.

The consistent quality and sustainability of our organic top and bottom line delivery has been clearly demonstrated over the last three years, which I believe we all acknowledge.

Volunteers.

Speaker 3: with an improving outlook for device supply, although still with some elements of fragility, the exceptional initial success of Illuma and the number of innovations and growth initiatives. We look forward to 2022 with a tremendous excitement.

With an improving outlook for device supply molten still with some elements of an agility by exceptional initial success of Illumina and the number of innovations in growth initiatives. We look forward to 2022 with a tremendous excitement.

Speaker 3: At the same time, we will be building our development capabilities in wellness and healthcare through targeted investment in order to support the next driver of our long-term growth.

At the same time, we are building, we will be building our development capabilities in letting us enhance growth with targeted investment in order to support the next driver of our long term growth.

Speaker 3: Our balance sheet is strong and we have increased cash returns to shareholders through a higher dividend and our share repurchase program in line with our objectives to deliver sustainable value and returns to investors as we continue our Smoke Free Transformation.

Our balance sheet is strong and we have increased cash returns to shareholders through a higher dividend and our repurchase program.

In line with our objective to deliver sustainable value and returns for investors as we continue our small crew transformation.

Speaker 3: In short, we continue to see a bright future for our business. Following a very strong 2021, we remain confident in our 21 to 23 growth targets and in our ambition to be majority smoke-free by net revenues in 2025.

In short we continue to see a bright future of our business. Following a very strong 2021 what I remain confident in our 21 to 23 graph targets and in our ambition to be majority smoke free by net revenues in 2025.

Speaker 3: Thank you all for your attention. I'm Manuel and myself will be happy to answer your questions.

Thank you all for your attention amount morale and myself will be happy to answer your questions.

Speaker 1: Thank you. We will now conduct the question and answer portion of the conference. Again, in order to ask a question or make a comment, please press star key on your phone, followed by the number one on your touchtone phone. In the interest and fairness of time, we do ask that you please maximize your questions to two questions each.

Thank you we will now conduct a question and answer portion of the conference again in order to ask a question or make a comment. Please press star key on your fall followed by the number one on your Touchtone phone and the interest and so you are in at this time, we do ask you. Please maximize here.

Questions to two questions each.

Speaker 1: If you have a loud follow up questions, maybe take in. You may rejoin the queue by again pressing the star and one on your touch sound phone.

One last follow up question may be taken you may rejoin the queue. If I again pressing the star and one on your Touchtone phone.

Speaker 1: Our first question will come from Bonnie Herzog with Goldman Sachs.

Question will come from Bonnie Herzog with Goldman Sachs. Please go ahead.

Speaker 4: All right, thank you. Hi, Jacek, Daniel, hope you're both doing well. I have a question.

Great. Thank you hi, Danielle looking about doing well.

I have a question.

Speaker 4: Hi. I have a question on your EPS guidance this year. It's quite a wide range at 8 to 11 percent on a currency neutral basis. So I was hoping you could highlight, you know, some of the key assumptions or drivers that put you maybe at the low end of that range versus what needs to happen for you to get to the 11 percent growth. You know, for instance, is, you know, 11 percent EPS growth possible even if the chip shortage situation doesn't get resolved for the next few months?

Hi, I had a question on your EPS guidance this year.

Quite a wide range at 11% on a currency neutral basis. So I was hoping you could highlight some of the key assumptions or drivers that may be at the low end of that range versus what needs to happen to get to the 11% growth Brian .

11% is possible, even if the chip shortage.

<unk> doesn't get resolved for the next two lines.

I think nobody Noel I'm going to take.

Speaker 3: I think you'll find it well. I'm going to take these two out because that's where I'm going to need them.

So that's.

And then so.

Speaker 3: So obviously, and we've been saying it in our preliminary remarks, we are still facing a number of uncertainty. The COVID has not disappeared, even if things seem to be improving, we don't have full visibility on the IT shortage and on the supply chain globally. And that is obviously what is behind with some certain cautiousness.

Obviously, and we've been signing and our preliminary remarks, we are still facing a number of uncertainty the COVID-19 has not disappeared.

Even if things seem to be improving with and have full visibility on it.

Shortage and on the supply chain globally and that is obviously what <unk>. We subsequently cautiousness on the guidance that we're giving on the top line and then from there we are.

Of course.

Driving a business that is seeing good momentum we have the traditional driver of price increase we are going to be very efficient on cost savings you can see what we've been delivering in 2021 already more than $800 million.

Efficiency on our cost we're going to continuing in 2022.

Speaker 3: to continue in 2022. And all that is going to drive the difference between the revenue growth and the adjusted EPS organic growth. One of the headwinds that we're going to face this year, which I think we should see as very positive because it's coming from the growth and we are managing a very nice potential of growth, is that we are investing for exciting and start of course with Illuma in Japan, but globally the launch of Illuma, but certainly with a big impact in Japan, where we know that when we launch a new product, this is having some impact on the cost of

And and and all that is going to drive the difference between the revenue growth and adjusted EPS organic growth one of the ethylene that we are going to phase this year, which I think we should see as very positive because it's coming from the growth and we are managing a very nice potential of growth is that we are investing for it.

Speaker 3: One of the Edwin that we're going to say this year.

Speaker 3: which I think we should see as very positive because it's coming from the growth and we are managing a very nice potential of growth, is that we are investing for exciting outlook. It starts, of course, with Illuma in Japan, but globally the launch of Illuma, but certainly with a big impact in Japan, where we know that when we launch a new product, this is having some impact on the cost of goods because we are not at the same level in terms of efficiency on the supply chain. The productivity is not at its maximum and we've been explaining that in our remarks. And that is going to have some impact at the launch. We talk about air freight as well.

Citing our recruiting start of course with Illumina in Japan at the global and the launch of <unk>, but certainly with a big interest in Japan, where we know that when we launched a new product. This is having some impact on the cost of goods because we are not at the same level in terms of efficiency on the supply chain productivity.

Is that at its maximum and we.

We've been extending debt.

In our remarks and that is going to have some impact at the launch we took about half rates as well.

Speaker 3: and that's going to have an impact. We said it with probably what we see today is a modest decrease, a moderate decrease of the gross margin rate. Without that, it would have been, from what we see today, another year of growth of the gross margin rate.

And that's going to have an impact we said it we've.

Probably what we see today is a modest decrease moderate decrease of the gross margin rate without that it would've been.

From what we see today another year of growth off of the gross margin rate, but thats really what is driving the guidance. So we we have some uncertainty, but we are very excited by the potential of growth that we see with all this innovation that is coming up we have the traditional driver of efficiency that are going to out we have some.

