Q3 2023 Philip Morris International Inc Earnings Call
We ask that you. Please continue to stay in buying your conference will begin momentarily.
[music].
Good day and welcome to the to look Morris International third quarter 2023 earnings Conference call.
Today's call is scheduled to last about one hour, including remarks by Philip Morris International management, and the question and answer session.
In order to ask a question. Please press the star key followed by the number one on your telephone keypad at any time.
Representatives on the call will also be invited to ask questions at the conclusion of questions from the investment community.
I will now turn the call over to Mr. James Bushnell, Vice President of Investor Relations and financial Communications. Please go ahead Sir.
Welcome. Thank.
Joining us.
Earlier today, we issued a press release containing detailed information on our 2023 third quarter results. The press release is available on our website at <unk> Dot com.
A glossary of terms, including the definition for smoke free products as well as adjustments other calculations and reconciliations to the most directly comparable U S. GAAP measures non-GAAP financial measures in this presentation.
And additional net revenue data are available in exhibit 99, two to the Companys form 8-K takeaway to October 19, 2023, and on our Investor Relations website.
Today's remarks contain forward looking statements and projections of future results.
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.
Yeah.
It is now my pleasure to introduce menu out by boat, our Chief financial officer over to you Emmanuel.
Thank you James and welcome everyone.
We delivered very strong and better than expected performance in Q3, driven by Iqos and zing.
Unknown Executive: We ask that you please continue to stand by and your conference will begin momentarily[inaudible] 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.
Adjusted diluted EPS grew by an excellent plus 20% in currency neutral terms to reach record quarterly <unk>.
One day or 67 cents, despite significant adverse currency impact in the period.
Once again, our total volumes were positive with the Q2 progression of over plus 2% positioning us to deliver our third straight year of growth.
While not yet Ciena, where Oregon matrix Zane continued its exceptional growth with U S volumes.
66% in Q3, and although plus 50% year to date with the substantial increase in category share.
Importantly, our Ikea business delivered another strong quarter with SBU shipment growing plus 18% in line with the year to date trend.
I've covered at our recent Investor day extra you volumes excellent unit economics related to cigarettes, and the plus 16, 5% organic net revenue growth from smoke free product was a key driver in both our <unk> organic top line and double digit organic operating income growth.
So hopefully product made up over 36% of total net revenue in the quarter as we drive towards the remuneration of over two third by 2030, making us substantially smoothly.
In combustibles.
There is a very robust performance, we still have 6% growth in organic niche with the news.
Pricing and category share despite the impact of this.
Moving to smoke free product.
Our increased operating income growth drove organic year on year margin expansion and a sequential improvement compared to the second quarter. This includes LTE expansion in the gross margin of our <unk> business, which surpassed convertible in the period and lower than expected commercial cost.
Overall, we are pleased to report another strong quarter, and we look forward with confidence to the remainder of the year.
And beyond.
Turning now to the headline numbers.
We surpassed 9 billion debt our quarterly net revenues for the first time, a strong positive volume and continued excellent iqos momentum supported organic net revenue growth of plus nine 3%.
This organic growth does not include the impressive plus 22% adjusted ex currency topline growth of Swedish match led by Z.
Our organic net revenue per unit grew by plus 7% driven by the increasing proportion of iqos edge to us in our sales mix and very firm combustible pricing of plus 9%.
This positive top line and mix performance drove a very strong organic operating income growth of plus 11, 3% and organic margin expansion of 70 basis points.
Again this excludes the exceptional performance of Swedish match, which is included in our adjusted diluted EPS.
We delivered adjusted diluted earnings per share growth of plus 23%, excluding an unfavorable currency impact of 17 cents, notably due to the Russian ruble and the balance sheet related currency impact in Argentina as disclosed at our recent Investor day.
Sequentially lower net financing costs were broadly offset by a higher tax rate.
Emmanuel Babeau: It is now my pleasure to introduce Emmanuel Babot, our chief financial officer, over to you Emmanuel. Thank you, James, and welcome everyone. We delivered very strong and better than expected performance in Q3, driven by ICOs and ZIN.
Yeah.
Our excellent third quarter combined with the robust H one resisted in strong delivery year to date.
I want to highlight our volume growth of plus one 5%.
And organic net revenue growth of plus seven 7% again, reflecting continued dynamic iqos performance and convertible pricing.
Emmanuel Babeau: Address a deleted EPS, grew by an excellent plus 20% in currency neutral terms, to reach a record quarterly eye of $1.67, despite a significant adverse currency impact in the period. Once again, our total volumes were positive with the Q3 progression of over plus 2% positioning us to deliver our third straight year of growth. While not yet in our organic matrix, ZIN continued its exceptional growth with US volumes up by plus 66% in Q3 and over plus 50% year to date with a substantial increase in category share.
In addition, Swedish match currency neutral net revenues increased by plus 18% excluding accounting reclassifications.
Year to date operating income grew by plus two four organically despite axon treated margin headwinds and the notable decline in the first quarter due to the headwinds covered previously which are now starting to succeed.
Combined with outstanding performance. This resulted in year to date currency neutral adjusted diluted EPS growth of plus 10, 7% to four there are 65. This is an excellent performance.
Emmanuel Babeau: Importantly, our ICOs business delivered another strong quarter with HTU shipment growing plus 18% in line with the year-to-date trend. As covered at our recent investor's day, HTU volumes have excellent unit economics relative to cigarettes. And the plus 16.5% organic net revenue growth from smoke-free product was a key driver in both our ICOs' organic supply and double-digit organic operating income growth. Smoke-free product made up of a 36% of total net revenue in the quarter as we drive toward our median condition of over 2.3 by 2030, making us substantially smoke-free.
Turning now to the full year outlook I am pleased to share that following a very strong year to date delivery, we are raising our volume organic sales growth and currency neutral adjusted bottom line growth forecast.
First to volumes, where we increased our outlook to plus one to plus one 5% total shipment growth for CDI rate and edge to us despite a lower expectation for the total industry.
Within this we expect to deliver SBU shipment volume within the lower ASP of our prior 125 to 130 billion range.
Emmanuel Babeau: In combustibles, we delivered very robust performance with 6% growth in organic net revenue, strong pricing and higher category share, despite the impact of the smoke-free moving to smoke-free product. Our impressive operating income growth drove organic year-on-year margin expansion and a sequential improvement compared to the second quarter. This includes LC expansion in the most margin of our ICOs' business, which surpassed combustible in the period and lower than expected commercial cost.
Iqos fundamentals remained strong this narrowing reflects further delay to the expected market launch in Taiwan limited underlying growth in Russia, and Ukraine, as well as some uncertainty related to inventory level.
A straight partner adjust to the upcoming <unk>.
For convertible the resilience of our portfolio is reflected in an updated forecast.
The 1% to 2% cigarette volume decline.
The <unk> continues to perform exceptionally strong.
Emmanuel Babeau: Overall, we are pleased to report another strong quarter, and we look forward with confidence to the remainder of the year and beyond. Turning now to the headline numbers. We surpassed $9 billion in quarterly net revenues for the first time as some positive volume and continued excellent ICOs' momentum supported organic net revenue growth of plus 9.3%. This organic growth does not include the impressive plus 22% adjusted recurrent seat-top annuals of Swedish match led by ZIM.
Strong added consumer traction.
Following a further step up in the U S volume run rate, we are now increasing our fully a nicotine pouch forecast range to 390 to 410 million guests.
Combining the improved version of <unk> with robust pricing and continued positive mix. We are narrowing our organic net revenue growth forecast to around plus 8% at the midpoint of our previous range.
As I will come back to shortly.
We expect excellent organic oi growth over the second half of the year.
Emmanuel Babeau: Our organic net revenue per unit, grew by plus 7%, driven by the including proportion of ICO's HTUs in our seismics and very firm combustible pricing of plus 9%. This positive top line and mixed performance drove very strong organic operating income growth of plus 11.3% and organic margin extension of plus 70 basis points. Again, this excludes the exceptional performance of Swedish match, which is included in our adjusted deleted EPS. We delivered adjusted deleted earning pressure growth of plus 20.3% excluding an unfavorable current impact of 17 cents, notably due to the Russian rubles and the balance sheet related currency impact in Argentina, as disclosed at our recent investor day.
Combining these strong profit performance.
Reconciliation of these phenomenal growth and diligent cost management allows us to raise our currency neutral adjusted diluted EPS growth forecast to plus 10 to plus 10, 5%.
This means we now expect double digit growth for the third year running.
And translate into full year range of $6 five to $6 eight including an estimated unfavorable currency impact of 53 at prevailing rates.
Last despite increased currency headwinds, we continue to expect operating cash flow of around $10 billion for the year.
This sets us up nicely as we focus on deleveraging towards our target of around two times adjusted net debt to EBITDA in 2026.
Emmanuel Babeau: Sequentially, lower net financing costs were broadly offset by a higher tax rate. Our excellence for quarter combined with the robust H1 resulted in strong delivery year to date. I want to highlight our volume growth of plus 1.5%, and organic net revenue growth of plus 7.7%. Again, reflecting continued dynamic ICO's performance and combustible pricing. In addition, Swedish match current neutral net revenue increased by plus 18%, excluding accounting reclassifications. Year to date operating income grew by plus 2.4 organically despite accentuated margin adwinds and the notable OID climb in the first quarter due to the adwinds covered previously, which are now starting to subside. Combined with outstanding performance, this resulted in year to date current neutral adjusted deleted EPS growth of plus 10.7% to $4.65.
Now, let me provide a different view of our forecasted results.
As you can see 2023 has very much been a year of two ads with a number of excellent treated headwinds in each one of them.
Claiming prior quarters, including steel cost inflation.
It's too is a different story and we believe it is more reflective of the underlying trajectory of our business.
First we expect an accelerated X two top line with organic growth of around <unk>, 9%.
Second we expect a significant re acceleration in profit growth.
We continue to expect organic operating income margin extension in its June and we are well on track and still delivering another quarter of sequential adjusted Oi margin improvement in Q3 with margins also expanding organically year on year.
In <unk>, we expect strong organic operating income growth of around 10%.
For the full year, our expectation remains that organic margin evolution will be towards the lower end of our minus 15 to minus 150 basis point range, including expected to equal margin impact of <unk>.
Emmanuel Babeau: This is an excellent performance. Turning now to the full year outlook, I am pleased to share the following is very strong year to date delivery. We are raising our volume, organic net growth and current neutral adjusted butter man growth forecast. Plus 2 volumes, where we increase our outlook to plus 1, to plus 1.5% total shipment growth for cigarette and H2U despite a lower expectation for the total industry. Within this, we expect to deliver H2U shipment volume within the lower alpha of our prior 125 to 130 billion range.
Around 40 basis points from third party arrangement in Indonesia and Ukraine.
For Q4, we expect strong operating income growth with broadly stable year on year organic margin progression.
This includes the expectation of other devices as we accelerate our rollout to reach around 50 markets by yearend complemented by further illuminate device innovation.
This very positive organic trajectory.
Emmanuel Babeau: While I close the number of units from this narrowing reflect further delay to the expected market launch in Taiwan, limited underlying growth in Russia and Ukraine, as well as some uncertainty related to inventory level in the U, a straight partner adjust to the upcoming H2U flavor ban. For combustible, the resilience of our portfolio is reflected in an updated forecast of a 1 to 2% cigarette volume decline. Vin continues to perform exceptionally strong adult consumer tracks.
Trajectory in etch to naturally translate into an acceleration in currency neutral adjusted diluted EPS growth posted by Swedish match.
Now turning back to our results our total shipment volume increased by plus two 2% for Q3, and plus one 5% year to date, putting us comfortably on track to deliver our third sequential year of growth.
Hte shipment volumes grew by plus 18% in Q3 to reach $32 5 billion units.
Emmanuel Babeau: Following a further step up in the U.S, volume run rate, we are now increasing our fully unique power forecast range to 390 to 410 million counts. Combining the improved volume outlook with robust pricing and continued positive mix, we are narrowing our organic networking growth forecast to around plus 8%, the midpoint of our previous range. As I will come back to shortly, we expect excellent organic OI growth over the second half of the year.
Driven by continued strong performance in Europe and Japan.
Adjusting for inventory movement, including the transition back to sea freight Q3, adjusted IMS grew by plus 14, 4%.
This includes Europe at plus 16%, despite heightened competitive activity, notably in Poland.
On a more normalized growth rates in Japan of plus 12%.
Excluding Russia, and Ukraine, where gross remains limited.
Adjusted IMS advanced by a very robust plus 16%.
Emmanuel Babeau: Combining these strong profit performance with the continuation of these phenomenal growth and diligent cost management allows us to raise our currency neutral adjusted deleted EPS growth forecast to plus 10 to plus 10.5%. This means we now expect double these growth for the third year running and translate into a full year range of $6.5 to $6.8, including an estimated favorable currency impact of 53 cents at preventing rates. Last, despite increased currency earnings, we continue to expect operating cash flow of a long $10 billion for the year. This set us up nicely as we focus on delivering towards our target of a long two-time adjusted net debt to ABDA in 2026.
These growth rates exclude the excellent development of oral nicotine for wheat shipment volume grew by plus 19% in Q3, and plus 14% year to date on a pro forma basis, including U S growth of <unk> of plus 66% and plus 56% respectively.
If we were to add the growth of nicotine pouches on a unit basis.
Our Q3 pro forma Smokefree volume grew by 19, 5% and our total volume by plus two 5%.
So you guys will you declined by a modest <unk>, 5% in Q3.
Strong performance in Turkey, and Egypt, and by one 3% year to date.
<unk> solid category share performance in the resilient category despite robust pricing.
Emmanuel Babeau: Now, let me provide a different view of our forecasted results. As you can see, 2023 has very much been a year of two Alps with a number of accentuated Edwin's in H1, I've explained in prior quarters, including Tidcus inflation. H2 is a different story and we believe it is more effective of the underlying trajectory of our business. First, we expect an accelerated H2 top line with organ growth of around plus 9%.
I will now walk through the mechanics of our Q3 net revenues.
In addition to plus two 2% volume growth.
<unk> contributed plus six two points of growth as convertibles remained strong and the negative impact on <unk> pricing and utilization of excise tax increases in Japan, and Germany, notably moderated.
The increasing proportion of hte use in our business continues to be a consistent topline driver, reflecting higher net revenue per unit.
Emmanuel Babeau: Second, we expect a significant re-acceleration in profit growth. We continue to expect organic operating income margin extension in H2, and we are well on track after delivering another quarter of sequential adjusted Y margin improvement in Q3 with margins also expanding organically year-on-year. In H2, we expect strong organic operating income growth of around 10%. For the full year, our expectation remains that organic margin evolution will be toward the lower end of our minus 60 to minus one and 60 betis point range, including the expected technical margin impact of around 40 betis point from third-party arrangement in Indonesia and Ukraine.
The positive mix impact of edge to us overall volume growth and pricing are powerful drivers of our transformation and growth.
We expect <unk> to enhance this further as it starts to be included in our organic metrics from mid Q4.
Looking now at adjusted operating income, whereas the $3 7 billion delivered in Q3 is also a record high.
I am pleased to report that following peak margin headwind in Q1, our organic growth has accelerated nicely as inflation supply chain disruption and illumina related sectors continued to moderate and the underlying dynamics of our transformation efforts.
Emmanuel Babeau: For Q4, we expect strong operating income growth with broadly stable year-on-year organic margin progression. This includes the expectation of higher devices, as we accelerate our Illuma rollout to reach around 50 markets by year-end, complemented by further Illuma device innovation. This very positive organic OI trajectory in H2 naturally translate into an acceleration in current in neutral adjusted directed EPS growth, hosted by Sureshna. Now, turning back to our results, our total shipment volume increased by plus 2.2% for Q3 and plus 1.5% here to date, putting us comfortably on track to deliver our third sequential year of growth.