Speaker 3: But that's really what is driving the guidance. So we have some uncertainty, but we are very excited by the potential of growth that we see with all the innovation that is coming up. We have a traditional driver of efficiency that are going to help. We have some Edwin, which has absolutely planned because we are coming with innovation, and we need to invest in all these innovation. And I should have in terms of innovation, but in certainly the fact that we are also expanding in terms of geography, what we see in Egypt, a broad extreme level for the potential in emerging countries that we need to invest, of course, to build the capacity. We need to develop our commercial tools. We need to invest on the new platform, vaping and nicotine pouches.

Edwin which was absolutely plan, because we are coming with innovation and we need to invest launching innovation and I should add that.

I should add in terms of innovation and certainly the fact that we are also expanding in terms of geography, what we see in Egypt bode extremely well for the potential in.

In emerging coffee that we need to invest of course to build the capacity.

We need to develop our commercial tube, we need to invest on the new two platform <unk> and nicotine pouches. So what I think is great in this guidance and our ambition for 2022 is that.

Speaker 5: So.

Speaker 3: What I think is great in this guidance and in our ambition for 2022 is that it's a year with a lot of investment for an exciting growth.

Here with a lot of investment for an exciting growth, but we're still able to deliver a.

Speaker 3: but we are still able to deliver a good dynamic top line. We are able to deliver nice margin improvement, good organic growth at a good level. And as you have seen, we are hugely cash generative and we do all that at the same time, again, while investing for the future.

Good dynamic top line, we are able to deliver nice margin improvement good organic growth at a good level and as you have seen we are usually cash generative and we do that at the same time again, while investing for the future.

Okay. That's super helpful and makes a lot of sense. So clearly a lot of puts and takes but he's got a lot of levers to Paul.

Speaker 4: Okay that's super helpful and honestly makes a lot of sense. So clearly a lot of puts and takes but you've got a lot of levers to pull. For my second question I maybe wanted to switch gears a bit and just kind of ask a little bit about you know the situation in the U.S. and just maybe an update. It you know sounds like you expect to get back in the market.

For my second question I, maybe wanted to switch gears, a bit and just kind of.

Asked a little bit about.

The situation in the U S and just maybe an update it sounds like you expect to get back in the market.

Speaker 4: next year with ICO, so maybe love to hear a little more color on this and, you know, will the build out of the production in the U.S., will that be your financial responsibility? And then, you know, Altria mentioned some issues between you two in terms of the agreement you have in their fourth quarter press release. So,

Next year with Iqos, so maybe lumpy here, a little more color on that and.

Well the build out of the.

Production in the us will that be your financial responsibility and then.

<unk> mentioned some issues.

<unk> in terms of the agreement you have in our fourth quarter press release.

Speaker 4: Just was hoping, you know, to better understand what that could mean, you know, for instance, if I guess Altria fails to meet the terms of the agreement, would you then pursue distribution of ICOS in the U.S. yourself and or, I guess, find another distribution partner?

What's helping.

Better understand what that could mean shrinking I guess ultra fails to meet the terms of the agreement would you then pursue distribution of Iqos in the U S yourselves and our gas filing another distribution partner can you kind of walk through that and then I think.

Speaker 4: Can you kind of walk through that for us? And then I'm thinking about the context of a potential solution for VEVE in the U.S., assuming, you know, it gets hand-kicked through. Thanks.

Jack.

Our potential solution for <unk> in the U S assuming.

Okay.

Thanks.

Speaker 3: Yeah, so, Bonnie, yes, we're working on bringing the manufacturing capacity for ICOs on the U.S. territory, and that's our, you know, the main integration plan or reaction plan to where we are today post the ITC PERF event.

Yes.

All right.

Bonnie.

We are working on.

Bringing the manufacturing.

Capacity for Iqos on the team.

Territory and Thats ours.

Mitigation plan.

Our reaction to what are we at today.

Value piece too.

The.

Event.

Speaker 3: As we said, we're saying that somewhere at the beginning of the next year, we should be in a position to resume the shipment in the U.S.

As we said the only thing in the summer.

The beginning of the next year, we should be in a position to resume shipments in the U S.

Speaker 6: uh as we um to i'll try right here it is closed

As we.

I'll translate here.

Claus.

Speaker 6: uh we have some disagreement with regards whether Altria has fulfilled the certain milestones in the current contract and we're currently in negotiations on discussions with Altria how to uh resolve it

We have some disagreements with regards with our ultra has fulfilled the same thing.

My understanding is in the current contract and were currently in negotiations and discussions with Altria volatile.

The result, right.

Speaker 6: and so I believe in a good faith we should be finding some solutions. I wouldn't go now beyond speculating what you know other options and how we would approach the

<unk>.

Our liability.

Good size, we should be finding some solutions. So I wouldn't go beyond speculating P&L other options on how we would approach.

Speaker 6: you know, the ICOs going forward in the U.S. I mean, our partner is also, and I think we should seek some amicable solution between both partners. Now, I have said it on a number of occasions, the U.S. market

And of course going forward in the U S and then our partner resolves term ethane.

We should see some pickup on that.

Solution.

Between the both partners.

Based on a number of occasions.

S market.

Speaker 6: is, as a few other markets in which we have a very negligible presence, is of strategic importance. So obviously, you've heard us in the past, I believe, that the pre-ITC ruling, ICOS

As a few other markets in which we have a better negligible or no presence, we want a strategic importance of obviously.

You've heard us in the past of delays with that.

Pre ITC ruling kind of Iqos.

Speaker 6: performance in the U.S. and you know how we, you know, performing with ICOS and across all essentially geographies, I mean, it's really well below what I would expect at this stage characterizes the potential of ICOS. And if I take into this

Performance in <unk>.

Can we confirm the move on <unk>.

Iqos across all of the sanction of the geographies.

Certainly well below what one would expect at this stage.

Although characterize the potential of Iqos take into this.

Speaker 6: uh the fact that this is the only inhalable FDA authorized product

The fact that this is beyond the inhalable EBITDA our current products.

Speaker 6: I, you know, you don't really have a competition and the size of the market, the Petra, I think it's fair to say that the expectations were, you know, much beyond where we are today. But, you know, I will stop here.

You don't really have a competition and the size of the market et cetera.

<unk> hundred per se that expectation to monitor beyond where we are today, but.

I will stop here.

Speaker 6: and I believe we will find a good resolution which will on the one hand enable American smokers, cigarette smokers to have access to that technology and also something which you know will be

We are on the same day.

A good resolution, which will on the one hand.

American smokers.

Smokers to have access to the technology and also something bleach or would it be.

Speaker 6: uh, creative to to to ask for the partners to the results there

Our credit team.

Honestly the results there.

Okay. Thank you.

That's fine.

Speaker 1: Thank you for everyone will take our next question from Chris. Grow with default. Please go ahead. Your line is open.

Thank you Brandon.

We will take our next question from Chris Growe with Stifel. Please go ahead. Your line is open.

Hi, Good morning, good afternoon to you promptly.

Speaker 7: Hi, good morning, good afternoon to you probably. I just wanted to ask, first of all, on ICOS, and you had a nice acceleration in the number of ICOS users in the fourth quarter. I just want to get in, I know you talked about an acceleration of getting back to that roughly 1 million users sequentially.

Hi, Chris Hi, Hi, I just wanted to add.

First of all on Iqos and you had a nice acceleration in the number of Iqos users in the fourth quarter I just wanted to get and I know you talked about an acceleration of getting back to that roughly 1 million users sequentially.

Speaker 7: Can that not happen until the second half of 22, or will supply be sufficient to where you can start to see that level of user growth in the first half of 22? I'm just trying to get a sense of that availability of devices to understand the growth in 22.

Can that not happen until the second half of 'twenty, two or will supply be sufficient to where you could start to see that level of user growth in the first half of 'twenty. Two I'm just trying to get a sense of the availability of <unk> devices to understand the growth in 'twenty two.

Speaker 6: Yeah, a lot of the Q4 re-accelerations are, you know, coming back to the previous user growth. It's highly encouraging. It just confirms that ICOS had that ability of a continued growth.

Yes, I think that Q4 that the acceleration.

Coming back to the previous deals or a graph since these highly encouraging to just confirms the value of course have the ability of our continuing to grow.

Speaker 6: Obviously, it's very much hinges on the fact that we have unrestricted access or availability of the devices. And remember, ICOS today...

Obviously, it's very much hinges on the fact that we have.

The restricted access.

The availability of the devices and the number of Iqos today.

Speaker 6: is the Heat Not Gone propositions which we have today consists of the few versions of ICO's BLADE product. I should mention LEAL product, you know, coming through the partnership with AT&G and ICO's ILUMA. And all of that all together creates a certain portfolio proposition for the various, targeting the various consumers groups.

As.

The heat not burn propositions, which will have today can say is that the fuel that assumes of course Blake product I showed domains.

A real product.

It's coming for that partnership with <unk>, and <unk> and all of that altogether creates adequate portfolio a proposition for the body is targeting the various consumers growth. So we will regain a little bit of a flexibility of recompose the full portfolio in Q4, and hence you'll appeal.

Speaker 6: So we regain a little bit of a flexibility of recomposing the full portfolio in Q4 and hence we're all seeing the spectacular regain in user acquisition.

We're all the same the spectacular regain any of that acquisition.

Speaker 6: You know, it is somehow reflected in our 46% growth target and the, you know, at the hit tobacco unit target for this year that for how many months or for how many weeks in a year we think we can have unrestricted access to the full product portfolio of the devices very much.

At this time, however reflected in our solid 6% growth target then.

Sure.

Heated tobacco unit targets for this year.

How many months.

In the weeks in the year. When we think we can have unrestricted access to the full product portfolio.

Devices very much.

Speaker 6: I believe that actually ICOT can fly higher if we're in the unrestricted mode, but somehow in the forecast for the next year, we should have, you know, bigger...

I believe the doctrinal iqos can fly higher if we done the restricted remote but some recovery in the product is for the next year, we should have been a PDR.

Speaker 6: you know bigger scenario which is maybe more on the moderate side etc if this was that if we wouldn't have

Bigger scenario, which is maybe more on the moderate side et cetera. If this was the.

If we wouldn't have.

Speaker 6: All these constraints coming from the devices couple other things in the supply chain I believe we would be looking at the different numbers, but at this stage

I'll discuss drivers coming from a device a couple other things in the supply chain deliver would be looking at the different numbers.

At this stage.

Speaker 6: it's difficult to start baking this into something which we think we can deliver. I think I'm saying that ICOS has a higher potential, that growth rate, but we really have to be in the moment when we can go on unconstrained. Needless to say that, you know, part of our growth is coming from the Asia region.

It's difficult to start baking in to something between say quicker than we can.

We can deliver so I think I am saying that iqos because of higher potential but that the growth rate, but when you really have to bring.

And in the moment when we can go on.

Needless to say that.

Part of our growth is that coming from Asia region.

Speaker 6: And, you know, although the European Union, the western part of the world, if you like, seems like it's leaving COVID behind.

Although European Union.

Western part of the big realized seems like he's leaving behind we're still not at this stage in Japan.

Speaker 6: We're still not at this stage in Japan and a few other locations, so we also have to start factoring disease.

Location. So they also have to start factoring busy.

Speaker 6: But I'm very optimistic that we can deliver 2022 and frankly speaking, knowing how much headwinds we need to take on our chest in 2022, I start looking actually excited about 2022.

But.

I am very optimistic that we can deliver 2022, and frankly speaking to knowing how much headwind. So we need to take on other SaaS in 2020, so let's start looking.

Australia excited about 2003.

Speaker 3: Okay thank you for that. Just to complement on your question on can we reach 1 million I think we are thinking we see rather a ramp up today. It doesn't mean that we cannot reach 1 million you know in one of the of the quarter in H1 but it's true that we see a ramp up and an acceleration as we go through the year.

Okay. Thank you for that.

<unk>.

To complement on your question on can we reached 1 million I think we are simply we see whether rented today.

It doesn't mean that we cannot reach $1 million.

One of the quarter.

One, but it's true that we see a.

Rental and an acceleration as we go through the year.

Speaker 7: Okay, thank you for that. And I did just have a quick question on the U.S. to follow on Bonnie's question. Is there a scenario where you prevail on the patent office review that would allow you to start importing the product again before the first half of 23? So, you're getting your supply chain ready in the U.S., but is there a chance that you could win on the patents and be able to import the product again?

Okay. Thank you for that and I did just have a quick question on the U S to follow on Bonnie's question is there a scenario where you prevail on the patent office to review.

That would allow you to start importing the product again before the first half of 'twenty three.

Youre getting your supply chain ready in the U S. But is there a chance that you could win on the patents.

And then be able to import the product again.

Speaker 6: Well, there is, but the whole process is and I think it deserves a separate conversation about the patent laws and the processes around this whole thing. And unfortunately, we have to cope with this. I mean, even if we prevail on the invalidation of some patents, obviously, the other party, in this case, BET, they have a right to appeal. So the whole process is really extended in time.

While there is about the debt.

Processes.

And I think it deserves a separate conversations about.

The patent loans in the process.

Kind of framed and unfortunately, we were happy with where our coal business.

If any of the profile on the invalidation of some patents of there could be other party in this case they have a right to appeal. So the whole process is really extended lead time.

Speaker 6: and by, you know, you need another couple of years, frankly speaking, until you have one of the parties actually can claim the full victory. Then you have to go to the ITC and start lifting, you know, the restrictions, if you like, which are now imposed on us. I think the fastest

Bye.

You then have a couple of years frankly speaking until you have one of the product because I actually can claim victory then you'll have to go into the OTC and established.

The restrictions if you like which we generally imposed on us.

And I'll ask them to go faster.

Speaker 6: absent any other resolutions, the fastest route back to the U.S. is through activating our domestic capacity and resupplying the market from that.

Absent any other resolutions right.

The fastest route back to the U S is proactive 18th.