The Q3 progression is slightly above our 2020 for 2026 CAGR target of plus eight to plus 10% organic operating income growth and as I covered earlier, we expect our overall edge to oi growth to be around the top of this range.
This strong operating income growth in excess of an already healthy top line performance drove a better than expected organic margin expansion of 70 basis points in the quarter.
This was also the first quarter this year, where gross margin expanded organically, notably due to lower shipping cost illumined margin improvement and lower device sales compared to the prior year.
SG&A cost were also organically lower as a percentage of net with a new reflecting good cost performance and some phasing between the third and fourth quarter.
Emmanuel Babeau: HDU shipment volumes grew by plus 18% in Q3 to reach 32.5 billion units driven by continued strong performance in Europe and Japan. Adjusting for inventory movement including the transition back to C8, Q3 adjusted IMS grew by plus 14.4%. It includes Europe at plus 16%, despite heightened competitive activity notably in Poland and a more normalized growth rate in Japan of plus 12%. Excluding Russia and Ukraine where growth remains limited, our adjusted IMS advanced by a very robust plus 16%.
We delivered a further $120 million in gross cost efficiencies in Q3, now surpassing our $2 billion target for 'twenty, one 'twenty three.
We aim to continue this run rate as reflected in our 'twenty four 'twenty six target of an incremental $2 billion in gross savings.
The Q3 margin currency volumes include a 0.6 point impact from the Argentina balance sheet related items I mentioned earlier.
By its nature. This does not carry forward to future periods.
Now moving to Swedish match, which is meaningfully accelerating our smoke free growth trajectory as we progress towards becoming substantially smoke free by 2030.
Emmanuel Babeau: This growth rate excludes the excellent development of oral nicotine for which shipment volume grew by plus 19% in Q3 and plus 14% here to date on the performer basis, including the US growth of VIN of plus 66% and plus 56% respectively. If we were to add the growth of nicotine pouches on a unit basis, our Q3 performed a smoke free volume volume by plus 19.5% and our total volume by plus 2.5%.
Swedish match business delivered excellent.
Currency neutral net revenue growth of plus 22% in Q3, and plus 18% year to date.
This means that our adjusted pro forma year to date topline growth was 60 basis points a year at plus eight 3%.
Swedish match strong profitability also and then stuff.
Our year to date adjusted net income margin by plus 70 basis points.
Emmanuel Babeau: C8 volume declined by a modest 0.5% in Q3 with strong performance in Turkey and Egypt, and by 1.5% here to date, reflecting solid category share performance in a resilient category despite robust pricing. I will now walk through the mechanics of our Q3 net revenues. In addition to plus 2.2% voting growth, pricing contributed plus 6.2 points of growth as combustibles remain strong and the negative impact on HDU pricing of the annualization of Xi-Tak increases in Japan and Germany, notably moderated.
As we covered at Investor day.
Swedish match smoke free portfolio excellent economic and is already a significant size compared to total combined with its political distribution or operating profit before G&A to be clearer approaching one quarter of our total smokefree business year to date.
This remains the key performance driver.
Delivered another remarkable USD <unk> with plus 66% volume growth, reflecting positive momentum across the country.
Elsewhere in smoke free recent trends of share gain in U S moist snuff as well as category mix headwinds in Scandinavia broadly continued.
Emmanuel Babeau: The increasing proportion of HDU's in our business continues to be a consistent top line driver, reflecting higher net revenue per unit. The positive mixing impact of HDU's overall growth and pricing are powerful drivers of our transformation and growth. We expect VIN to enhance this further as it starts to be included in our organic metrics from mid Q4. Looking now at adjusted operating income, where the 3.7 billion dollar delivery in Q3 is also a report I. I am pleased to report that following peak margin at winning Q1, our organic growth has accelerated nicely as inflation, supply chain disruption and illuma related factors continue to moderate, and the underlying dynamics of our transformation, therefore.
We continue to be very pleased with the positive impact of Swedish match on our company and I would like to thank the team for delivering such a great performance.
Now, let's examine <unk> recent U S performance in more detail.
Exceptional progress continued in Q3 with an increase in 12 months rolling shipment volume growth of plus 52% compared to Q3, 2022, and plus 14% sequentially.
Impressively.
Q3 category value share grew to 78%, which is plus four seven points higher year on year and two four points.
$2 $5 sequentially.
Retail value share remained strong at around 76% <unk> premium positioning and superior brand equity.
Emmanuel Babeau: The Q3 Proversion is slightly above our 2024 or 2026 Kagger target of plus 8 to plus 10% organic operating income growth. And as I covered earlier, we expect our overall H2OI growth to be around the top of this range. This strong operating income growth in excess of an already LCTOP line performance drove a better than expected organic margin extension of plus 70 base points in the quarter. This was also the first quarter this year where growth margin extended organically, notably due to lower shipping costs, Illuma margin improvement and lower devices compared to the prior year.
This accelerated growth reflect progressive increase in distribution and a further growth step it.
<unk>, one store velocity as the category gained strong traction with Idose neogen user for its convenience.
And pleasurable experience.
Now focusing on Iqos, starting with user groups.
We estimate they were $27 4 million iqos users as of September 30th.
This represents an increase of $3 7 million user versus one year ago, and <unk> 2 million compared to Q2 2023.
Okay.
Shown on the right hand side of the slide the third quarter of each year typically experiences slower user growth due to the seasonal influences in the calculation.
Emmanuel Babeau: SGNA costs were also organically lower as the percentage of net for the new, reflecting a good cost performance and some phasing between the third and fourth quarter. We delivered a further $120 million in growth cost efficiency in Q3, now surpassing our $2 billion target for 2123. We aim to continue this run rate as reflected in our 2426 target of an incremental $2 billion in growth savings. The Q3 margin currency variance include a 0.6 point impact from the Argentina balance sheet related item I mentioned earlier. By its nature, this does not carry forward to future periods.
Both new user registration and device sales to legal age smokers continue to advance strongly and at levels broadly in line with Q2, when users grew by $1 4 million sequentially.
Also as in prior years, we expect a substantial acceleration in user growth in the fourth quarter.
Moving now to Iqos in the Europe region, where our third quarter <unk> share increased by plus one three points to eight 6% of total cigarette and <unk> industry would.
Continued share gains into the growing tick up of <unk>, which is available to over 80% of iqos users in the region.
Emmanuel Babeau: Now moving to Swedish match, which is meaningfully accelerating our smoke free growth trajectory as we progress towards becoming substantially smoke free by 2030. Swedish match business delivered excellent adjusted current neutral net revenue growth of plus 22% in Q3 and plus 18% year to date. This means that our adjusted performance year to date to clan growth was 60 base point higher at plus 8.3%.
In addition to Q3 launches in Denmark and the UK.
<unk> was launched in Poland, which like Japan.
As a market with high competitive activity.
We look forward to driving its deferments year over the coming quarters.
While sequential share is as usual optically affected by the seasonality of the cigarette category.
Adjusted IMS volumes continue to exhibit robust sequential growth and reached a record high on a four quarter moving average.
Emmanuel Babeau: Swedish match strong profitability also an answer. Our year to date adjusted as income margin by plus 70 base point. As we covered that in the day, Swedish match smoke free portfolio has excellent economic and is already as significant size compared to total PMI with its product contribution or operating profit before GNA to be clearer, approaching one quarter of our total smoke free business year to date. Then remains the key performance driver as it delivered another remarkable U.S, performance with plus 66% growing growth reflecting positive momentum across the country. As we are in smoke free, recent trends of share gain in U.S, most most as well as category mix edwin in Scandinavia broadly continued.
This reflects strong year on year growth of plus 16% in Q3, Despite limited growth in Ukraine.
We expect strong IMS volume growth to continue in Q4 with a corresponding increase in market share.
In the EU the majority of member states as transposed a delegated the ricky's withdrawing the heated tobacco product exemption from the characterizing flavor ban International law.
The band in these markets will be effective as of October 20 <unk>.
The remaining markets are expected to adopt in 2024.
As previously mentioned, we are adjusting our HD portfolio.
As required in line with his transposition and while short term volatility is placebo, including in year end trade inventories, we do not expect significant change in the structural growth of the category.
Emmanuel Babeau: We continue to be very pleased with the positive impact of Swedish match on our company and I would like to thank the team for delivering such a great performance.
In Japan.
<unk> celebrated its second anniversary of the National launch in September and continues to exhibit strong growth due to excellent conversion consumer satisfaction and retention rates.
Emmanuel Babeau: Now let's examine Zins recent U.S, performance in more detail. Exceptional progress continued in Q3 with an increase in 12 months rolling shipment volume growth of plus 52% compared to Q3 2022 and plus 14% sequinship Importively, then Q3 category volume share grew to 17.8%, which is plus 4.7 points higher year on year and plus 2.4 points 2.5 points sequinship retail value share we may have 2.5 points per second at around 76% highlighting zins premium positioning and superior brand equity. This accelerated growth reflects progressive increase in distribution and a further growth step up in national one-store velocity as the category gains strong traction with others nicotine user for its convenience and pleasurable experience.
Adjusted total tobacco share for our <unk> brands increased by plus three points in Q3 year over year to 26, 6%.
Importantly, adjusted in market sales volume again grew sequentially on a four quarter moving average reaching over 10 billion unit for the first time in Q3 dollars 23.
As Iqos outgrew the eternal brand category.
In addition to these excellent consumer trend.
Our Q3 shipment to Japan also benefited from further switching back to sea freight during the quarter.
This shift is now substantially progressed and we expect a more normalized rate of hte shipment in Q4.
Emmanuel Babeau: Now focusing on ICOs starting with user growth, we estimated were 27.4 million ICOs users as of September the Satyas. This represent an increase of 3.7 million users versus 1 year ago and 0.2 million compared to Q2 2023. As shown on the right hand side of the slide, the third quarter of each year typically experiences slower user growth due to the seasonal influences in the calculation. Both new user registration and devices to legalize smokers continue to advance strongly and have leveled broadly in line with Q2 when users grew by 1.4 million sequentially. Also, as in prior years, we expect a substantial acceleration in user growth in the first quarter.
Our premium priced Korea <unk> use in mainstream price Cynthia S to use continued to grow individually and in aggregate, we've seen Q3 offtake shares of around 18% and 8% respectively. Despite the impact of seasonality.
Our Japan Citi shares also continue to progress.
Number reaching over 30%.
Continue to see a long runway of growth in Japan over the coming quarters.
In addition to strong <unk> gains in developed countries. We continue to see very promising growth in low and middle income market.
This slide highlights a selection of Q3 key city of pick share across market in Eastern Europe Africa, Asia, and Latin America.
We've seen notable ongoing success in Egypt, we scare offtake share at $3 five to almost 9%.
Emmanuel Babeau: Moving now to ICOs in the Europe region, where our third quarter HTU share increased by plus 1.3 points to 8.6% of total cigarette and HTU industry volume. Continued share gain into the growing tech up of Illuma, which is available to over 80% of ICOs user in the region. In addition to Q3 launches in Denmark and the UK, Illuma was launched in Poland, which, like Japan, is a market with high competitive activity.
And in terms of the Mingo.
Our leading Latin America.
With offtake share around 8%.
Most promising is three 1% of take share in Europe in Jakarta, where Iqos is only available via the Iqos club members program.
We continue to see robust offtake volume growth across this important future market despite seasonal effect on sequential churn metrics.
I'd like to spend a moment now on combustibles, where our portfolio delivered strong <unk>.
Emmanuel Babeau: We look forward to driving its performance here over the coming quarters. While sequensal share is, as usual, optically affected by the seasonality of the cigarette category, adjusted IMS volumes continue to exhibit robust sequential growth and reached a record eye on the four quarter moving average. This reflects strong year-on-year growth of plus 16% in Q3 despite limited growth in Ukraine. We expect strong IMS volumes growth to continue in Q4, with a corresponding increase in market share.
Net revenue growth of plus six 2% in Q3 and precise down 6% year to date.
This reflects another strong quarter of pricing with notable contribution from Germany and Indonesia.
With better than expected pricing in Q3 of plus 9% and plus eight 6% year to date, we now forecast the full year increase of eight to eight 5%.
Our cigarette category share grew by <unk> six points in Q3, and plus <unk> three points year to date.
Emmanuel Babeau: In the EU, a majority of member states have transposed a delegated directive withdrawing the ETA tobacco product exemption from the characterizing flavor ban, international law. The ban in due market will be effective as of October the 23rd and the remaining market are expected to adopt in 2024. As previously mentioned, we are adjusting our edge report for you as required in line with this transposition, and while short-term volatility is possible, including in year and trend inventories, we do not expect significant change in the structural goals of the category.
This reflects notable contribution from Egypt.
And and Turkey, resulting in only modest volume declines.
Our leadership in convertibles as to maximize switching to smoke free product and we are fully achieved our ongoing objective of stable category share over the last two years, despite the impact of Iqos cannibalization.
This convertible share performance combined with structural growth of Iqos supports robust overall market share gains.
Captured plus 049 points of international cigarette and <unk> share in Q3, and plus zero seven points year to date.
Emmanuel Babeau: In Japan, Icosi Luma celebrated its second anniversary of the national launch in September and continues to exhibit strong growth due to excellent conversion, consumer satisfaction, and retention rates. Adjusted total tobacco share for our FQ brands, increased by plus three points in 2, 3 year over year, to 26.6%. Importantly, adjusted in market sales volume again, grew sequentially on the four quarter moving average, reaching over 10 billion units for the first time in 2, 3, 23, as Icos outgrew the Idnablan category.
I've covered at Investor day, our superior share of Mercury product gives us a formidable platform for sustainable market share gains we superior unit economics.
Now, let me update you briefly on our exciting innovation and expansion activities, which will be critical as we aim to reach over <unk> revenue by 2030, including 16 market over 50% and 40 markets.
Over 75%.
As we covered at Investor day, the global rollout of Iqos Illumina continues.
We launched Illumina in four market in Q3, reaching 27 markets in total which represents around 75% of our iqos business by volume.
Emmanuel Babeau: In addition to this excellent consumer trend, our Q3 shipment to Japan also benefited from further switching back to SIFRATE during the quarter. This shift is now substantially progressed, and we expect a more normalized rate of FQ shipment into form. Our premium price carrier FQs and mainstream price sentia FQs continued to grow individually and in aggregate, reaching Q3 of textures of around 18% and 8% respectively, despite the impact of seasonality. Our Japan city share also continued to progress with a number reaching over 30%. We continue to see a long runway of growth in Japan over the coming quarter.
<unk> continues to generate excellent growth with upgrades from existing user and user acquisition.
Further six market launch are really small and so expecting demand to be present in around 50 market by year end and to essentially complete the rollout next year.
As also mentioned during Investor day Superior tobacco taste is critical to our ongoing success and we are further exploring complex and new tests spaces to enhance our tobacco flavor experience.
On the other end of the consumer preference spectrum, we will be offering zero tobacco consumable for non tobacco flavor discovery under the Lithia brand.
Emmanuel Babeau: In addition to strong like was gains in developed countries, we continue to see very promising growth in low and middle income market.
Just as nicotine pouches are an evolution from <unk> to make the overall category relevant to more adult smokers Lithia is it similar non tobacco evolution for Iqos as we broaden our offering to increase.
Emmanuel Babeau: This slide I like a selection of Q3 key city of tech share across market in Eastern Europe, Africa, Asia and Latin America. We see notable ongoing success in Egypt with carol of tech share plus 3.5 points to almost 9%. And in some to the mingo as our leading Latin America city is of tech share around 8%. Most promising is a 3.1% of tech share in urban Jakarta, where ICOs is only available via the ICOs club members program. We continue to see robust of tech voting growth across this important future market, despite seasonal effect on sequential share metrics.