Okay.

Domestic capacity in the Resupplying the markets from that and then it may be that we have.

Speaker 6: And then it might be that later on we are unconstrained, which means that the U.S. market could be supplied from both international and from the domestic. But I think the near-term opportunity for us is to go the route which we discussed. Okay. Thank you for your time today.

And the constrained which means that the U S market could be supplied from the Banff international from the domestic but.

In the near term opportunity for us to go that route which room, which we discussed.

Okay. Thank you for your time today.

Thank you.

Yes.

Speaker 1: We'll take our next question from Pamela Kaufman with Morgan Stanley . Please go ahead. Your line is open. Hi, good morning.

We will take our next question from Pamela Kaufman with Morgan Stanley . Please go ahead. Your line is open.

Hi, good morning.

Speaker 4: I have a question about your outlook for combustibles pricing in 2022. Pricing in 2021 was below your historical rate of growth given headwinds in Indonesia. Can you talk about your expectations for pricing environment in 2022 and how you're prioritizing price realization versus market share in combustibles?

Good morning, good morning.

I have a question about your outlook for combustibles pricing in 2022.

In 2021 was below your historical rate of growth given headwinds in Indonesia.

You talk about your expectations for pricing the pricing environment in 2022.

How youre prioritizing price realization versus market share and can basketball.

Speaker 6: Yeah, so we're looking for, as we said, we're looking at the 3-4% pricing variance this year, which is better, stronger than last year. I think some Asian geographies...

So we're looking for is as we said are reluctant at the 3% to 4% pricing <unk> this year.

Which is better or stronger than the last year I think some Asia geography.

Speaker 6: you know, due to the variety of factors are still presumably driving us lower on what we think we could have normally realized, a bit comparing at least to the historical trends we had there. Indonesia, you're absolutely right, you pointed out, is on the negative, although the tax increases which the industry has to pass on.

With a variety of factors.

<unk>.

Presumably driving cost lower on what do we think record normally realize compelling at least to the historical trends that we had there.

Michel you're absolutely right to point to.

Negative, although the tax increases which.

Alright.

It has to pass on.

I mean do you have some.

Speaker 6: give some hope that we can, you know, we can end up with the, that maybe Indonesia can return to the pricing as the important component of the growth there. But we also have to take it from the considerations of, you know, impact of the COVID, the volumes, and presumably talking more about the Philippines. We will see how much of this thing we can unwind in 2022.

Give some hope that we can.

We can because they can end up with the <unk>.

It may be Indonesia can return to the pricing does the important component of that growth.

But you also have to take it from a considerations of.

Part of that causes the volumes that are presented to talking more about the GDP.

How much of this thing with an unwind in 2022.

Speaker 6: uh and having a you know a reaching the benefit in 22 and how much we can build a good place for a 20 to for the 23. It's going in the right direction but a bit of a of a more is needed. The rest of the pricing environment okay it's always difficult to to predict but as we characterize it's improving okay.

And having the.

I think the benefits in 'twenty, two and how much we can build the base for 2002.

The 23 is going in the right direction, but with a bit of a motors needed the rest of the pricing environment. Okay.

Difficult to predict but as the context.

It's improving.

Speaker 6: on you know a lot of geographies and we have a pretty good visibility at this stage obviously about the taxes that is in the major uh volume of profit market

On all other.

Geographies and we have pretty good visibility at this stage, obviously about the toxicities of the major.

Volume of profit markets.

Speaker 6: Emanuel, you know, in his part of the remarks was talking about this, you know, more and more countries are taking this multi-year approach, which always gives us a better visibility and a planning around. As you know, in some countries, you know, we have to be very careful. We have to be very careful. We have to be very careful. We have to be very careful.

The amount of the world as part of our remarks was talking about is more and more countries that they think there is a multiyear approach which drives us gives us.

A better visibility on our planning around and G&A in some countries.

Speaker 6: you know the tax increases cannot be passed into consumers in a one step you need to have some preparatory you know take some pricing before some pricing after so it's always going into the right direction especially if we're taking it in a context that

The tax increases cannot be passed through to consumers in a glance therapy and progressed.

Some preparatory take some pricing before to someplace industrial so with those going into the right direction, especially if we're taking it in a context.

Speaker 6: You know, every country, every market is having a huge pressure on the public finances due to, you know, to the, to the COVID situation, et cetera. So I think we, I mean, it's so far navigated pretty well.

We then are able to come to market.

Having that huge pressure on the public finances do too.

The country's situation etcetera, I think we I mean it.

So far navigated pretty well done.

Speaker 4: Great, thank you. My second question is on Illuma uptake and if you can provide some more color on how much of the new user growth in Japan has been driven by Illuma for iQOS and what observations you have around the user base and the interaction with prior versions of iQOS.

Alright, thank you.

Second question is.

Is it on.

Uptake and if you can provide some more color on.

How much of the new user growth in Japan has been driven by rumour.

For icon and what observations you have around the user base and the interaction with prior versions of icon.

Speaker 6: Thank you. Yeah. So, you might have remembered that from the very beginning of Eloma, I was personally very excited about that innovation. And I am so happy that it delivers on my expectations, actually, it's not even beating my expectations. So, I will continue, if you allow me, with this enthusiastic voice. Eloma does generate, obviously, it's a great product, but it's also a great innovation.

So.

But you might have remembered if I remember from the very beginning of below my I was personally very excited about the innovation.

So happy to be delivered on my expectations actuaries, not even beating by expectation. So I will continue to allow me to present adjusted voice.

From a balance to generate obviously.

Speaker 6: You know, if you're an iQOOS user, Blade product users, you appreciate the benefits of Illumine in the first moment you have it in your hands and you have your first experience.

The Iqos user blade product VSO as you'll appreciate the benefits of below my between the first moment Youll have a video and then you'll have the trends we experienced in <unk>.

Speaker 6: and the response from the consumers in Japan is phenomenal. Obviously, the first ILUMA goes to the existing users, but we're also already having the benefit of existing ICOS users switching to ILUMA.

The response from our consumers is upon us phenomenon, obviously the funds below more goes to their existing business, but we also are where they're having the benefit of existing vehicles switching through MMR, because they kind of uninterrupted consumption during governor moment that <unk> are they willing to use the product and this also has.

Speaker 6: because they have an uninterrupted consumption during every moment of the day when they wish or they're willing to use the product. And this also has an impact on the volumes. I, in other sense, if I give you the device which is much more intuitive to use,

And impact on our volumes are in Alberta.

I gave you the device, which is not much more intuitive to use reliable March one so that's too much of a reliable youll have a tendency to.

Speaker 6: reliable, much, much, vastly much more reliable, you will have a tendency to, you know, to increase the consumption versus what you have on a blade, which on a, you know, on the occasions fail to allow for having that experience. So that's a very good thing. Second thing is...

To increase the consumption versus what you had on the blade with Xiaomi.

Patients failed.

Yeah.

Now for having that experience. So that's a very good thing second Sanjay.

Speaker 6: ELOMA, after all of this initial month, we observe a very solid higher level of conversions. And if you know, this is a very important component in the business model. I, you know, how many devices will fully convert smokers, you know, combustible smokers, how many of them will stay because it releases the pressure going forward also on the margins, et cetera. And the third one

After all of this initial months of the upside of the very solid higher level of conversions that will be because a very important component.

In the in the business model.

How many devices, we had fully converted smokers.

Combustible smokers, how many of them going to stay because it releases the pressure going forward also on the margins et cetera, and the terrible amazed.

Speaker 6: At this stage, if I remember the number correctly, about 20% of the user of the Illuma cells is coming from the people who are never in the category, not in ICO.

At this stage to buy remember the numbers correctly about 20% of the.

Use of the.

Illumina sales.

Coming from the people who were never in the category not deny cost.

Speaker 6: And also, what I started observing recently, Unima also starts taking back users who have temporarily migrated from ICOs to competitive products.

And also what are your start ups that are in place until the start of the Upsells and data centers.

All of a sudden stops taking back of users who have tampered our integrated from Iqos the competitive products.

Speaker 6: in whatever aspects of performance of Illumina look like it really delivers on every axis. So the question is again and I know that you know for some might be boring, do we have availability of the devices?

And whatever aspect performance at Willow might look like.

It delivers on every day.

Question is again and I know that for some IP, but do we have availability of the devices and can we continuously continuous supply into the market and better stability. So far so far is it related in the right direction.

Speaker 6: And can we continuously, you know, continue supplying the market and the rest I believe so far so far is really going in the right direction

Yes.

Thank you that's helpful.

Thank you Pam.

Yes.

Speaker 1: We'll take the next question from Vivian Azar with Cohen. Please go ahead. Your line is open. Hi.

Well take our next question from Disney in Asia with Cowen. Please go ahead. Your line is open.

Hi, good morning.

On a region by region.

Speaker 8: So my first question is on pricing, certainly encouraging to hear that your outlook for 2022 contemplates an improvement in pricing relative to last year. I was wondering, however, if you could just comment on how you're thinking about price gap management between your combustible cigarettes and your heated tobacco units. Please. Thank you.

My first question is on pricing certainly encouraging to hear that your outlook for 2020 to contemplate.

Pricing relative to <unk>.

Last year I was wondering how great you could just comment on how youre thinking about price gap management between your combustible cigarettes and heated tobacco unit. Please thank you.

Speaker 6: Well, we essentially, in most or in all markets, we maintain the same sort of a positioning of high cost today versus the cost of combustible reference points.

While we essentially.

Moscow in all markets, we maintained the same sort of a position in got it.

Because today versus the cost combustible reference points.

Speaker 6: As you know, most of the tax systems actually have that conversion mechanism. So if there is a tax increase on a combustible, somehow proportionally this triggers the increase on the heated tobacco units, which translates to the consumer price gaps essentially untouched.

As you know most of the tax systems actually half of that comparison and micron is baked in.

There was a tax increase on our combustibles somehow proportionality triggers they increase.

<unk>.

Heated tobacco units, which translates at the consumer price gaps essentially untouched.

Speaker 6: We obviously complement, depend on the market situation, our portfolio with, for example, KT&G.

We obviously complement depends on a market situation our portfolio with for example, KPMG.

Speaker 6: proposition and I think it works very nicely especially in the geographies when you know ICOS reaches the levels which are above for example premium

Proposition and I think it works very nicely, especially in the geographies, where they know iqos.

<unk> reaches the Netherlands.

Above for example premium.

Speaker 6: equivalent of the premium price segment in a combustible market. So we need to take affordability into equation as well. So instead of doing something about the pricing of ICOs and the heat, we are actually extending the portfolio.

Equivalent of the premium price segment in the combustible market.

I need to take a further ability to the equation as well so instead of doing something about the pricing.

Iqos embassies, whereas Charlie.

Expand digital portfolio to the below but also to the above in some geographies when we're seeing those above premium versus iqos vessels keeps that.

Speaker 6: to the below but also to the above in some geographies when we think there is above premium versus IQOS versus Kitsap the opportunity we did it very successfully in Russia and in a few European markets.

Concern until we did it very successfully in Russia, and a few European markets. So I think the whole same days that the broadband will have a portfolio of both horizontally from a price perspective and theoretically format.

Speaker 6: So I think the whole thing is that, you know, the broader we have a portfolio, both horizontally, from a price perspective, and vertically, from a, you know, taste, flavor, et cetera perspective, we increasingly are creating a more attractiveness for the cigarette smokers to switch to hit not to burp.

Taste flavor et cetera perspective.

Increasingly.

Creating more attractiveness for the cigarette smokers.

To switch to <unk>.

Keep in October .

Speaker 8: Perfect, thank you so much. And my follow up question is on your decision to discontinue platform to keep.

Perfect. Thank you so much and my follow up question.

On your decision to.

Just continue.

<unk>.

Speaker 8: You know, certainly that product has been under evaluation for a number of years, and I was just curious to hear kind of the key takeaway from the consumer test. Is the problem that consumers are using a live heat source? And that's just creating a lot of confusion in terms of the reduced risk proposition. Was it.

Certainly that product has been under evaluation for a number of years and I was just curious to hear kind of the key takeaway from the consumer test is <unk>.

That consumers are using alive keep forced and that's creating a lot of confusion in terms of that reduce risk proposition was it product.

Speaker 8: product performance. I think any other color would be helpful. Thanks.

<unk>.

The color would be helpful. Thanks.

Speaker 6: No, no, actually, I think it's like it allowed me the tech language. It was more on the user interface rather than anything else. I don't think the test, which was the number of the in-market test.

And I'll ask Charlie I think is like if you allow me the tanker language. It was more on the deal.

Interface, rather than anything that as I've been saying that the vast majority of the number of marketers there.

Speaker 6: the proposition, believability of the propositions in terms of the, you know, is it a better alternative to smoking and everything goes there. The issue actually pertains to the heat source. As you remember the design, you know, at the very end of the cigarette-like looking product, you had the heat source, uh, which, you know, required

Proposition deliverability of the proposition in terms of the.

The better alternatives to smoking and everything goes well.

Sure Charlie Thanks to the C stores as you remember the design.

By the end of the cigarette like looking product you have to hit for us.

Bleach requires.

Speaker 6: lighting, okay, and this was, you need to first open this from the paper cup, lighten this, and then it's the question how you extinguish the product, right, because you need to pay attention how you extinguish the product. And this was actually, in our opinion,

Okay.

Yes.

The site is open doors from the Paypal account, the lighting business and that means that questions Javier extinguishing of product because they need to pay attention and extinguished.

And there was extra in our opinion.