Switching away from convertibles.
The U S represents the most significant opportunity to drive accelerated smokefree growth at both the top and bottom line we.
We are continuing to invest behind <unk> and readying, our organizational and commercial capabilities for the launch of Iqos in Q2, 2024, and a scaled rollout resume once authorized.
We remain on track to file for Iqos, <unk> PMT and <unk> response.
The international expansion of nicotine pouches.
Emmanuel Babeau: I like to stand a moment now on combustibles, where our portfolio delivered strong organic net revenue goals of plus 6.2% in Q3 and plus 5.6% year to date. This reflect another strong quarter of pricing with notable contribution from Germany and Indonesia. With better than expected pricing in Q3 of plus 9% and plus 8.6% year to date, we now forecast a full year increase of plus 8 to plus 8.5%. 0.6% Our cigarette category share, grew by plus 0.6 point in Q3 and plus 0.3 point here to date.
Main key mid to long term focus notably for <unk> as the worlds leading brand.
During the third quarter, we relaunched zain in Switzerland and following.
Positive regulatory developments rollout zain in Finland.
Moving now to sustainability.
Addressing the product S impact of convertible flooded by switching adult smoker to smoothly product.
Our design and marketed for adult use remains our most critical priority.
This transformation is at the core of our strategy as we become a more sustainable business.
<unk> accelerated growth and returns over time.
Emmanuel Babeau: This reflects notable contributions from Egypt, Poland and Turkey, resulting in only modest volume decline. Our leadership in convertibles helps to maximize switching to small free product and we have fully achieved our ongoing objective of table category share over the last two years, despite the impact of I call cannibalization. This combustible share performance combined with the structural roles of I call supports robust overall market share gains. We captured plus 0.9 point of international cigarette and HTV sharing Q3 and plus 0.7 points here to date.
With regard to tackling climate change.
Delighted to report that the science based target initiative validated our forest land and agriculture emission reduction target a recognition achieved by very few companies.
We pledged to reduce these absolute scope three emissions by 33% by 2030, which is significant given that scope three remain the most challenging aspect of any company de carbonization strategy.
In September almost 20000 employees in over 60 countries participated in working a day showcasing our commitment to raising awareness around littering as part of our wider strategy to reduce post consumer waste.
Emmanuel Babeau: As covered at investor day, our superior share of the company product give us a formidable platform for sustainable market share gained with superior unit economics.
We have low expressed our support for more rigor and sustainability related Rebooking and welcome recent move towards greater consistency is turned off and a strong governance framework.
Emmanuel Babeau: Now, let me date you briefly on our exciting innovation and expansion activities, which will be critical as we end to reach over two years, including 60 market over 50% and 40 markets over 75%. As we covered at investor day, the global rollout of I call's Illuma continues. We launched Illuma in 4 market in Q3, which in 27 market in total, which represent around 75% of our I call business by volume. Illuma continues to generate excellent growth with upgrades from existing user and user acquisition. With a further six market launch already this month, we expect Illuma to be present in around 50 market by year and to essentially complete the rollout next year.
As part of our ongoing work, we provided responses to constitution requests from the international system to Bt's told our board to help shape. The development of their work plan and update to the SB standouts.
<unk> continued to be recognized by organ is essentials, such as world business consoles.
For sustainable development as the leader in non financial reporting.
We have much more to share on our assisted Etfs and transformation.
<unk> will be presenting at the CCP Q Investor Forum in New York on November 14th and the event is open to all <unk>, we would like to attend.
To conclude today's presentation, we continue to deliver sustainable growth through our transformation.
Emmanuel Babeau: I also mentioned during investor day, superior tobacco taste is critical to our ongoing success. And we are further exploring complex and new test spaces to enhance our tobacco flavor experience. On the other end of the consumer preference spectrum, we will be offering zeros tobacco consumable for month tobacco flavor discovery under the Libya brand. Just as nicotine pouches are an evolution from snoons to make the oral category relevant to more adult smokers, Lavia is a similar non tobacco evolution for I calls as we broaden our offering to increase switching away from combustibles.
The powerful trajectory of our Smokefree business.
Give us confidence in strong full year results built on volume growth.
It is mix pricing and cost management.
Considering the headwinds faced notably in the first part of the year. We believe this speaks strongly to the fundamentals of our gross margin.
Notably the outstanding performance of Iqos and Zing continues.
And then seeing our position as the global smoke free champion.
We have exciting plans to accelerate our smokeless richer and boost the U S.
The largest move free market and internationally.
We are confident in our 2020 for 2020 CAGR target of plus six to plus 8% organic top line growth.
Emmanuel Babeau: The U.S, represents the most significant opportunity to drive accelerated smoke free growth at both the top and bottom line. We are continuing to invest behind Zine and readying our organizational and commercial capabilities for the launch of I calls into 2022. And the scaled up rollout with Illuma wants of arrived. We remain on track to file for I call to you must PNTA and MRTPA this month.
Plus eight 2% percent organic operating income growth and plus 9% plus 11% currency neutral adjusted EPS growth.
We also have a clear guiding objective with our new ambition to be substantially smoke free by net revenue in 2013 as another key milestone on our journey towards a smoke free future.
Emmanuel Babeau: The international expansion of nicotine pouches remain a key need to long-term focus, notably for Zinn as the world's leading brand. During the third quarter, we relaunch Zinn in Switzerland and following positive regulatory developments rolled out Zinn in Finland.
And finally with our latest dividend raise in September we have delivered 16 years of continuous dividend increase since our 2018, despite the ups and downs of economic and currency cycles.
This translate to accumulative, 183% increase in CAGR of 77, 2% since 2008 with an annualized dividend of $5 20.
Emmanuel Babeau: Moving now to sustainability, addressing the product else impact of combustible product by switching other smokey to smokey products, which are designed and marketed for adult use, remains our most critical priority. This transformation is at the core of our strategy as we become a more sustainable business, with accelerated growth and returns over time. With regard to tackling climate change, I am delighted to report that the science-based target initiative validated our forest, land and agriculture emission reduction target, a recognition achieved by very few companies.
As these demonstrate our commitment to shareholder return through a progressive dividend remain steadfast.
Thank you very much and we are extremely happy to answer your questions.
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.
Followed by the number one on your telephone keypad.
In the interest of fairness and time, we ask that participants keep to a maximum of two questions. Each.
If time allows for follow up questions may be taken you.
Emmanuel Babeau: We pledged to reduce this absolute scope 3 emission by 33% by 2030, which is significant given that scope 3 remain the most challenging aspect of any company-decarbonization strategy. In September, almost 20,000 employees in over 60 countries participated in World Clean Up Day, showcasing our commitment to raising awareness around littering as part of our wider strategy to reduce post-consumer waste. We have long expressed our support for more rigor in sustainability related reporting, and welcome recent moves toward greater consistency in standards and strong governance framework.
You may rejoin the queue by again pressing star one.
Our first question will come from Vivien <unk> with TD Cowen. Please go ahead.
Hi, good morning.
Good morning.
So I think I'll start with volatility is clearly a very impressive result with continued acceleration in the topline Manuel you talked about.
So I was hoping you could just level set how much more runway do you see.
Clinical solutions for <unk>.
Mobile remains of the possible.
Sorry, Paul.
Question, one and then the follow up will just be on the margins that way I'll hand, it back to that close I think you called out very strong cost management, that's clearly apparent I'd love to hear your perspective on the durability of the current margin level. For example, thank you.
Emmanuel Babeau: As part of our ongoing work, we provided responses to consultation requests from the International Sustainability Standard Board to help shape the development of their work plan and update to the SASB standards. PMI continued to be recognized by organizations such as the World Business Council for sustainable development as the leader in non-financial reporting.
Thank you Vivian so on Deane.
And.
Of course every quarter will bring its.
New.
I would say.
A lot of news and I think we have been seeing in Q3, another great quarter of acceleration in the velocity that mean that where the brand is already even Nike present, we see the consumer offtake accelerating just show that this product becoming.
Emmanuel Babeau: We have much more to share on our sustainability efforts and transformation.
Emmanuel Babeau: Yatsek will be presenting at the CECP CEO investor forum in New York on November 14th, and the event is open to all those who would like to attend.
More relevant for a growing number of adult user and there's good news. There is also a geographical dimension on which we elaborated at the time of <unk>.
Emmanuel Babeau: To conclude to this presentation, we continue to deliver sustainable growth through our transformation. The powerful trajectory of our smoke-free business gives us confidence in strong, full-year results built on volume growth, positive mix, pricing, and cost management. Considering the Edwin faith, notably in the first part of the year, we believe this speaks strongly to the fundamentals of our growth model. Notably, the outstanding performance of ICOs and Zine continues further enhancing our position as the global smoke-free champion.
Our investor day, and which is showing that while the Brian .
Certain level of presence on the western part of the U S doesn't mean that isn't going to grow it further but it's of course bigger than the rest of the country that seem to be a trajectory that is saying that the rest of the country is going to adopt it progressively and that is indeed, giving also nice.
I would say trajectory on on further growth.
In the coming quarters and years of course, we took care of both probably years of very nice growth. So it's great that we have beyond Z.
Emmanuel Babeau: We have exciting plans to accelerate our smoke infrastructure in both the U.S., the largest smoke-free market, and international... We are confident in our 2024-2026 Kaggle target of plus 6 to plus 8% organic top and goals, plus 8 to plus 10% organic operating income goals, and plus 9 to plus 11% current neutral adjusted EPS goals. We also have a clear guiding objective with our new ambition to be substantially smoke free by natural revenue in 2030 as another key milestone on our journey toward personal free future.
Two engine, which is really where the brand is already.
The biggest presence.
Don't see any decrease in the consumer adoption and we see increase what we call the velocity.
And we see progressively I think as well quarter after quarter. This geographical momentum building building it.
As expected.
Now on the on the margin.
Yes. It is true that the growth of <unk> is extremely positive when it comes to margin of course.
We are going to continue to invest beyond this growth potential in the U S and we will put the necessary commercial resources.
Emmanuel Babeau: And finally, with our latest dividend raise in September, we have delivered 16 years of continuous dividend increase since our 2008 spin, despite the ups and downs of economic and current cycle. This translates to a cumulative 183% increase and Kaggle of 77.2% since 2008 with an annualized dividend of $5.20. As this demonstrates, our commitment to shareholder return through progressive dividend remain steadfast.
To make sure that we maximize the growth potential.
But I'd say its zenith is really.
Best in class in terms of gross margin.
For our product.
At the group level and thinking about zain in the U S, but globally nicotine pouch enjoy nice margin beginning in the U S is best in class and that means of course that growing.
<unk> is an excellent news for Todd.
Top line, but also for bottom line and I think that in the growth of <unk>.
Earnings per share over the quarter. This is absolutely feasible.
Emmanuel Babeau: Thank you very much and we are now extremely happy to answer your questions. Thank you.
Thank you.
Thank you.
Unknown Executive: 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, followed by the number one on your telephone keypad. In the interest of fairness and time, we ask the participants keep to a maximum of two questions each. If time allows, follow up questions may be taken. You may rejoin the queue by again pressing star one.
Thank you. Our next question will come from Bonnie Herzog with Goldman Sachs.
Thank you good morning.
I had a question on your <unk> shipment volumes for the year.
You mentioned, you're now expecting to come in within the lower half of your guidance and then you highlighted a few reasons for this including the uncertainty related to.
And then Terry levels in Europe , given the upcoming flavor ban so could you give us a sense of maybe where inventory the inventory levels are at right now and then maybe how many quarters do you expect some of this unwind happen and then just thinking about the trade.
Vivien Azer: Our first question will come from Vivian Ezure with PB Cowan, please go ahead. Hi, good morning. Morning again.
Emmanuel Babeau: So I'd like to start with then please clearly a very impressive result with continued acceleration in the top line. Manuel, you talked about distribution gains. I was hoping you could just level set, you know, how much more runway do you see from a distribution standpoint, you know, certainly this remains of velocity driven story. I would say so that would be question one and then the follow up. We'll just be on the margins, which came in way ahead of expectations.
Being asked that in any way with.
Just think about basketball stake inventories are really how has the trade responding to that.
Dan.
Okay.
Yes so.
I think it's it's.
Something on which we would be able to elaborate once we have been landing the year after.
<unk>.
The bank put in place on the.
Emmanuel Babeau: You've called out very strong cost management. That's clearly apparent and I'd love to hear your perspective on the durability of the current margin level. Thank you. Thank you, Vivian. So on the end. And of course, you know, every quarter will bring it. New. I would say. Lot of of of news and I think we have been seeing into three another great quarter of acceleration in the velocity that mean that, you know, where the brand is already.
Where the country are implementing need to fulfill both medication in all country. One of the question we have is with.
Some reduction with some skus does it mean that they are globally going too.
Reduce the level of inventory and can can this impact the level of shipment toward.
Year end. So I think we are flagging that because of course we.
We continue to be with a view that this branch will not commit he bring major disruption and within elaborating on many occasions on why we've seen that these studies are going to instantly change the dynamics in the category, but it's true that we have some question mark on on the lending for the reasons I've just.
Emmanuel Babeau: Even nicely present, we see the consumer of tech accelerating just show that this product are becoming more relevant for growing a number of adult user and that there is also the geographical dimension on which we elaborated at the time of our investor day and which is showing that while the brand has a certain level of presence on the western part of the US doesn't mean that isn't going to grow it further, but it's of course bigger than the rest of the country. There seem to be a trajectory that is saying that the rest of the country is going to adopt it progressively and that is indeed giving also a nice.
In describing the level of inventory that's why we are.
Mentioned to make sure that.
We are <unk> placebo on the on the placebo I would say a temporary effect that this could generate now when I look at our shipments for the year. So we are clarifying the lending area.
When I look at the 23 performance versus 22 performance.
Emmanuel Babeau: I would say trajectory on on further growth in the in the coming quarters and years, of course, you know, we took care about probably years of very night goals. So it's great that we have behind them. Two engine, which is really where the brand is already, you know, with the biggest presence. We don't see any decrease in the consumer adoption and we see increase what we call the velocity. And we see progressively, I think as well quarter after quarter, this geographical momentum building up building up as expected.
We mean, even in the low end of the bracket.
Acceleration in terms of growth versus the growth that we experienced in 'twenty two in terms of incremental billion dollars of Asti being sold and of course shipments are.
As we know what we are.
Selling what is probably more important is the consumer offtake and frankly, we see the momentum continuing with no change in our.
Q3 number where we have seasonality, but when we look at Q3, which we expect for Q4, we are very much with the same strong 15% to 16% <unk> growth.
Emmanuel Babeau: Now, on the margin, yes, it's true that this growth of Zim is extremely positive when it comes to margin. Of course, we are going to continue to invest behind this growth potential in the US and we will put the necessary commercial resources to make sure that we maximize the growth potential. But I said Zim is really best in class in terms of growth margin. And for our product at a good level, I'm talking about Zim in the US, but you know, globally nicotine pouch, enjoy.
And.
And we are in line with what we have.
His experience last year, so that shows and by the way, it's a percentage on a higher base so in trucking volumes.
<unk>. So we don't see any change in the momentum we see.
A lot of strength in the <unk>.
The growth.
And thats visible in the in the volume and the market share.
That we are reporting today will be Q3.
Okay. That's helpful and then.
Just in terms of another question I just wanted to ask on <unk>.
On your new Iqos users in the quarter I could comment a bit light.
Emmanuel Babeau: Nice margin that Zim in the US is best in class. And that mean, of course, that growing Zim is an excellent means for top line, but also for bottom line. And I think that in the growth of the adjusted on micro share over the quarter, this is absolutely visible. Thank you.
You highlighted that this is normal quarterly seasonal trends. So maybe could you talk through that a bit further.
And then.