Speaker 6: uh well the consumer's opinion actually not leading to that adoption levels which we would to wish to have you know especially comparing our

Consumers opinion actually not delivering to that adoption, Netherlands, which we're able to reach the craft and are especially compelling.

Speaker 6: our our experience from you know other platforms from the main vp1 platform so i think we reached the moment the design of that product and this part of the technology around the heat source and you know operating asking the consumers how to interact and operate around this whole thing led us to the conclusion that we are saying that design component we shut down

Our experience from other platforms, mainly purion platform. So frankly reached a moment that design of the product and best part about that technology around the heat.

Operating asking the consumer side.

And operate around this country led us to the conclusion that we think that design content and we sat down and I think the proposition makes sense.

Speaker 6: and I think still the proposition makes sense.

Speaker 6: is understood by the consumer has a potential but we cannot offer the product to the consumers which they will you know not find convenient to use and you know the convenience is is the middle name of what the consumers want these days and I think we need to deliver on this one especially that you know our ambitions would be to to also elaborate the equity which we build around the IQOS and IQOS cannot afford going to the product which

Is understood by the consumer has that potential, but we cannot offer the product to the consumers which Diana.

I'm not saying, it's convenient to use.

The convenience.

Is that is the name of the consumers who owns these days and I think we need to deliver in Brazil, and especially that in all of our ambition would be to to also leverage the equity which will build around the highest present kind of the phone to call into the product groups.

Speaker 6: which they have this one. So I think we will come back one day to the P2. From the very beginning, you may recall our early investors day when we start talking about the vision of going smoke-free and how many platforms will be needed to convert the billion.

Customers with things that will come back around data there Peter.

Beginning in being able to call out to adequately invest studies may when we start talking about the vision of going smoke free and common platforms will be need to.

Converted the $1 billion.

Speaker 6: small cars worldwide. This is a proposition which is more for the...

Small cars of our dry there.

This is a proposition which is small for the.

Speaker 6: you know, more conservative audience, the people who really don't want to completely walk away from the ritual and experience when the combustible cigarettes are delivering. So I think in terms of our growth prospect for the near term, I don't think it's that much of an issue, but, you know, we will be working on that by using a different approach to the design and the technology going forward. So I hope it answered your question. Yeah, that's-

More conservative I think RBS.

People, who really don't want to completely walk away from the retail and experience when the combustible cigarettes are delivering.

I think in terms of our growth prospects for the <unk>.

<unk>.

<unk> got lots of initiatives that we will be working conducted by using a different approach to the design and the technology rainfall there going forward.

The answer to your question.

Yes, that's very helpful. Thank you so much.

Speaker 6: Thank you. Thank you

Thank you thank you Vivian.

Speaker 1: We'll take our next question from Jane Gorey with Barclays. Please go ahead.

We'll take our next question from Jane <unk> with Barclays. Please go ahead.

Speaker 6: Thanks a lot. Good morning, Mr. Mahesh. So, I have a couple of questions. So, first one is on your guidance. So, your volume growth is minus one to one. You are saying cigarette pricing will be three to four and then category price mix in that slide that you have, it is plus three.

Thanks, a lot.

Good morning.

The amount of Nomura.

So I have a couple of questions. The first one is on your guidance for your volume growth is minus one to one.

Cigarette pricing it will be three to four and then it's got to get a price mix in that slide that you have a disk plus three.

Speaker 6: assuming it is plus 3, so it should come to plus 5 to plus 8 percent on revenue growth for FY22, but you are saying 4 to 6, so that will imply that the category mix uplift will be less in FY22 than was the case in FY21. So, can you just help us understand why the

You may have done three so it should come to plus five to plus 8% under our new road for FY 'twenty, two but USAA forward perspective, but that would imply that the category mix uplift will be less in FY 'twenty two than was the case in FY 'twenty one.

Can you just help us understand why that would occur.

Speaker 3: I'm happy to try to let you go, certainly what we are expecting in 2022 is to have another very nice difference between the volume growth and the revenue growth.

I'm happy to try to add to grow certainly what we are expecting in 2022 is to have another very nice difference between the volume growth and the revenue growth.

Speaker 3: and indeed for the volume we've been guiding from minus one to plus one. So then the question is how much are we going to generate in terms of extra growth?

And indeed for the volume within guidance two from minus one to plus one. So then the question is how much are we going to.

Generates in terms of extra growth there is price, where we are seeing three to four remember we've done $2 seven.

Speaker 3: there is this price where we are in two to four remember we've done

Speaker 3: 2.7 in 2021. So the low end of the bracket is not massively above what we did in 2021. But it's true that it could be better, and certainly.

In 2021, so the low end of the bracket is not massively above what we did.

In 2021, but it's true that it could be better and certainly something that we are factoring in the India I end up and then there is the impact of the growth of the Iqos business.

Speaker 3: something that we are factoring in the high end. And then there is the impact of the growth of the high cost business and the economic category where we have this mixed impact that is playing. But here, the mix and the launch in many new economies and new geographies, emerging countries, that is potentially having an impact.

<unk> done category, where we have the student is mixed impact that is playing at the.

Mix.

And with the.

The launch in many new economies in new geographies.

Emerging country that is.

Potentially having an impact on.

Speaker 3: on the differential. So we do expect a very strong differential again, but not necessarily at the same level as the difference that we generated in

On the differential so we do expect a very strong differential again.

Necessarily at the same level as a defensive that we generated in.

Speaker 3: in 2021. Last but not least, we refer to the fact that we have at the beginning and it's temporary higher weight on the consumables for Icosiluma, Ontario, and this is having an impact because the excise duty in the country where the excise duty are based on weight.

In 2021.

Last but not least we referred to the fact that we have.

At the beginning and it's temporary.

Based on the <unk>.

Consumable for Iqos Newmont area and this is having an impact because the excise duty in the country, where the excise duty are based on weight.

Speaker 3: is higher and therefore because we are coming with the same price for the consumables and eats that can generate when you have a switch a temporary again I insist on the fact that it's temporary decrease a slight decrease on the plastic so that can have an impact.

Is higher and therefore, because we are coming with the same.

Price for the consumables in.

That can generate when you have a switch temporary again I insist on the fact that it's temporary.

Kris slight decrease on the caustic.

So that can have an impact as well. So that is that is really what what youre going to have plus potentially some impact on the on the on the price of the device.

Speaker 3: So that is really what you're going to have, plus potentially some impact on the price of the device.

Speaker 3: which will depend on the volume of the device that we sell, also on the mix of the device that we sell, and also on the commercial aggressiveness that we want to have on the price of the device. So you have to take a number of things into account. Now, at the end of the day, as you can see, between the minus 1 to plus 1 and the 4 to 6,

Which will depend on the volume of the device, which we sell and so on the on the mix of the device that we sell and also on the commercial.

Looking at that we want to have on the price of the device. So you have to take a number of things into account now at the end of the day as you can see between the minus one to plus one and the 46, we are definitely targeting to have another year with a very nice.