Maybe what other drivers might be impacting lesson and essentially how much visibility do you have.
In terms of Q4, you mentioned you expect a substantial acceleration in user growth. This quarter can you just kind of wanted to verify what youre seeing so far in October gives you that confidence.
Bonnie Herzog: Our next question will come from Bonnie Herzog with Goldman Sachs. Thank you. Good morning. Good morning, Bonnie. I had a question on your HTU shipment volume for the year. You know, you mentioned, you're now expecting to come in within a lower half of your guidance, and then you highlighted a few reasons for this, including, you know, the uncertainty related to inventory levels in Europe, given the upcoming labor ban. So could you give us a sense of maybe where inventory inventory levels are at right now, and then, you know, maybe how many quarters you expect some of this unwind to happen.
And is it realistic to assume a typical 1 million average quarterly run rate moving forward.
Bonnie Herzog: And then, you know, just thinking about the trade, you know, is this being offset in any way with, you know, I'm just thinking about combustible, say, give interns, or, you know, really, how is the trade responding to this, this ban.
Sure So actually last year, we were flat.
In terms of user acquisition. So we're doing better this year than last year in term of user evolution and I think we are in line with what we experienced in 'twenty, one if I remember well I think we've been showing that we have been trained in them. So thats a typical.
And for Q3.
Due to the metallurgy on all we calculate.
The user growth and.
And I think we are today.
As I said one of the elements of the momentum that we're seeing on people buying the device on people registering.
Bonnie Herzog: Yes, but it's so, I think it's, it's, of course, something on which we would be able to elaborate once we have been landing the year after the, the ban put in place on, where the country are implemented in October, not the case in all country. One of the question we have is as with some reduction, you know, with some SKUs, does it mean that they are globally going to reduce the level of inventory and can, can this impact the level of shipment toward the year.
That is pointing to the fact that we see the same momentum.
There is no change.
And last year, we finished the year with a strong user growth.
And we target to do the same.
This year so.
I have to say, it's remarkably stable and the strengths if I can use this exploration.
And as I said, we could be at the end of it in fact.
Growing in shipments.
And in the IMS volume more.
Then last year, so as a percentage is about the same against the base as being a year. It means that we're going to we're going to increase in demos.
Bonnie Herzog: And so, I think we're flying that because, of course, we continue to be with the view that this ban should not ultimately bring major disruption, and we've been elaborating on many occasions why we think that this ban is not going to ultimately change the dynamic in the category. But it's true that we have some question mark on the landing for the reason I've just been describing on the level of inventory that's why we are.
Volume differential year on year.
Alright, thank you.
Thank you.
Thank you. Our next question comes from Gaurav Jain with Barclays. Please go ahead.
Hi, good morning.
Good morning Dara.
Hi, So I have a question on the U S to that side of things. So clearly they have DSM. This rulemaking process to ban flavors to us to the OMB. So you saw a plus how will you address that and secondly, if I look at the reported numbers on <unk>. It seems that the revenue had a pretty steep dip.
Bonnie Herzog: And mentioning to make sure that we are as clear as possible on the possible temporary effect that this could generate now when I look at our shipment for the year, so we are clarifying the landing area. When I look at the 23 performance versus 22 performance, that we mean even in the low end of the bracket, an acceleration in terms of growth versus the growth that we experience in 22 in terms of incremental billion of of still being sold.
Line this quarter.
US understand what's happening there.
Okay.
So on the trend we've been increasing price.
I mean, the seagull had been below.
Southern traditionally forget of time, and we decided to move above the <unk>.
Bonnie Herzog: And, of course, shipments are, as we know, what we are selling, what is probably more important is the consumer of tech. And, here, frankly, we see the momentum continuing with no change. And I think the Q3 number where we have seasonality, but when we look at Q3, what we expect for Q4, we are very much with the same strong 15 to 16 percent IMF growth. And we are in line with what we have experienced last year.
Ratio, which was $1 14.
And there is a time for.
Adaptation and and and that explain why Onboarding, we are impacted this year.
That I don't think terrific, what's going to happen on the long term, where we continue to have very good brands in Brazil.
A lot of our consumer support.
Frankly on the flavor with Illumina to speculate.
I don't know exactly what the plan what is going to mean, our long it would take what is decided and again nobody knows what will be decided all along it's going to take to be implemented so.
Bonnie Herzog: So that shows, and by the way, it's a percentage on a higher base. So, in fact, in volume, that means that the volume growth is higher. So, we don't see any change in the momentum. We see a lot of strength in the growth. And that's visible in the volume, in the market share that we are reporting today.
I'm not going to speculate at this stage on what would be our answer on what we do.
Because.
I'm not going to be relevant on anything that could be seen at that stage.
Bonnie Herzog: Okay, that's helpful. And then just in terms of us, another question, I just wanted to ask on, you know, on your new icos users in the quarter, it did come in a bit light, you know, you highlighted that this is, you know, normal quarterly seasonal trend. So maybe could you talk through that a bit further for us. And then, you know, maybe what other drivers might be impacting this and essentially how much visibility do you have?
Sure. Thank you and then my second question is on Slide 24, EPS and what's the best we should use to project that because I heard <unk> comment that the Argentinian balance sheet revaluation and back which is about <unk> that will not recur in FY 'twenty four solution add back to FY 'twenty.
And then could you also just comment on Russia exposure and this year's EPS.
Bonnie Herzog: You know, in terms of Q4, you mentioned you expect a substantial acceleration in user growth discourse, you just kind of wanted to verify what you're seeing so far in October, gives you that confidence and, you know, and is it realistic to assume, you know, a typical 1 million average quarterly run rate moving forward. Thanks. Sure, Bonnie, so actually last year we were flat in terms of user acquisition. So we're doing better this year than last year in terms of user evolution.
Yes. So this is a technical comment on Argentina garage, you're absolutely right. This is <unk>.
Forex impact that is a kind of one off issue one because that is impacting this year, but next year, we're not starting with the <unk>.
Based on our profit that is decreased by that just something that you need to work on your balance sheet exposure.
But what has taken its taken I mean of course, depending on the evolution of <unk>.
Argentinean peso in the future.
But I don't have anything to say at this stage I think I just wanted to clarify this technical back on Russia, frankly vessels. When we made three weeks ago. There is nothing new to report on the on the Russian situation. This is a market where of course, we are being very significantly impacted.
Bonnie Herzog: And I think we are in line with what we're experiencing 21, I remember well, I think we've been showing the number. So that's a typical pattern for Q3, which is due to the methodology on, you know, how we calculate the user growth. And I think we have today the element of the momentum, what we are seeing on people buying the device and people registering that is pointing to the fact that we see the same momentum and that there is no change.
The profit reported.
Because of the very strong weakening of the Russian ruble versus the dollar.
That is one of the if not the biggest impact this year on Forex.
That is of course, I would say mechanically reducing our exposure.
To Russia in our profit.
Bonnie Herzog: And last year we finished the year with a strong user growth. And we target the same this year. So I have to say it's remarkably stable in the strength, if I can use this expression. And as I said, you know, we could be at the end of the day, in fact, growing in shipments and in the IMS volume more than last year. So user percentage is about the same. Again, the bed is being higher. It means that we're going to we're going to increase in terms of volume, different should be on here.
That is mechanical.
Bonnie Herzog: All right. Thank you.
And we are.
<unk>.
We already said we are seeing very.
Ltd.
Growth in Russia, there is a market where as we've been saying, we've been reducing our commercial activity and and Thats a market, where we're investing in that is complete and of course on the performance of this market.
Thank you so much.
Thank you Laura.
Thank you. Our next question comes from Pamela Kaufman with Morgan Stanley . Please go ahead.
Hi, good morning.
Hi, good morning.
Rob Jane: Our next question comes from Rob Jane with Barclays, please go ahead. Hi, good morning. Good morning, go ahead.
I have a question on the basketball business.
Hitting expectations and you've taken up your guidance for volumes on the come basketball strength can you talk about what's driving the performance in this category and despite the acceleration in pricing growth.
Emmanuel Babeau: Hi, so I have a question on the US market side of things. So in a clearly the FDS and this rulemaking process to ban flavored regards to the OMB. So you saw first, how will you address that? And secondly, if I look at the reported numbers on cigars, it seems that the revenue had a pretty steep decline this quarter. Can you help us understand what's happening there? So on the trend, we've been increasing price.
Sure happy to do that so yes convertible is being resilient, we have a decline, but it is a modest decline.
In Q3, let's be clear this is driven by a shoe market.
Sure.
We see.
Emmanuel Babeau: And the figure has been below a certain threshold for a lot of time and we decided to move above this threshold, which was one dollar for two. And there is a time for adaptation and and that explain why ongoing we are impacted this year. But I don't think it feels like what's going to happen on the long term where we continue to have very good brands and with. A lot of consumer support.
A nice share gain.
<unk> East Turkey. The other one is <unk>.
As you can imagine the unmet market needs.
Great.
The ability per stick so let's be very clear we have a nice performance on comverse table on volume to some extent on revenue.
All the great work that we're doing now on increasing Oi and growing margin is.
First and foremost driven by our smoke free product Iqos first zoom second and led by the SEC. So yes, great performance when it comes to volumes, where the home inns vessels and the declines that we may have seen in the past few years.
Emmanuel Babeau: Frankly, on the flavor, will you allow me not to speculate? I mean, I don't know exactly what has a plan. What is going to mean how long it could take. What is decided? And again, maybe I should know what could be decided how long it's going to take to be implemented.
Good impact on revenue, we have been doing good.
Emmanuel Babeau: So I'm not going to speculate at that stage on what would be our answer and what we would do because I'm not going to be relevant on anything that could be seen at that stage. Thank you.
On price increase as well lets remember thats a category in which we've seen a lot of inflation on our cost and part of the growth generated by market with low profitability.
Okay. Thank you.
And then on.
And then when do you expect to hear.
Emmanuel Babeau: And then my second question is on FY 24 EPS, and what's the base we should use to project that because I heard in comment that the Argentinian balance sheet evaluation impact, which is about six cents that will not recur in FY 24, so we should add dark to FY 23 PS and then could you also just comment on Russia expo here in the COCPS. Yeah, so on this is a technical comment on Argentina, Gaurav, you're absolutely right, you know, this is a forex impact that is a kind of one of if you want, because that is impacting the here, but next year we're not starting with the base on our profit that is decreased by that is just something that you need to look on your balance sheet exposure, but what it's taken it's taken, I mean, of course, depending on the evolution of the Argentinian peso in the future.
From the SBA Amgen's PMT application.
How are you thinking about the prospects.
Flavor approvals considering the FDA has recently issued unfavorable decisions around flavored SaaS product.
Look we have disclosed that three weeks ago and there is nothing new on the P&C, we don't know whats going to be the timelines at the discretion of the FDA and.
And we see that a lot of things are taking a significant time to the decision to be to be taken let me make a couple of comments.
On this <unk>.
Ta process. Nevertheless.
The first one is that.
We have with our smooth product on the general rule.
And then the FCA of level one so the FDA has been recognized with this product.
Emmanuel Babeau: But I don't have anything to say at that stage, I think I just want to clarify this technical impact on Russia, frankly, that's just when we made three weeks ago, there is nothing new to to report on the Russian situation. This is a market where, of course, we are being very significantly impacted on the profits reported in dollar because of the very strong weakening of the Russian rubles as a dollar. And that is one of the if not the biggest impact this year on forex that is, of course, I would say mechanically reducing our exposure to Russia in our profit.
Our representing reduce risk versus convertible.
Crs and with very clear.
As benefit claims.
Emmanuel Babeau: That's that's mechanical and we are already said, you know, we are seeing very limited votes in Russia that is a market where, as we've been saying, we've been reducing our commercial activity and that's not a market where we're investing and that is completing, of course, on the performance of this market. Thank you so much.
We believe that by nature of this product should be considered as well.
Equally good if not better.
We believe that they have the potential to really convince.
Of smokers to move away from convertible cigarettes to have a.
Emmanuel Babeau: Thank you, go ahead. Thank you.
A better way of consuming nicotine. So we are really helpful that prove that the FDA will really take that.
As a very important element in that it's important to make this product available for nicotine users in the U S.
Now on the flavor because I think that was probably one of your questions.
For the same reason, we believe it is important that.
The.
Consumer as the choice of flavor. If it is a reason for them to move away from Congress to put together to just better product.
That we as the example of a band.
On flavor in California.
The reality is that.
Pamela Kaufman: Our next question comes from Pamela Kaufman with Morgan Stanley, please go ahead. Hi, good morning. Hi, Pam, good morning. I have a question on the combustible business. It's been exceeding expectations and you've taken up your guidance for volumes on the combustible strength. Can you talk about what's driving the performance in this category, despite the acceleration and pricing growth? So Pam, I'm happy to do that. So yes, combustible is being resilient. We have a decline that is a modest decline in Q3.
There was an adjustment during a couple of months and then the growth resuming.
Without flavor in California, and we are today very very significantly I think we are close to 50% above the pre ban level in California. So it shows that these products are extremely attractive and resonate with the nicotine users with a smoker than with other nicotine user beyond the flavor.
<unk>, which is very good news.
Great. Thank you.
Thank you Pam.
Thank you. Our next question comes from Matt Smith with Stifel. Please go ahead.
Pamela Kaufman: Let's be clear, this is reasoned by a few market where we see a nice share gain. One is 30. The other one is Egypt. As you can imagine, they are not market with great profitability per stick. So let's be very clear. We have a nice performance on combustible on volume to some extent on revenue. All the great work that we are doing now on increasing OI and growing margin is, you know, first and foremost driven by our smoke free product.
Hi, good morning Emmanuel.
Good morning, Matt.
If we take the full year organic profit margin guidance to down 150 basis points or so and the year to date performance along with your commentary around kind of a flattish year over year performance in the fourth quarter can you talk about some of the factors in the fourth quarter I understand there is a lot of cross wins here, but you get the benefit of.
Swedish match rolling into the organic base and then you mentioned you've completed the shift to back to sea freight for Hte consumables in Japan.
Can you talk about some of the headwinds to margin in the fourth quarter.
Pamela Kaufman: I goes first, then second and not by the CC. So yes, great performance when it comes to volumes, great performance versus the decline that we may have seen in the past few years. Good impact on revenue. We've been doing good on pricing free as well. But remember, that's a category on which we've seen a lot of inflation on our cost. And part of the growth is generated by market with good profitability. Thank you.
Maybe some detail around your expectations around the incremental alumina launches or any other factors would be helpful.
Sure so.
They're going to be some mix impact in.
Q4, and notably on the devices as we are.
Rolling out.
A significant number of new market. We're also launching some new innovation in some markets on the device.
Emmanuel Babeau: And then on then, when do you expect to hear a decision from the FDA on Zins PMTA applications? And how are you thinking about the prospects for Zins flavor approvals considering the FDA has recently issued unfavorable decisions around flavored e-fed products? Look, we have, we discussed that three weeks ago and there is nothing new on the PMT. We don't know what going to be the timeline for the discretion of the FDA and we see that a lot of things are taking a significant time to be a decision to be taken.
That's going to generate.
<unk>.
I would say significantly accelerated activity on our device sales and.
That is adding.
A negative impact on the margin so that's going to be.
Clearly one element then on top of that there will be certainly some.
Investment during the fourth quarter and that is having an impact on the margin and then you can have some mix coming from from geographies on them.
And other.
Mix element that is what is today the R&D guidance of.
Emmanuel Babeau: Let me make a couple of comments on this PMTA process, nevertheless. The first one is that we have with our smooth product on the general an MRTPA of level one. So the FDA has been recognized that this product are representing reduced risk versus combustible cigarette and is very clear as benefit claim. We believe that by nature this product should be considered as equally good if not better and we believe that they have the potential to really convince a million of smokers to move away from combustible cigarettes to have a better way of consuming nicotine.
On flat and it doesn't mean that it can be and will be a big positive.
But today, we are seeing this loan stability situations for our.
Oi margin.
Year on year organically for Q4.
Thank you for that and just as a follow up when you talk about investments in the fourth quarter should we think of that as a sequential step up in investment relative to the level in the third quarter or is that more of a year over year higher investment compared to the fourth quarter of 2023.
I think you should.
Yeah, I think you should expect certainly continuation of.
Significant level of investment as we are accompanying the growth of our star product Iqos and then.
Dean.
Emmanuel Babeau: So we are really helpful that the FDA will really take that as a very important element and that it's important to make this product available for nicotine users in the US. Now on the flavor, because I think that was probably one of your questions, you know, for the same reason, mobility is important that the consumer at the choice of flavor, if it is a reason for them to move away from combustible cigarettes to this better product.
That should probably mean.
Quarter on quarter with the sequential increase.
Increase and still Cigna.
Our significant growth.
Versus the versus last year.
Thank you for that.
Thank you.
Thank you. Our next question comes from Owen Bennett with Jefferies.
Good morning, <unk> morning.
Yeah.
And I just wanted to ask both have been very very strong in the U S. But wanted to ask about.
Emmanuel Babeau: I think that we have the example of a ban on flavor in California and the reality is that there was an adjustment during a couple of months and then the rules resume without flavor in California. And we are today very, very significant. I think we are close to 30 percent of both the pre ban level in California. So it shows that this product are extremely attractive and resonates with a nicotine user with a smoker than with other nicotine user beyond the flavor, which is very good news. Thank you. Thank you, Pam. Thank you.
<unk> volumes only.
The flat <unk>.
Key scanned the on X Sandy you mentioned you also have the launch in Switzerland and sentiment during the quarter. So I was just wondering how you see the near term outlook for volumes at <unk>.
Any meaningful acceleration over the next several quarters.
Second question linked to that and Thats, an increasing chatter now that the EU is looking to potentially bond pouches as part of the new and T. P. J and impact how you think about investing in the space at U S. Nathan Thank you.
Thank you and yes so.
We have this.
Situation in Scandinavia.
Matthew Smith: Our next question comes from Matt Smith with Steve. Please go ahead. Hi, good morning, manual. If we take the full year organic profit margin guidance, the down 150 basis points or so. And the year to date performance along with your commentary around a kind of a flatish year over year performance in the fourth quarter. Can you talk about some of the factors in the fourth quarter? I understand there's a lot of crosswinds here, but you get the benefit of Swedish match rolling into the organic base.
On nicotine portion of the product is already present, mainly in Sweden, where.
It's.
It's a nicely growing market, where we enjoyed the biggest market share. So we are globally year to date growing on nicotine pouch in Sweden, but.
We're not talking about big volumes year.
As we have our strong leadership in Sweden on <unk>.
Outside.
Matthew Smith: And then you mentioned you've completed the shift to back to sea freight for HTU consumables in Japan. And so can you talk about some of the headwinds to margin in the fourth quarter, maybe some detail around your expectations around the incremental loom launches or any other factors would be. So, indeed, they're going to be some mixed impact in Q4 and notably on the device as we are rolling out Iluma in a significant number of new market.
Scandinavia.
We are just at the beginning so yes, we are launching so we explained that we have been launching in.
In Switzerland.
That is where the name.
In the Nordics, there would be more market to come now is going to be.
And hopefully nice, but he is going to be small versus what we see in the U S. You see earnings. So it is going to be difficult to see given the strengths.
We are seeing in the U S.
Two to see.
Volume outside.
The U S.
Matthew Smith: We're also launching some new innovation in some market on the Iluma device. That's going to generate a significantly accelerated activity. On our device sales and that is having a negative impact on the margin. So that's going to be clearly one element. Then on top of that, there will be certainly some investment during the fourth quarter and that is having an impact on the margin. And then you can have some mix coming from from geographies and then and other mix element that is what is today.
Showing the strengths now, yes, youre going to add very nicely additional number but again, it's not going to be huge compared to the U S.
We'll see with PPD. If there is any decision taken around nicotine pouch of course.
But if there is anything decided.
But with that respect, which we don't know today.
Influenza, where we invest.
This category in the EU, but frankly at that stage, it's too early to say because we don't know whats going to be discussed if anything on that one.
And therefore, we will see.
Matthew Smith: Behind these guidance of around flat and it doesn't mean that, you know, it can be an a bit positive. But today we are seeing this around stability situation for our Y margin year on year organ for Q4. Thank you then for that. Just as a follow up when you talk about investments in the fourth quarter. Should we think of that as a sequential step up investment relative to the level in the third quarter?
Okay. Thank you Sir appreciate it.
Thank you our last question will come from Entre country here with UBS.
Hi.
Good morning, good morning.
Just one from me please.
And I know, it's a bit of a topic too sure, but the GOP.
One drug obviously theres been talk about this having anti addictive.
<unk>.
Matthew Smith: Is that more of a year over year higher investment compared to the fourth quarter of 2023 and I'll leave it there. I think you should expect certainly continuation of, you know, significant level of investment as we are accompanying the growth of our start product, I goes and then and then that should probably mean a quarter on quarter with the sequential increase and still a significant growth. That's the last year. Thank you for that.
Do you think this could be an issue for PMI in the long term rather.
Matthew Smith: Thank you.
Okay.
Yeah.
Frankly.
It has been.
Hearing things about that.
I mean, I know what the assumption is everybody going to be in the <unk>, one and therefore, they are going to drive massive.
<unk> in consumer behavior.
<unk>.
And I'm not even.
To tell you what would be the impact for somebody using nicotine user and is going to give you and I am not sure. We have any serious study on human behavior on that that is going to say that so first of all I don't know our broad usage of this.
Owen Bennett: Our next question comes from Owen Bennett with Jeffries.
Owen Bennett: Morning, Manuel. So, well, well. Morning, Owen. And I just wanted to ask also Zin very, very strong in the US, but wanted to ask about pouches XUS so volumes only flat versus two Q for scandy and X candy. And you mentioned you also had relaunched in Switzerland and Finland during the quarter. So I was just wondering how you see the near term outlook for volumes XUS. Do you expect any meaningful acceleration over next several quarters?
<unk> seen a drug is going to be second I don't know what is going to be the potential impact so.
Owen Bennett: And then a second question linked to that, there's some increasing chatter now that the EU is looking to potentially ban pouches as part of the new TPD and does this impact how you think about investing in the space at US me. Thank you. And yeah, so, you know, we have this situation in Scandinavia. On we've got unfortunately the product is already present many Sweden where it's it's nicely growing market. That's not where we enjoy the biggest market share.
<unk>.
Im not sure that today, we can say anything.
Relevant on that makes sense in <unk> 'twenty.
No that makes sense. Thank you very much.
Thank you.
Yes.
Thank you and there are no further questions at this time I will turn the call back to Emmanuel for closing remarks.
Hi, This is Jason <unk>, Vice President of Investor Relations that concludes our call today. Thank you again for joining us if you have any follow up questions. Please contact the Investor Relations team. Thank you again and have a great day.
Thank you too soon bye bye.
Owen Bennett: So we are, you know, globally yet today growing on a nicotine pouch in Sweden, but they are not we're not talking about big volumes here as we have our strong leadership in Sweden on news. And outside Scandinavia, we are just at the beginning. So yes, we are launching so we explain that we've been launching in Switzerland Finland as well. I'm hopefully nice, but it's going to be small versus what we see in the US.
This does conclude today's call and we thank you for your participation you may disconnect at anytime.
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Owen Bennett: You see what I mean? So, it's going to be difficult to see given the strengths that we are seeing in the US, to see volume outside the US, showing, you know, their strengths. Now, yes, it's going to add very nicely additional numbers, but again, it's not going to be used compared to the US. And we'll see, you know, with TPD, if there is any decision taken along nicotine pouch, of course, if there is anything decided that will in that respect, which we don't know today, that we influence the way we invest on this category in the US. But frankly, at that stage, it's too early to say because we don't know what's going to be discussed, if anything on that one. And therefore, we'll see.
Owen Bennett: Okay, thank you, sir. Appreciate it.
Okay.
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Andrei Condrea: Thank you.
Andrei Condrea: Your last question will come from Andre country with UBS.
Unknown Executive: Hi, good morning, Emmanuel. Just one from me, please. And I know it's a bit of a topic to show, but the GLP one drug, obviously, there's been talk about it having anti addictive properties. Do you think this could be an issue for PMI in the long term, rather? Okay. Well, frankly, I mean, I've been, you know, hearing things about that, I, I mean, I know what the assumption is everybody going to be on the GLP one.
Unknown Executive: And therefore, you know, they're going to drive massive change in in consumer behavior. And, and, and, you know, I'm not even able to tell you what would be the impact for somebody is a nicotine user. And you're going to take the GLP one, I'm not sure we have any serious study on human behavior on that that is going to say that. So, first of all, you know, I don't know how broad the usage of this medicine as drug is going to be.
Okay.
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Unknown Executive: Second, I don't know what's going to be the potential impact. So, I'm not sure that today we can say anything relevant on, and that makes sense on that topic. No, that makes sense. Thank you very much. Thank you. And there are no further questions at this time.
Okay.
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James Bushnell: I'll turn the call back to Emmanuel for closing remarks.
James Bushnell: Hi, this is Jay's personal vice president of investor relations. That concludes our call today. Thank you again for joining us.
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James Bushnell: If you have any follow-up questions, please contact the investor relations team. Thank you again and have a great day. Thank you for too soon. Bye bye. This does conclude today's call. We thank you for your participation. You may disconnect at any time.
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Good day and welcome to the Philip Morris International third quarter 2023 earnings Conference call.
This call is scheduled to last about one hour, including remarks by Philip Morris International management, and the question and answer session.
In order to ask a question. Please press the star key followed by the number one on your telephone keypad at anytime maybe.
Maybe you referenced and that is on the call will also be embarrassed to ask questions at the conclusion of questions from the investment community.
I will now turn the call over to Mr. James Bushnell, 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 2023 third quarter results. The press release is available on our website at PMI Dot com.
The glossary of terms, including the definition for smoke free products as well as adjustments other calculations and reconciliations to the most directly comparable U S. GAAP measures non-GAAP financial measures factored in this presentation.
And additional net revenue data are available in the exhibit 99, two to the Companys form 8-K picked at October 19, 2023, and on our Investor Relations website.
Today's remarks contain forward looking statements and projections of future results.
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.
It is now my pleasure to introduce and Manuel bubble, our Chief financial officer over to you Emmanuel.
Thank you James and welcome everyone.
We delivered very strong and better than expected performance in Q3, driven by Iqos and zing.
Adjusted diluted EPS grew by an excellent plus 20% in currency neutral terms to reach a record quarterly high.
<unk> 67 cents, despite significant adverse currency impact in the period.
Once again, our total volumes were positive.
With the Q2 progression of plus 2%.
<unk> continues to deliver our third straight year of growth.
While not yet in our Oregon metrics Zane continued its exceptional growth with U S will use by plus 66% in Q3 and over plus 50% year to date with the substantial increase in category share.
Importantly, our ico business delivered another strong quarter with SBU shipment growing plus 18% in <unk>.
With the year to date trend.
I've covered at our recent Investor day <unk> volume.
<unk> unit economics relative to cigarettes, and the plus 16, 5% organic net revenue growth from smoke free product was a key driver in both our single digits organic top line and double digit organic operating income growth.
So hopefully products made up over 36% of total net revenue in the quarter as we drive towards our immunization of over two third by 2030, making us substantially smoothly.
In convertibles.
David very robust performance with plus 6% growth in organic niche with the news.
<unk> pricing and <unk> category share despite the impact of the smoker moving to smoke free product.
Our increased operating income growth drove organic year on year margin expansion and a sequential improvement compared to the second quarter. This includes LTE expansion in the gross margin of our IP business, which surpassed can distribute in the period and lower than expected commercial cost.
Overall, we are pleased to report another strong quarter, and we look forward with confidence to the remainder.
Unknown Executive: . In order to ask a question, please press the star key, followed by the number one on your telephone keypad at any time. Maybe a representative's on the call will also be invited to ask questions at the conclusion of questions from the investment community. I will now turn the call over to Mr. James Bushnell, prize president of investor relations and financial communications.
And deals.
Turning now to the headline numbers.
We surpassed 9 billion and quarterly net revenues for the first time.
Positive volume and continued excellent iqos momentum supported organic net revenue growth of plus nine 3%.
This organic growth does not include the impressive plus 22%.
Ex currency topline growth of Swedish match led by June .
Emmanuel Babeau: Please join us. Earlier today, we issued a press release containing detailed information on our 2023 third quarter results. The press release is available on our website at PMI.com. The glossary of terms, including the definitions of smoke-free products, as well as adjustments, cover calculations, and reconciliations to the most directly comparable US gap measures for non-gap financial measures cited in the presentation, and additional net revenue data are available in Exodus 99.2 to the company's form 8K, dated October 19, 2023, and on our investor relations website.
Our organic net revenue per unit.
Grew by plus 7%.
Driven by the increasing proportion of Iqos extra use mix and very firm convertible pricing of plus 9%.
This positive top line and mix performance drove very strong organic operating income growth of 11, 3% and organic margin expansion of 70 basis points again. This excludes the exceptional performance of Swedish match, which is included.
Adjusted diluted EPS.
We delivered adjusted diluted earnings per share growth of plus 23%, excluding an unfavorable currency impact of 17 cents.
Emmanuel Babeau: Today's remarks contain full of looking statements and projections of future results. I direct your attention to the full of 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 full of looking statements. It is now my pleasure to introduce Emmanuel Babot, our chief financial officer, over to you Emmanuel. Thank you, James, and welcome to the one.
Due to the Russian ruble and the balance sheet related currency impact in Argentina as disclosed at our recent Investor day.
Sequentially lower net.
Financing costs were broadly offset by a higher tax rate.
Our excellent third quarter combined with the robust H, one registered strong delivery year to date.
Emmanuel Babeau: We delivered very strong and better than expected performance in Q3, driven by ICOs and ZIM. Address to deleted EPS, grew by an excellent plus 20% in current interval terms, to which a record quarterly I of $1.67 despite a significant adverse current impact in the period. Once again, our total volumes were positive, with the Q3 progression of over plus 2%, positioning us to deliver our third straight year of growth. While not yet in our organic metrics, ZIM continued its exceptional growth with US volumes of by plus 66% in Q3, and over plus 50% year-to-date with the substantial increasing category share.
I want to highlight our volume growth of plus one 5% and organic net revenue growth of plus seven 7% again, reflecting continued dynamic iqos performance and convertible pricing.
In addition, Swedish match currency neutral net revenues increased by plus 18% excluding accounting reclassifications.
Year to date operating income grew by plus two for organic despite excellent treated margin headwind and the notable decline in the first quarter due to the headwinds covered previously which are now starting to succeed.
Combined with outstanding performance. This resulted in year to date currency neutral adjusted diluted EPS growth of 10, 7% to $4 65.
Emmanuel Babeau: Importantly, our ICO business delivered another strong quarter with HPU Sheetland growing plus 18% in nine years of year-to-date trend. As covered at our recent survey today, HPU volumes have excellent unit economics relative to cigarettes, and the plus 16.5% organic net revenue from small pre-product was a key driver in both our ICOs applying and double-digit organic operating income goals. Small pre-product made up of a 36% of total net revenue in the quarter, as we drive toward our new condition of over 2,3 by 2030, making us substantial is more free.
This is an excellent performance.
Turning now to the full year outlook I am pleased to share that following a very strong year to date delivery.
We are raising our volume organic sales growth and currency neutral adjusted bottom line growth forecast.