Speaker 3: We are definitely targeting to have another year with a very nice

Speaker 3: differential between volume and organic-driven growth. We can see exactly how we end up.

The differential between volume.

And I'll get into the new growth.

<unk>.

We ended up.

Speaker 6: Okay, that's very helpful and my second question is on the beyond nicotine segment where you will have 150 million of operating losses this year and you make also the comment that you will invest in it in future years so that you can hit the billion dollar revenue target. So, does it mean that the losses we should expect to be higher in FY23 than what they will be in FY22 or when could we expect that segment to break even?

Okay. That's very helpful and my second question is on the beyond meat protein segment, where you will have $150 million of operating losses. This year and you made the comment that you will invest in it in the future. So that you can hit the $1 billion.

With a new tablet so does it mean that the losses, we should expect to be higher in FY 'twenty three.

Then what they will be in FY 'twenty to Redwood, we expect that segment to breakeven.

Speaker 6: Well, I think there will be an investment for the next, you know, few years, not a couple, but a few years, which we are willing to do. I think when...

Well.

There will be an investment for the next.

Some other couple of other key areas, which we are willing to do.

Glenn is Europe .

Speaker 6: Stay with us and wait until the CACME when we will give you more insights of what we have, what is our thinking about this beyond nicotine wellness and healthcare business. Because then we will be in a position to show which products, concrete products or programs we're willing to go after, what is the size of an opportunity and what sort of investment it entails.

Stay with us in a way down to the Cogs in the rent.

Robert DVR Maureen size of what we have.

Our thinking about this beyond entertainment wellness and healthcare.

Business, because then we're going to be.

We'll be in a position to share with the reach product concrete products or programs, where we.

Willing to go after what is the size of that opportunity and what some of the investments that impacts, but I think the number which you gave for this year for 2020 guidance.

Speaker 6: But I think the number which we gave for this year, for 2022 in the guidance, was about the ballpark sort of the investment which we will be carrying for the couple of years. So it's not a one-off. It could go a bit higher, but I don't expect an explosion here. You know, I think you have a good calibration of the amount that we're going to invest over a few years. Okay.

About the ballpark solid above the investment which will be coming from a couple of years. So its not its not a one off it could go a bit higher but I don't expect an explosion here that I think are a good calibration of the amount that we're going to invest over three years.

Okay. Thanks, a lot.

Thank you.

Speaker 1: We'll take our next question from Jared Diniz with J.P. Morgan. Please go ahead.

We will take our next question from Jerry <unk> with Jpmorgan. Please go ahead.

Yeah.

Speaker 9: Hi guys, first I want to touch a bit more on the nicotine pouches. How should we be thinking about the scale of that initial launch in the Nordics? And how should we think about the future market launches that you guys touched on a bit? Are you considering launching nicotine pouches in markets maybe that don't have a nicotine pouch presence today, like some of your emerging markets?

Hi, guys first I wanted to touch a bit more on the nicotine pouches.

How should we be thinking about the scale of that initial launch in the Nordics and how should we think about the future market launches that you guys touched on a bit.

Are you considering launching nicotine pouches in markets, maybe that don't have a nicotine pouch presence today like some of your emerging markets.

Speaker 9: And also, just looking at the potential in the U.S., would you consider a PMT application there as well?

And also just looking at the potential in the U S would you consider our PMT application there as well.

Speaker 6: Yeah, I would leave the U.S. aside for a second. I think...

Yes.

Political.

Aside for a second.

I think.

Speaker 6: New cotton pouches can play a very important role in...

When you look up in pouches can play a very important role in.

Speaker 6: if you like I'm smoking smokers okay they demonstrated the uh variability that at that proposition uh in many markets initially we're essentially taking a share as we acquire this and after

If you like on the smoking smokers.

They've demonstrated.

When ability that that proposition.

In many markets initially we're essentially taking the share.

Brian Davis and after.

Speaker 6: remaking of the product and the packaging etc. We'll go in the market when there was some sales of a shiro obviously not very high but we start where we already were present okay and we build on this as always in our innovations.

Making of the product and the packaging et cetera that will go in the market and there are some signs of a share of obviously not very high but we start with where we already are present and will build on those as always in our innovation.

Speaker 6: uh to look at the you know consumers feedback see what else we have to improve and we also have some product pipelines behind the initial offering of shiro which we now could accelerate

Well look at the general consumer feedback and see what else we have to improve and we also have some product pipelines behind the initial outbreak of zero, which we know could accelerate.

Speaker 6: to the large extent, thanks to the acquisition of Fertin. Now, Fertin gives us much broader opportunities than just the pouches, because Fertin sits on the very interesting

The large extent thanks to the acquisition of.

<unk> therapy now frankly, it gives us.

Much broader opportunities themselves the pouches, because <unk> seems very interesting.

Speaker 6: uh delivery systems in a in a through the through the oral oral delivery and we know that 13 is the manufacturer of the nicotine replacement therapies like the gums nicotine gums but they also have interesting other technology

Yes.

Delivery systems.

For the <unk>.

We know that <unk> is the manufacturer of the Nucor team.

Placement therapies like <unk>, putting guns, but they also have an interest in that technology. So we will be thinking to start with the pouches, but I'd say over a period of time not 'twenty to 'twenty two I think the.

Speaker 6: So we will be thinking we start with the pouches, but I think over a period of time, not 2022, I think the oral way of delivering the nicotine as a substitute to smoking.

The way of that delivery, given you've gotten as a substitute to small king.

Speaker 6: is actually a very attractive opportunity which we are very excited to start working on. So we will go into the geographies obviously when the...

Thanks, Charlie.

Attractive opportunity, which we are.

Very excited.

To start with the weather.

So we will go into the geographies that they are still in.

Speaker 6: Pouches are not present today. I mean, as you know, we know we have a geographical footprint in addition to this You know 70 plus markets. We already have a quite a

Pouches are not present today.

We have a geographical footprint in addition to the 7% plus market.

Speaker 6: quite a meaningful ICOS infrastructure, you're talking the shops, you're talking digital, you're having all the CRM, commerce, consumer engagement. I believe we can start adding to that our portfolio of the propositions to small corporations.

Right.

Quite dominion clone Iqos infrastructure charge Youre talking the sharpest attacking digital you haven't gone the CRM commerce areas of consumer engagement.

As we kind of start adding to that.

The.

<unk> for small cars.

Speaker 6: at the oral category, broader oral category than just the pouches. So we focus with you on the pouches.

The automotive category brought about our category to adjust the balance sheet. So we'll focus really around the powershares.

Speaker 6: We'll be extending their presence, but I think there is more than just the pouches. And I'm, therefore, very pleased that, you know, we concluded the acquisition of Fertin because it gives us, it accelerates our

Would it be extended at present, but I think that was more than just the just the pouches.

I'm very pleased that.

We concluded the acquisition of therapy, because it gives us is accelerating.

Speaker 6: development by a quite good few years, which otherwise we would have to take organically.