First to volumes, where we increased our outlook to plus one to plus one 5% total shipment growth for CDI rate and edge to us despite a lower expectation for the total industry.
Within this we expect to deliver <unk> shipment volume within the lower half of our prior 125 to 130 billion range.
Emmanuel Babeau: In combustibles, we gave it very robust performance with 6% growth in organic net revenue. Strong pricing and higher category share, despite the impact of the small care moving to the small pre-product. Our interesting operating income role drove organically only a marginic tension and a sequential improvement compared to the second quarter. This includes an expansion in the both margin of our equal business, which surpassed the investment in the period and lower than expected commercial cost.
Well Iqos fundamentals remained strong this narrowing reflects further delayed the expected market launch in Taiwan limited underlying growth in Russia, and Ukraine as well as some uncertainty related to inventory level EU a strict partner adjust.
<unk> has it been.
For convertible the resilience of our portfolio is reflected in an updated forecast.
1% to 2% cigarette volume decline.
<unk> continued to perform exceptionally strong.
Emmanuel Babeau: Overall, we are pleased to report another strong quarter and we look forward with confidence to the remainder of the year and beyond. Turning now to the headlines, we surpassed $9 billion in quarterly net revenues for the first time as strong positive volume and continued excellent icos momentum supported organic net revenue growth of plus 9.3%. This organic growth does not include the impressive plus 22% adjusted excurrency top annuals of Swedish match led by Jain.
Strong consumer.
Consumer traction.
Following a surge of fitbit in the U S volume run rate.
We are now increasing our freely and nicotine pouch forecast range to 319 to 410 million guests.
Combining the improve remote with robust pricing and continued positive mix.
Narrowing our organic net revenue growth forecast to around plus 8% at the midpoint of our previous range.
As I will come back to shortly we expect excellent organic oi growth over the second half of the year.
Emmanuel Babeau: Our organic net revenue units grew by plus 7% driven by the increasing proportion of icos HTUs in our seismics and very firm combustible pricing of plus 9%. This positive top line and mixed performance drove very strong organic operating income growth of plus 11.3% and organic marginic tension of plus 70 basis points. Again, this excludes the exceptional performance of Swedish match, which is included in our adjusted ETS. We delivered adjusted limited earning pressure growth of plus 20.3%, excluding an unforeverable current impact of 17 cents, limited due to the version Google and the balance ships related current impact in our agenda now, and this includes as I were resenting this today.
Combining this strong profit performance.
The continuation of these phenomenal growth and diligent cost management allows us to raise our currency neutral adjusted diluted EPS growth forecast to plus 10 to plus 10, 5%.
This means we now expect double digit growth for the third year running.
Translate into full year range of $6 five to $6 eight including an estimated unfavorable currency impact of 53 at prevailing rates.
Last despite increased currency headwinds, we continue to expect operating cash flow of around $10 billion for the year.
Sets us up nicely as we focus on deleveraging towards our target of around two times adjusted net debt to EBITDA in 2026.
Emmanuel Babeau: Stake one truly, lower net financing costs were broadly offset by a higher tax rate. Our excellent third quarter combined with the robust H1 resulted in strong delivery year to date. I want to highlight our volume growth of plus 1.5%, and organic net revenue growth of plus 7.7%. Again, reflecting continued dynamic icos performance and combustible pricing. In addition, Swedish match currently neutral net revenues increased by plus 18% excluding accounting reclassifications. Here today operating income grew by plus 2.4 organically despite accentuated margin edwings and the notable OID line in the first quarter due to the edwings covered previously, which are now starting to suspend. Combined with outstanding performance, this resulted in yet today currently neutral adjusted limited ETS growth of plus 10.7% to $4.65.
Now, let me provide a different view of our forecasted wavelengths.
As you can see 2023 has very much been a year of two ads with a number of excellent treated headwinds in each one I explained in prior quarters, including Keith Cooke inflation.
<unk> is a different story and we believe it is more reflective of the underlying trajectory of our business.
First we expect an accelerated extra top line with organic growth of around plus 9%.
Second we expect a significant re acceleration in profit growth.
We continue to expect organic operating income margin extension in extreme and we are well on track.
Delivering another quarter of sequential adjusted Oi margin improvement in Q3 with margins also expanding organically year on year.
In <unk>, we expect strong organic operating income growth of around 10%.
For the full year, our expectation remains that organic margin evolution would be towards the lower end of our minus 15 to.
Emmanuel Babeau: This is an excellent performance. Turning now to the full year outlook. I am pleased to share that following this very clear year to that delivery. We are raising our volume, organic net growth, and current Plus two volumes, where we increase our outlook to plus one, two plus 1.5% total shipment goes for cigarette and HTU despite a lower expectation for the total industry. Within this, we expect to deliver HTU shipment volume within the lower half of our prior 125 to 130 billion range.
Minus 150 basis point range, including the expected technical margin impact of around 40 basis points from third party arrangement in Indonesia in Ukraine.
For Q4, we expect strong operating income growth with broadly stable year on year organic margin progression.
This includes the expectation of other devices as we accelerate our rollout to reach around 50 markets by year end complemented by further newmar device innovation.
This very positive organic.
Emmanuel Babeau: While I quote from the mental units form, this narrowing reflect further delay to the expected market launch in Taiwan, limited underlying growth in Russia and Ukraine, as well as some uncertainty related to inventory level in the EU, a straight partner adjust to the upcoming HTU further ban. For convertible, the resilience of our portfolio is reflected in an updated forecast of the one to two percent cigarette volume decline. The new continued to perform exceptionally with strong adult consumer traction.
The trajectory in etch to naturally translate into an acceleration in currency neutral adjusted diluted EPS growth posted by Swedish match.
Now turning back to our results our total shipment volume increased by plus two 2% for Q3, and plus one 5% year to date, putting us comfortably on track to deliver our third sequential year of growth.
X gene shipment volumes grew by plus 18% in Q3 to reach $32 5 billion units driven by continued strong performance in Europe and Japan.
Emmanuel Babeau: Following a further set up in the U.S, volume run rate, we are now increasing our fully amicating power forecast range to 390 to 410 million cans. Combining the improved volume outlook with Robert's pricing and continued positive mix, we are narrowing our organic net revenue world forecast to around plus 8% the midpoint of our previous range. As I will come back to shortly, we expect excellent organic OI growth over the second half of the year.
Adjusting for inventory movements, including the transition back to sea freight Q3, adjusted IMS grew by plus 14, 4%.
This includes Europe at plus 16%, despite heightened competitive activity, notably in Poland.
And a more normalized growth rates in Japan of plus 12%.
Excluding Russia, and Ukraine, where growth remains limited.
Our adjusted IMS advanced by a very robust.
Emmanuel Babeau: Combining these slow profit performance with the continuation of these phenomenal growth and diligent cost management allows us to raise our current unit will adjust the ability to increase growth forecast to plus 10 to plus 10.5%. This means we now expect double these growth for the third year running and translating to fully arrange of $6.5 to $6.8, including an estimated entrepreneurial current impact of 53 times at 3.8. Last, despite increased current yielding, we continue to expect operating cash flow of around 10 billion dollars for the year.
16%.
These growth rates exclude the excellent development of oral nicotine for shipment volume grew by 19% in Q3, and plus 14% year to date on a pro forma basis.
Within the U S growth of plus 66% and 56% respectively.
If we were to add the growth of nicotine pouches on a unit basis, our Q3 performance mid three voting by 19, 5% and our total volume by close to 5%.
<unk> declined by <unk>, 5% in Q3.
Emmanuel Babeau: This set us up nicely as we focus on delivering towards our target of a long two-time adjusted net debt to a BDA in 2026. Now, let me provide a different view of our forecasted results. As you can see, 2023 has very much been a year of two hours with a number of accentuated Edwin in H1. I explained prior quarters, including Kidcult inflation. H2 is a different story and we believe it is more effective of the underlying trajectory of our business.
Strong performance in Turkey, and Egypt, and by one 3% year to date, reflecting solid category share performance in the resilient category despite robust pricing.
I will now walk through the mechanics of our Q3 net revenues.
In addition, two plus two 2% volume growth pricing contributed $6 two points of growth as combustibles remained strong and the negative impact on HQ pricing and utilization of excise tax increase in Japan, and Germany, notably moderated.
Emmanuel Babeau: First, we expect an accelerated H2 pipeline with organ growth of around 9%. Second, we expect a significant re-acceleration in profit growth. We continue to expect organic operating income margin extension in H2 and we are well on track as they are delivering another quarter of financial adjusted Y margin in Q3 with margin also extending organically year-on-year. In H2, we expect strong organic operating income rules of around 20% For the full year, our expectation remains that organic margin evolution will be toward the lower end of our minus 60 to minus 1 and 60 Bay Dispoints range, including the expected technical margin impact of around 40 Bay Dispoints from third-party arrangement in Indonesia and Ukraine.
The increasing proportion of HQ used in our business.
Used to be a consistent topline driver, reflecting higher net revenue.
The positive impact of edge to us overall volume growth and pricing.
Powerful drivers of our transformation and growth.
We expect <unk> to enhance this further as it starts to be included in our organic metrics from mid Q4.
Looking now at adjusted operating income, whereas the $3 7 billion delivered in Q3 is also.
Hi.
I am pleased to report that following peak margin headwind in Q1, our organic growth has accelerated nicely as inflation supply chain disruption and newmar related sectors continued to moderate.
Underlying dynamics of our transformation efforts there.
Emmanuel Babeau: For Q4, we expect strong operating income rules with broadly stable year-on-year organic margin evolution. This includes the expectation of higher devices, as we accelerate our Illuma rollout to reach around 50 markets by year-end, complemented by further Illuma device innovation. This very positive organic OI trajectory in H2 naturally translates into an acceleration in current initial adjusted yielded EPS growth posted by Swarish Natch. Now, turning back to our results, our total shipment volume increased by plus 2.2% for Q3 and plus 1.5% year-to-date, putting us comfortably on track to deliver our third sequential year of growth.
Q3 progression is slightly above our 2020 for 2026 CAGR target of plus eight to plus 10% organic operating income growth and as I covered earlier, we expect our overall edge to oi growth to be around the top of this range.
This strong operating income growth in excess of an already healthy top line performance drove a better than expected organic margin expansion of 70 basis points in the quarter.
This was also the first quarter this year, where gross margin expanded organically literally due to lower shipping costs in our margin improvement and lower device sales compared to the prior year.
SG&A cost were also organically lower as a percentage of mix with the new reflecting good cost performance and some phasing between the third and fourth quarter.
Emmanuel Babeau: H2-machishment volumes grew by plus 18% in Q3, to reach 32.5 billion units driven by continued strong performance in Europe and Japan. Adjusting for inventory movement, including the transition back to C3, Q3 adjusted IMS grew by plus 14.4%. It includes Europe at plus 16%, despite item competitive activity notably in Poland, and a more normalized growth rate in Japan of plus 12%. Excluding Russia and Ukraine, we have both remained limited, our adjusted IMS advanced by a very robust plus 16%.
We delivered a further $120 million in gross cost efficiencies in Q3, now surpassing our $2 billion target for 'twenty, one 'twenty three.
We aim to continue this run rate as reflected in our 'twenty four 'twenty six target of an incremental $2 billion in gross savings.
The Q3 margin currency volumes include a zinc six point impact from the Argentina balance sheet related items I mentioned earlier.
By its nature. This does not carry forward to future periods.
Now moving to Swedish match, which is meaningfully accelerating our growth trajectory as we progress towards becoming substantially smoke free by 2030.
Emmanuel Babeau: This growth rate excludes the excellent development of all nicotine, for which shipment volume grew by plus 19% in Q3 and plus 14% year-to-date on a pro-former basis, including the US growth of the zine of plus 66% and plus 56% respectively. If we were to add the growth of nicotine powder on a unit basis, our Q3 performed a smoke-free volume in by plus 19.5% and our total volume by plus 2.5%. So guys' volume declined by a moderate 0.5% in Q3 with strong performance in Turkey and Egypt, and by 1.5% year-to-date reflecting solid category share performance in a resilient category despite robust pricing.
Swedish match business that is excellent.
Currency neutral net revenue growth of plus 22% in Q3, and plus 18% year to date.
This means that our adjusted pro forma year to date topline growth was 60 basis points a year at plus eight 3%.
Swedish match strong profitability also and then stop.
Our year to date adjusted net income margin by 70.
70 basis points.
As we covered at Investor day.
So maybe some absolute free portfolio excellent economic and he's already at significant size compared to 249.
It's political distribution or <unk>.
Operating profit before G&A to be tier approaching one quarter of our total smokefree business year to date.
Emmanuel Babeau: I will now walk through the mechanics of our Q3 net revenue. In addition to plus 2.2% volume growth, pricing contributed plus 6.2 points of growth as combustible remains strong and the negative impact on extreme pricing of the ionization of excitech, inclusive in Japan and Germany, notably moderately. The increasing proportion of HTUs in our business continues to be a consistent top-line driver, reflecting higher net revenue per unit. The positive unique impact of HTUs overall in those and pricing are powerful drivers of our transformation and goals.
Yeah.
<unk> remains the key performance driver delivered another remarkable U S performance is plus 66% volume growth, reflecting positive momentum across the country.
Elsewhere in small pre recent trends of share gain in U S moist snuff as well as category mix headwinds continue.
<unk> continued.
We continue to be very pleased with the positive impact of Swedish match on our company and I would like to thank the team for delivering such a great performance.
Now, let's examine deemed recent U S performance in more detail.
Emmanuel Babeau: We expect Jain to enhance this further and it starts to be included in our organic metrics for need Q4. Looking now at adjusted operating income, where the $3.7 billion delivery in Q3 is also a report on. I am pleased to report that following peak margin and we need Q1, our organic growth has accelerated nicely as inflation, supply chain disruption, and illuma related factors continue to moderate, and the underlying dynamics of our transformation bear fruits.
Exceptional progress continued in Q3 with an increase in 12 months.
Pulling shipment volume growth of 62% compared to Q3, 2022, and plus 14% sequentially.
Impressively <unk> Q3 categories will you share grew to 17, 8%, which is plus four seven points higher year on year and two four points.
$2 $5 sequentially.
Retail venue share remain strong at around 76% highlighting its premium positioning and superior brand equity.
Okay.
Emmanuel Babeau: The Q3 progression is slightly above our 2024 or 2026 cargo target of plus 8 to plus 10% organic operating income growth. As I covered earlier, we expect our overall H2OI growth to be around the top of this range. This strong operating income growth in excess of an already HTTOP line performance drove a better than expected organic margin extension of plus 70 base points in the quarter. This was also the first quarter that is here where growth margin extended organically, notably due to lower shipping costs, illuma margin improvements, and lower devices compared to the prior year.
This accelerated growth reflect progressive increase in distribution and a further growth tapered necks.
You mentioned, one store velocity as the category gained strong traction with <unk> nikko to use it for its convenience.
And pleasurable experience.
Now focusing on Iqos staffing with user groups.
We estimate they were 27 4 million iqos users as of September 30th.
This represents an increase of $3 7 million user versus one year ago, and <unk> 2 million compared to Q2 2023.
As shown on the right hand side of the slide the third quarter of each year typically experiences slower user growth due to the seasonal influences in the calculation.
Emmanuel Babeau: LGNA costs were also organically lower as the percentage of metrics are new, reflecting a good cost performance and some trading between the third and fourth quarter. We gave it a further $1.20 million in growth cost efficiency in Q3. Now, suppressing our $2 billion target for 2021-23. In aim to continue this run rate as reflected in our 24 or 26 target of an incremental $2 billion in growth savings. The Q3 margin guarantee variance includes a 0.6 point impact from the Argentina balance sheet related item I mentioned earlier.
Both new user registration and device sales to liberate smokers continued to advance strongly and at levels broadly in line with Q2, when users grew by $1 4 million sequentially.
Also as in prior years, we expect a substantial acceleration in user growth in the fourth quarter.
Moving now to Iqos in the Europe region.
Our third quarter <unk> share increased by one three points to eight 6% of total cigarette and hte industry would.
Continued share gains into the green tick up of edema, which is available to over 80% of Iqos sugar in the region.
Emmanuel Babeau: By its nature, this does not carry forward to future periods. Now, moving to Swedish match, which is meaningfully accelerating our smoke-free growth trajectory as we progress towards the coming substantially smoke-free by 2030. Swedish match dismissed, delivered excellent adjusted guarantee neutral net revenue growth of plus 22% in Q3 and plus 18% here to date. This means that our adjusted performance here today to plan growth were 50 billion points higher at plus 8.3%.
In addition to Q3 launches in Denmark and the UK.
Our launch in Poland, which like Japan.
As a market with high competitive activity.
We look forward to driving its difference year over the coming quarters.
One sequential share is as usual are particularly affected by the seasonality of the cigarette category.
I am as volumes continue to exhibit robust sequential growth and reached a record high on a four quarter moving average.
Emmanuel Babeau: Swedish match strong profitability also an answer. Our here-to-date adjusted guarantee income margin by plus 70 billion points. As we covered that in the day to day Suri Smart, smoke free portfolio as excellent economic and is already at significant size compared to Tokyo K9 is a product contribution or operating profit before GNA to be clear approaching one quarter of our total smoke free business year to date. Vin renamed the key performance driver as he delivered another remarkable U.S, performance with plus 66 percent volume growth reflecting positive momentum across the country.
This reflects strong year on year growth of 16% in Q3, Despite limited growth in Ukraine.
We expect strong <unk> growth to continue in Q4.
A corresponding increase in market share.
In the EU the majority of member states as transpose a delegated the ricky's withdrawing the heated tobacco product invention from the characters the flavor ban international low.
The band Indeed market will be effective as of October 20, <unk> and the remaining markets are expected to adopt in 2024.
As previously mentioned, we are adjusting our HD portfolio as required in line with the strong position and while short term volatility is possible, including yearend trend inventories, we do not expect significant change in the structural growth of the category.
Emmanuel Babeau: And square in smoke free recent trend of share gain in U.S. Moistness, as well as category niche edwin in Condinavia, broadly continued. We continue to be very pleased with the positive impact of Swedish match on our company, and I would like to thank the team for delivering such a great performance. Now let's examine the recent U.S, performance in MoziPair. Exceptional progress continued in Q3 with an increase in performance rolling shipment volume growth of plus 52 percent compared to Q3 2022 and plus 14 percent frequency.
In Japan.
I can see newmont celebrated its second anniversary of the initial launch in September .
<unk> continues to exhibit strong growth due to excellent conversion consumer satisfaction and retention rates.
Adjusted total tobacco share for our two brands increased by three points in Q3 year over year to 26.
Emmanuel Babeau: Importantly, the Q3 category volume share grew to 17.8 percent, which is plus 4.7 points higher year-on-year and plus 2.5 points frequency. We tell value share women's phone at around 76 percent highlighting these premium positioning and superior brand equity. This accelerated growth reflects positive increase in distribution and a further growth standard in national one-store velocity as the category gains strong traction with others including user for convenience and pleasurable experience. Now focusing on icons starting with user growth.
6%.
Importantly, adjusted in market sales volume again grew sequentially on a four quarter moving average reaching over 10 billion unit for the first time in Q3 dollars 23.
<unk> <unk>.
It's not one category.
In addition to these excellent consumer trend our Q3 shipment to Japan also benefited from further switching back to sea freight during the quarter.
It is now substantially progressed and we expect a more normalized rate of HQ shipment in Q4.
Our premium priced Korea as to use in mainstream price Cynthia <unk> continued to grow individually and in aggregate.
Emmanuel Babeau: We estimated where 27.4 million icons users as of September the 7th. This represent an increase of 3.7 million users one year ago and 0.2 million compared to Q2 2023. As shown on the right hand side of the slide, the self-quarter of each year typically experiences slower user growth due to the seasonal inferences in the calculation. Both new user registration and devices to legal ex-mokers continue to advance strongly and at levels broadly in line with Q2 when users grew by 1.4 million sequentially.
In Q3 of <unk> share of around 18% and 8% respectively.
Despite the impact of seasonality.
Our Japan TT shares also continue to progress with <unk>.
A number reaching over 30%.
We continue to see a long runway of growth in Japan, although the coming quarters.
In addition to <unk> gains in developed countries, we continue to see very promising growth low and middle income market.
This slide highlights a selection of Q3 TCT of pick share across market in Eastern Europe Africa, Asia, and Latin America.
Emmanuel Babeau: Also, as in prior years, we expect a substantial acceleration in user growth in the first quarter. Moving now to icons in the Europe region, where our third quarter HDU share increased by plus 1.3 points to 8.6 percent of total cigarette and HDU industry volume. Continued share gain include the growing tech rep of Inuma, which is available to over 80 percent of icons user in the region. In addition to Q3 launches in Denmark and UK, Inuma was launched in Poland, which, like Japan, is a market with eye-competitive activities.
We see notable ongoing success in Egypt, we schedule a fixed share.
Three five tons to almost 9%.
And in terms of the needle, our leading Latin America, FCT with offtake share around 8%.
Most promising is the three 1% of picture you opened checkout.
Iqos is only available via the Iqos Glib members program.
We continue to see robust offtake volume growth across these important future market despite seasonal effect on sequential share metrics.
I'd like to spend a moment now on combustibles.
Emmanuel Babeau: We look forward to driving its performance here over the coming quarters. While sequinsual share is, as usual, optically affected by the seasonality of the cigarette category, I just said IMS volumes continue to exhibit robust sequinsual growth and reached a record eye on the four quarter moving average. This reflect strong year on your growth of plus 16 percent into three. Despite the limited growth in Ukraine. We expect strong IMS volume growth to continue in Q4 with a corresponding increase in market share.
Our portfolio delivered strong organic net revenue growth of six 2% in Q3, and five 6% year to date.
This reflects another strong quarter of pricing with notable contribution from Germany and Indonesia.
With better than expected pricing in Q3 of plus 9% and plus eight 6% year to date, we now forecast the full year increase of eight to eight 5%.
Our cigarette category share grew by <unk> six points in Q3, and plus three points year to date.
Emmanuel Babeau: In the EU, the majority of number states have transposed a delegated directive withdrawing the ETA tobacco product invention from the characterizing flavor ban international law. The ban in these markets will be effective as of October the 23rd, and the remaining market are expected to adopt in 2024. As previously mentioned, we are adjusting our HTV portfolio as required, in line with this composition. And while short-term volatility is possible, including in year and trend inventories, we do not expect significant change in the total growth of the category.
This reflects notable contribution from Egypt, Poland and Turkey.
In only modest volume declines.
Our leadership in convertibles.
As to maximize switching to smoke free product and we are fully achieved our ongoing objective of stable category share over the last two years, despite the impact of Iqos cannibalization.
This convertible share performance combined with the structural growth of Iqos support robust overall market share gains, we captured plus 049 points of international cigarette and <unk> share in Q3, and plus 0.7 points year to date.
Emmanuel Babeau: In Japan, I consumer celebrated its second anniversary of the national launch in September, and continue to exhibit strong growth due to excellent conversion, continuous satisfaction and retention rates. Adjusted total tobacco share for our HTV brands, increased by plus three points in 23 year over year to 26.6 percent. Importantly, adjusted in market share volume again, grew sequentially on the four quarter moving average, reaching over 10 billion units for the first time in 2, 3, 23, as I goes out.
As covered at Investor day, our superior share of multi product gives us a formidable platform for sustainable market share gains we sit on your unit economics.
Now, let me update you briefly on our exciting innovation and extension activity.
It will be critical as we enter each over <unk> by 2030, including 60 market over 50% and 40 markets.
75%.
As we covered in that today, the global rollout of Iqos Newmark continues well.
Emmanuel Babeau: It is not done category. In addition to this excellent consumer trend, our Q3 shipment to Japan also benefited from further switching back to see freight during the quarter. This sheet is now substantially progressed, and we expect a more normalized rate of HTV shipment in Q4. Our premium price carrier, HTV and mainstream price, Cynthia, HTV, continued to grow individually and aggregate, reaching Q3 of the shares of around 18 percent and 8 percent respectively, despite the impact of seasonality.
We launched Illumina in full market in Q3, reaching 27 markets, which represent around 75% of our iqos business by volume.
Newmark continues to generate excellent growth.
Grades from existing user and user acquisition.
As a further six market loans are really small tweaks that you must be present in their own 50 market by year end and to essentially complete the rollout next year.
As also mentioned during Investor day superior to the equity is critical to our ongoing success and we are further exploring complex a new test spaces to enhance our tobacco flavor experience.
Emmanuel Babeau: Our Japan TV share also continued to progress with a number reaching over 30 percent and continue to see a longer and way of growth in Japan over the coming quarters. In addition to the strong vehicles gained in developed countries, we continue to see very promising growth in low and middle income market. In slide, I like a selection of Q3 TCT of tech share across market in Eastern Europe, Africa, Asia, and Latin America.
On the other end of the consumer preference spectrum, we will be offering zero tobacco consumable four months, a deku flavor discovery under the Lithia brand.
Just as nicotine pouches are an evolution from news to make the overall category relevant more adult smokers media is it similar NIM tobacco evolution for Iqos as we broaden our offering to increase.
Switching away from convertibles.
Emmanuel Babeau: We see notable ongoing success in Egypt, with carol of tech share at plus 3.5 points to almost 9% and in some to the middle as our leading and Latin America city, with of tech share around 8%. Most promising is the 3.1% of tech share in northern Jakarta, where icos is only available via the icos club members program. We continue to see robust of tech volume growth across this important future market, despite seasonal effect on sequential share metrics.
The U S represents the most significant opportunity to drive accelerated smokefree growth at both the top and bottom line.
We are continuing to invest beyond Dean and readying, our organizational and commercial capabilities for the launch of Iqos in Q2, 2024, and a scaled rollout.
Once authorized.
We remain on track to file for <unk> and <unk>.
The international extension of nicotine pouches remained a key mid to long term focus notably for <unk> as the worlds leading brand.
Emmanuel Babeau: I'd like to spend a moment now on combustibles, where our portfolio delivers strong organic nitrogen growth of plus 6.2% in Q3 and plus 5.6% here to date. This reflects another strong quarter of pricing with notable contribution from Germany and Indonesia. We've better than expected pricing in Q3 of plus 9% and plus 8.6% here to date, we now forecast a full year increase of plus 8 to plus 8.5%. Our cigarette category share grew by plus 0.6 points in Q3 and plus 0.3 points here to date.
During the third quarter, we relaunched <unk> in Switzerland, and following positive regulatory developments rollout.
Infineon.
Moving now to sustainability.
Addressing the product impact of convertible product by switching adult smoker to smoky product.
Our design and marketing for adult use.
Remains our most critical priority.
This transformation is at the core of our strategy as we become a more sustainable business with accelerated growth and returns over time.
Emmanuel Babeau: This reflects notable contribution from Egypt, Poland and Turkey, resulting in only modest voting declines. Our leadership in combustibles helps to maximize switching to small free products, and we have fully achieved our ongoing objective of stable category share over the last 3 years, despite the impact of ankle cannibalization. This combustible share performance combined with the structural rules of icos supports robust overall market share gains. We captured a plus 0.9 point of international cigarette and H2U share in Q3 and plus 0.7 points here to date. As covered at Investidae, our superior share of monthly product give us a formidable platform for sustainable market share gained with superior unit economics.
With regard to tackling climate change I am delighted to report that the science based targets initiative validated our forest land and agriculture emission reduction targets a recognition achieved by very few company.
We pledged to reduce absolute scope three emissions by 33% by 2030, which is significant given that scope three remained the most challenging aspect of a company the carbon emission sources.
In September almost 20000 employees in over 60 countries participated in working a day showcasing our commitment to raising awareness around metering as part of our wider strategy to reduce both consumer waste.
We have low expressed our support for more rigor and sustainability related Rebooking and welcome recent moves towards greater consistency and a strong governance framework.
Emmanuel Babeau: Now, let me update you briefly on our exciting innovation and expansion activity, which will be critical as we enter each of a two-circumc green attorney by 2030, including 60 market over 50% and 40 markets of 75%. As we covered at Investidae, the global rollout of icos iluma continues. We launched iluma in 4 market in Q3, reaching 27 market in total, which represent around 75% of our icos business by volume. Iluma continues to generate excellent growth with upgrades from existing user and user acquisition.
Part of our ongoing work we've provided responses to constitution requests from the international system ADT standout board to achieve the development of their work plan and.
Emmanuel Babeau: Iluma is the further 6 market launcher with this month to expect iluma to be present in around 50 market by year-end and to essentially complete the rollout next year. I also mentioned during Investidae, superior tobacco take is critical to our ongoing success. We are further exploring complex and new test stages to enhance our tobacco flavor experience. Daniels. On the other end of the consumer preference spectrum, we will be offering zero tobacco consumable for a non-tobacco flavor discovery under the Libya brand.
Dave <unk>.
As the standouts.
<unk> continued to be recognized by oriented essentials, such as the world business consoles for sustainable development as the leader in Nonfinancial report.
We have much more to share on our assisted EQ thoughts and transformation yet will be presenting at the CGP SKU.
Investor Forum in New York on November 14th and events.
Open to all those who would like to attend.
To conclude today's presentation, we continue to deliver sustainable growth through our transformation.
Powerful trajectory of our smoothie business gives us confidence in strong full year result, built on volume growth positive mix pricing and cost management.
Considering the headwinds faced notably in the first part of the year. We believe this speaks strongly to the fundamentals of our business model.
Notably the opening detriment of Iqos and Dean continues further enhancing our position as the global smoke free Kimpton.
Emmanuel Babeau: Just as nicotine pouches are an evolution from snooze to make the oral category relevant to more adult smokers, Libya is a similar non-tobacco evolution for icos as we broaden our offering to increase switching away from combustibles. The US represents the most significant opportunity to drive accelerated smoke-free growth at both the top and bottom line. We are continuing to invest behind them and ready our organizational and commercial capability for the launch of icos in 2002-2024 and a scaled-up roll-out with Iluma once off the line.
Have exciting plans to accelerate our move to boost the U S.
The largest move free market.
Internationally.
We are confident networks into 'twenty for 2020, <unk> target of plus six to plus 8% organic top line growth.
Eight 2%, 10% organic operating income growth and plus 9% to 11% currency neutral adjusted EPS growth.
We also have a clear guiding objective with our new ambition to be substantially smoke free by net revenue in 2013 as another key milestone on our journey to nutri future.
Emmanuel Babeau: We remain on track to fight for icotidema, PNTA, and MRTPA this month. The international extension of nicotine pouches remain a key need to long-term focus, notably for zine as a world-leading brand. During the surf quarter, we relaunched zine in Switzerland and following positive regulatory developments rolled out zine in Finland. Moving now to sustainability, addressing the product's health impact of combustible product by switching adult smokers to smoke-free products, which are designed and marketed for adult use, remain our most critical priority.
And finally with our latest dividend raised in September we have delivered 16 years of continuous dividend increase since our 2018, despite the ups and downs of economic and currency cycles.
This translate to accumulative, 183% increase in CAGR of 77, 2% since 2008 with an annualized dividend of <unk> 20.
As these demonstrate our commitment to shareholder return through a progressive dividend remain steadfast.