Development Bye bye.

<unk> organic.

Speaker 9: Got it. So just to follow up on that, so you would consider the USPMCA application?

Got it so just to follow up on that so you would consider.

U S PMA application.

Speaker 6: I think I answered the questions to Bonnie. The U.S. is a very attractive market and I believe you know this is of strategic importance to us and I do believe that on the market of the size of the U.S. you need to have all platforms, frankly speaking, because not the one platform which can guarantee the full success or full seizing of an opportunity. So ultimately yes, but our focus today is somewhere.

I think I answered the questions per Bunny utilizes a very attractive market and I believe our results.

Strategic importance of Splunk, and I do believe that the lumber market the size of the U S. We need to have.

<unk>.

All platforms, frankly speaking because another one platform, which then.

Which can get onto the full success of full season Governor concern, which is ultimately yes, but our focus today is somewhere else.

Speaker 9: And the second one, you know, going back towards cigarettes and IQOS, are you guys worried at all about potential impacts of price elasticities, especially with lower income consumers, you know, given the inflationary environment and, you know, where you guys are positioned in most markets, you know, usually more at the premium end. So maybe you can give a comment on that.

Got it and the second one going going back towards cigarettes in Iqos.

Are you guys worried at all about.

Potential impacts of.

Price elasticity, with especially with lower income consumers.

Given the inflationary environment.

Where you guys are positioned in most markets are usually more at the at the premium end. So maybe you can give a comment on that.

Speaker 6: Yeah, so the price elasticity is always, you know, the concern, and as we know very well, sometimes this price elasticity on the tobacco and nicotine product is elevated due to the pressures or income pressures on the consumers. So we know, you know, having that situation in a few markets that...

Yes, the price elasticity is always the concern that as we know very well.

Sometimes is price elasticity on the tobacco and nicotine product is elevated.

Pressures on income pressures on the consumer so we know.

Having debt situations in a single market.

Speaker 6: uh you know consumers have a pressure on the income i mean i believe some of this of these pressures will unwind as the COVID-19 will be you know becoming a sort of the past

Yeah.

Consumers have a pressure on the income I mean I've done this time of this disc.

Discussions of an unwind.

<unk> B b.

Becoming the size of the past.

Speaker 6: and I don't think it's anything systemic. It's very interesting you're asking this question because if we look in the markets where we were taking

The second thing is anything systemic has very interesting youre asking this question because if we are not in the market.

We are undertaking.

Speaker 6: pricing on cigarettes and on the heat sticks and the market has a pretty robust set of data from the past increases. I think today

Pricing.

Cigarettes, and the stakes in the market has been pretty robust set of data.

From the past increases.

<unk> today.

Speaker 6: products like IKO, the alternatives to smoking, tend to have a better elasticity, price elasticity, than the conventional cigarette. And as you know, I guess very well, the price elasticity on cigarettes undisturbed by other factors was pretty attractive, and this was a part of the of building as a business model. And actually at this stage, look at the alternative even have a

Products like Iqos alternatives to smoking tends to have a better elasticity price elasticity than a conventional cigarette and <unk>.

I guess very well the price elasticity in cigarettes undisturbed by other factors worth pretty attractive and diversified.

A building is a business model and extra one at this stage look without getting I think even have not.

Speaker 6: not high, but better elasticity than, you know, than a combustible cigarette. So currently, not from the elasticity perspective, but from the pure affordability perspective.

But better than.

Elasticity then.

P&L.

And then a combustible cigarette separately and not from the elasticity perspective, but from the period afforded the ability perspective.

Speaker 6: We're already pretty successful with ICOs in the so-called low-middle-income countries, but we also know that in order to make the more significant inroads, we need to come up with a proposition which directly addresses the need of below-mid-price, low-price segments, and we will not leave the smokers behind.

We.

We already purchased successfully with Iqos in the cycle to low middle income countries.

Some of the demand to make the most significant relative to the need to come with the proposition which directly addresses.

Below mid price low price segment, and we will not deliver the smokers behind.

Speaker 6: for a loan. And before the end of this year, we're having a plan to test another technology which would allow for the both devices and a consumable to be more accessible from affordability perspective while delivering on the harm reduction potential as ICOs as we know it today. So we're taking this thing into the very serious consideration. So thank you for your question. Got it. Very clear.

And before the end of this year, we have in our plans to test another technology, which will allow for the bulk of devices and consumables to be more accessible from a profitability perspective, while there is there is going to harm reduction potential as it goes as we know it today, so we're taking things into it.

So there is that as soon as coincidentally well. Thank you for your question.

Got it very clear I appreciate the answers.

No.

Speaker 1: And there are no further questions at this time. I will turn the call back over to the management team for any closing remarks.

And there are no further questions at this time I will turn the call back over to the management team for any closing remarks.

Speaker 6: Well, this was a call longer than expected, but we also delivered the results last year better than we expected, so I think somehow we match it. Thank you very much for your attention.

While those wells that call longer than expected model, we're able to deliver the results last year better than we expected I think somehow the metric. Thank you very much for your attention.

Speaker 6: We invite you to our Cognit presentation, which will be in a position to give more light, more details on the few aspects, like what we discussed today, wellness, healthcare, but also how we look in a much broader terms, the development of these categories. And I think you could feel in my voice and Emmanuel's voice how excited we are that 21 will deliver in that shape and form.

We invite you to.

Cognex presentation, which will be in a position to.

Thank you for the more like more detailed list on the few aspects like what we discussed today wellness Gulf Coast, but also how we look at that.

Much broader terms the development of those categories.

I think vehicles fail in our microwave and our Manuel voice Com excited very odd that 'twenty, one will deliver the best shape and form.

Speaker 6: And despite the number of headings, which I believe we articulate pretty well, we're still looking into the very successful and rewarding for both of us 2022. So thank you very much for your attention.

And despite the.

Number of headwinds, which I believe we articulate, particularly around we're still looking into a very successful and rewarding for the <unk> 'twenty to 'twenty. Two so thank you very much for your attention.

Speaker 6: and hope to see most of you, if not all, during our company presentation. Thank you all.

And.

Hope to see most of the rigs.

Our company presentation.

Thank you.

Sure.

Speaker 2: Thank you very much. And if you have any follow-up questions, please contact the Investor Relations Team. And just a reminder that the slides and scripts are available on the PMI website. Thank you very much. Have a great day.

Thank you very much and do you have any follow up questions. Please contact the Investor Relations team and just a reminder, that the slides and script.

Are available on the PMI website.

You very much have a great day.

Speaker 1: Thank you and this does conclude today's Philip Morris International fourth quarter 2021 year and earnings conference call. At this time you may disconnect and have a wonderful day.

Thank you and this does conclude today's Philip Morris International's fourth quarter 2021 year end earnings conference call. At this time, you may disconnect and have a wonderful day.

Yeah.

Okay.

Yeah.

Speaker 10: The.

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