Emmanuel Babeau: This transformation is at the core of our strategy as we become the most sustainable business with accelerated growth and returns of the time. With regard to tackling climate change, I am delighted to report that the science-based target initiative validated our forest, marine, and agriculture emission reduction target, a recognition achieved by very few companies. We pledged to reduce the absolute scope-free emission by 33% by 2030, which is significant given that scope-free remains the most challenging aspect of any company-decarbonization shortage.
Thank you very much and we are extremely happy to answer your questions.
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.
Followed by the number one on your telephone keypad.
In the interest of fairness and time, we ask that participants keep to a maximum of two questions. Each.
If time allows for follow up questions may be taken.
May rejoin the queue by again pressing star one.
Our first question will come from Vivien <unk> with TV Cowen. Please go ahead.
Hi, good morning.
Emmanuel Babeau: In September, almost 20,000 employees in other 60 countries participated in work in a day, showcasing our commitment to raising awareness around littering as part of our wider strategy to reduce both consumer waste. We have long expressed our support for more rigor in sustainability-related reporting, and welcome recent moves toward greater consistency in standards and strong governance framework. As part of our ongoing work, we provided responses to consultation requests from the International Sustainability Standard Board to help shape the development of their work plan and update to the SAFD standards. PMI continued to be recognized by organizations such as World Business Council for sustainable development as a leader in non-financial development. We have much more to share on our security efforts and transformation.
Morning.
Well I think I'll start with clearly a very impressive result with the.
Acceleration in the topline Manuel you talked about.
A couple of people plus level.
How much more runway do you see.
Clinical solution form.
Yes.
The velocity.
As far as the fall without the.
Question, one and then the follow up will just be on.
The margins that <unk> had a box that colson, who called out very strong hofmann is not that clear.
From your perspective on the durability of the current margin level for example, thank you.
Thank you Vivian so on Deane.
Of course every quarter will bring.
New.
I would say.
Lot of news and I think we have been seen in Q3, another great quarter of acceleration in the velocity that mean, that's where the brand is already even Nike present, we see the consumer offtake accelerating just show that.
Emmanuel Babeau: Jacek will be presenting as the CECP CEO in the forum in New York on November 14th, and the event is open to all users we would like to attend. To conclude today's presentation, we continue to deliver sustainable growth through our transformation. The powerful trajectory of our smoke-free business gives us confidence in strong, full-year results built on volume growth, positive mix, pricing, and customer management. Considering the Edwin faith, notably in the first part of the year, we believe this speaks strongly to the future.
Product becoming.
More relevant for doing it.
A number of ideas to user and there's good news. There is also the geographical dimension on which we elaborated at the time of our Investor day, and which is showing that one for Brian .
A certain level of presence on the western part of the U S doesn't mean, there isn't going to grow further but it's of course bigger than the rest of the country that seem to be a trajectory that is saying that the rest of the countries going to either to progressively and that is indeed, giving also nice.
I would say trajectory on on further growth.
In the coming quarters and years of course, we took care of both probably years of very nice growth. So it's great that we are beyond June .
Emmanuel Babeau: We continue further announcing our position as the global smoke-free champion. We have exciting plans to accelerate our smoke-free future in both the US, the largest smoke-free market, and internationally. We are confident in our 2024-2026 target of plus 6 to plus 8% organic carbon growth, 11% current fuel-adjusted EPS growth. We also have a clear guiding objective with our main ambition to be substantially smoke-free by natural revenue in 2030 as another key milestone on our journey toward the smoke-free future.
Two engine, which is really where the brand is already.
The biggest presence.
We don't see any decrease in the consumer adoption and we see increased which equaled the velocity.
And we see progressively I think as well quarter after quarter. This geographical momentum building leading it.
As expected.
On the on the margin.
Yes. It is true that the growth is extremely positive when it comes to margin of course.
We are going to continue to invest behind this growth potential in the U S and we will put the necessary commercial resources to make sure that we maximize the growth potential that.
Emmanuel Babeau: Finally, with our latest dividend rate in September, we have delivered 16 years of continuous dividend increase since our 2008 spin despite the ups and downs of economic and current cycle. This translates to a cumulative 183% increase and carrier of 77.2% since 2008 with an annualized dividend of $5.20. As this demonstrates, our commitment to share with the return through progressive dividend remain straightforward. Thank you very much and we are extremely happy to answer your questions.
But I think the need is really there.
First in class in terms of gross margin.
For our product.
The group level I'm thinking about is in the U S.
New cooking functions really nice margin that deal in the U S is baked in class and that means of course that growing.
<unk> is an excellent news for.
Topline, but also for Bottomline and.
I think that in the growth as we are.
Adjusted earnings per share over the quarter, which is absolutely feasible.
Thank you.
Thank you.
Unknown Executive: 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. Followed by the number one on your telephone, keep at. In the interest of fairness and time, we ask that participants keep to a maximum of two questions each. It's time-allowed. Follow-up questions, maybe taken. You may rejoin the queue by, again, pressing star one. Our first question will come from Vivian Azer with PB Callin.
Thank you. Our next question will come from Bonnie Herzog with Goldman Sachs.
Thank you good morning.
Morning, Bonnie.
I had a question on your <unk> shipment volumes for the year.
Mentioned, you're now expecting to come in within the lower half of your guidance and then you highlighted a few reasons for this including the uncertainty related to it.
Tri levels in Europe , given the upcoming flavor ban so could you give us a sense of maybe where.
Unknown Executive: Please go ahead. Hi, good morning. Morning, Vivian. I'd like to start with Zinc. Please clearly a very impressive result with continued acceleration in the pipeline. Well, you talked about distribution gain. How much more runway do you see from a distribution standpoint? Certainly, this remains a velocity driven story I would say. That would be question one, and then the follow-up will just be on the margins, which came in way ahead of expectations.
Inventory levels are at right now and then maybe how many quarters do you expect.
Some of this unwind happen and then just thinking about the trade how is it being.
Being asked that in any way with.
I'm just thinking that somebody is let's take inventories are really how has the trade responding to that that's fine.
Yes so.
I think it's.
Of course, something on which we would be able to elaborate once would have been 90 the year after.
The bank put in place on the <unk>.
Unknown Executive: You called out very strong cost management that's clearly apparent. And I'd love to hear your perspective on the durability of the current margin level for Zinc. Please thank you. Thank you, Vivien. So on seeing, and of course, you know, every quarter will bring a new, I would say, load of news. And I think we have been seen into three and another great quarter of acceleration is the velocity that means that, you know, where the brand is already even nicely present.
The country are implementing to fulfill both mitigating in all country one of the questions we have.
With some reduction.
Some skus.
Does it mean that they are globally going to reduce the level of inventory and can continue to impact the level of shipment toward the year end. So I think we're flagging that because of course.
We continue to be.
With the view that these.
Thanks Sumit.
Actually bring major disruption and we've been elaborating many occasions on why we assume that these studies are going to make any change in dynamics in the category, but it's one that we have some pushing back on on the lending for the Internet.
Unknown Executive: We see the consumer of take accelerating just show that this product are becoming more relevant for a growing number of adults user and that there is also the geographical dimension on which we elaborated at the time of our investor day, and which is showing that, while the brand has a certain level of presence on the western part of the US, doesn't mean that isn't going to go further, but it's, of course, bigger than in the rest of the country. There seems to be a trajectory that is saying that the rest of the country is going to add up to progressively, and that is indeed giving also a nice and trajectory on further growth in the coming quarters and years, of course, you know, we take care about probably years of very nice goals.
Ben.
Describing that.
Level of inventories that's why we are.
I mentioned to make sure that we are flexible on the on the possible temporary effect that these could generate now when I look at our shipments for the year. So we are clarifying the lending area.
When I look at the 23 performance versus 22 performance.
We mean, even the low end of the bracket.
Acceleration in terms of growth versus the growth that we experienced in 'twenty two in terms of.
Unknown Executive: So it's great that we are behind them. Two engine, which is really where the brand is already the biggest presence. We don't see any decrease in the consumer adoption and we see increase what we call the velocity. And we see progressively, I think, as well, quarter after quarter, these geographical momentum building up as expected. Now, on the margin, yet it's true that the growth of the extreme positive when it comes to margin, of course, we are going to continue to invest behind this growth potential in the US, and we will put the necessary commercial resources to make sure that we maximize the growth potential.
Including $2 billion of Asti being sold and of course shipments are.
As we know what we are selling what is probably more important is the consumer offtake and.
Frankly, we see the momentum continuing with no change in Q.
Q3 number where we have seasonality, but when we look at Q2 what to expect for Q4, we are very much with the same strong 15% to 16% <unk> growth.
And.
And we are in line with what we.
As experienced last year, so that shows and baidu its a percentage on the higher based on trucking volumes.
We will see value. So we don't see any change in the momentum we see.
A lot of strength in the in the growth.
And thats visible in the in the volume and the market share.
Unknown Executive: But actually, this is really based in class in terms of growth margin for our product as a little level. I'm putting about zero in the US, but you know, globally, pretty much enjoy nice margin that the US is based in class. And that means, of course, that growing is an example for top line, but also for bottom line. And I think that in the world, I just did a share over the quarter, which is absolutely visible.
We are reporting today with these consumers.
Okay. That's helpful and then just.
In terms of another question I just wanted to ask on you know on your new Iqos users in the quarter I can comment a bit light.
You highlighted that this is normal quarterly seasonal trends. So maybe could you talk through that a bit further.
Alright, and then.
Maybe what other drivers might be impacting that and essentially how much visibility do you have.
In terms of Q4, you mentioned that you expect a substantial acceleration in used aircraft. This quarter can you just kind of wanted to verify what you are seeing so far in October gives you that confidence.
Vivien Azer: Thank you. Thank you our next question will come from Bonnie herself with Goldman Sachs. Thank you. Good morning. I had a question on your H.T.U, shipment volume for the year. You know, you mentioned you're now expecting to come in within a lower half of your guidance, and then you highlighted a few reasons for this, including, you know, the uncertainty related to inventory levels in Europe, given the upcoming labor ban. So could you give us a sense of maybe where inventory inventory levels are at right now, and then, you know, maybe how many quarters you expect some of this unwind to happen, and then, you know, just thinking about the trade, you know, is this being offset in any way with You know, I'm just thinking about Conbust, Wolf Sagan and Torres, or you know, really how is the trade responding to this, the fan?
And is it realistic to assume.
All 1 million average quarterly run rate moving forward.
Sure when you so actually last year, we were flat.
In terms of user acquisition so.
We're doing better this year than last year in term of user evolution.
And I think we are in line with what we experienced in 'twenty, one so I remember, whereas we've been showing.
And then so thats a typical pattern for Q3, which is due to the metallurgy on Neal.
Calculate.
On the user growth.
And.
And I think we have today.
As I said with the amendment of the momentum that we're seeing on people buying the device on people registering.
Vivien Azer: Yes, but so I think it's, it's of course something on which we would be able to elaborate once we have been 19 the year after the, the ban put in place on, on the other country are implementing it a bit of a problem, advocating in all countries. One of the questions we have is, as with some reduction, you know, with some SKUs, does it mean that they are globally going to reduce the level of inventory and can, can this impact the level of shipment toward the year and say, I think we're flying that because of course, we continue to be with the view that this ban should not, it can actually bring major disruption and we've been elaborating, and many occasion why we say that this ban is not going to continue to change about the language in the category, but it's so that we have some question mark on on the landing for the reason that I've just been describing on the level of inventory, that's why we are mentioning to make sure that we are as clear as possible on on the possible temporary effect that this could generate.
That is pointing to the fact that we see the same momentum and there is no change.
And lastly, we finished the year with a strong user growth.
And we target to do the same.
So.
I have to say, it's remarkably stable and the strengths if I can use this expression.
And as I said, we could be in fact.
In shipments.
And in the IMS volume more.
Then last year, so as a percentage is about the same again the biggest being higher it means that we're going to we're going to increase in term of <unk>.
Volume differential year on year.
Alright, thank you.
Thank you.
Thank you. Our next question comes from Gaurav Jain with Barclays. Please go ahead.
Hi, good morning.
Good morning Dara.
Hi.
I have a question on the U S to that side of things so.
They have DSM, there's a rule, making process to ban flavored cigars to the OMB.
Vivien Azer: Now, when I look at our shipment for for the year, so we are clarifying the landing area. When I look at the 23 performance versus 22 performance, that we mean, even in the low end of the bracket, an acceleration in terms of growth versus the growth that we experience in 22 in terms of incremental billion of, of still being sold, and of course, shipments are as we know what we are selling, what is probably more important is the consumer of tech.
You saw a plus how are you.
Address that and secondly, if I look at the reported numbers on survives it seems that the when you had a pretty steep decline this quarter.
US understand what's happening there.
So on the trend we've been increasing price.
She had been below.
Southern tissue is a bit of time, and we decided to move the ball.
Nutritional which were $1 14.
And there is a time for.
In addition in the and that explain why on beginning.
Vivien Azer: And here, frankly, we see the momentum continuing with your change, and I think the two, three, remember where we have seen that when we look at two, two, what we expect for two, four, we are very much with the same strong 15 to 15% IMA growth and we are in 90 what we have experienced last year. So that shows, and by the way, it's a percentage on the higher base, in fact, in volume, that in the voting growth is higher. So we don't see any change in the momentum, we see a lot of strength in the growth, and that visible in the volume, in the market share that we are reporting today, we did get through.
Impacted this year, but I don't think terrific.
2012, 1 billion term, where we continue to have very good brands and we've done a lot.
Sort of a continuous support.
Frankly on the flavor with Illumina to speculate.
I don't know exactly what what are the what is going to mean all loans to take what is decided.
Most of that will be decided all only going to take to be implemented so.
I'm not going to speculate at this stage on what would be our answer.
What we do.
Because.
Because I'm not going to be relevant on anything that could be seen at that stage.
Bonnie Herzog: Okay, that's helpful. And then just in terms of another question, I just wanted to ask on, you know, on your new icos users in the quarter, it did come in a bit light, you know, you highlighted that this is normal quarterly seasonal trend. So maybe could you talk through that a bit further for us. And then, you know, maybe what other drivers might be impacting this and essentially how much visibility do you have.
Sure. Thank you and then my second question is on slide 24.
And what's the best Nishu just to project that because I heard a comment that the origin.
Damian balance sheet revaluation impact, which is about <unk> that will not recur in FY 'twenty four solution add backed with by 'twenty three EPS and then could you also just.
Comment on Russia exposure and this year's EPS.
Yes. So this is a technical comment on Argentina glad you're absolutely right. This is a forex impact that is a kind of one offs in Q1, because that is impacting this year, but next year when that's starting with the based on our profit that is decreased by that just something that you need to be on your balance sheet.
Bonnie Herzog: You know, in terms of Q4, you mentioned you expected substantial acceleration in user growth, of course, you just kind of wanted to verify what you're seeing so far in October, gives you that, and, you know, and is it realistic to assume, you know, a typical 1 million average Corley run rate moving forward? Thanks. Sure, Bonnie, actually last year we were flat in terms of user acquisition. So we're doing better this year than last year in terms of user evolution.
Further.
But what has taken its taken I mean of course, depending on the evolution.
Argentinian peso in the future.
But I don't have anything to say at this stage I think I just wanted to clarify we've taken coming back.
Bonnie Herzog: And I think we are in line with what we expect in 2021, so I remember well, I think we've been showing the, we've been showing the numbers. So that's a typical pattern for Q3, which is due to the methodology on, you know, how we calculate the views of growth. And, and I think we have today, as I said in the event of the momentum that we are seeing on people buying the device and people registering that is pointing to the fact that we see the same momentum and that there is no change.
On Russia, frankly versus when we make three weeks ago. There is nothing new to report on the on the Russian situation. This is a market where of course.
<unk> been very significantly impacted on the profits reported.
Is that all because of the very strong weakening of the Russian ruble versus the dollar.
That is one of the if not the biggest impact this year on Forex.
That is of course, I would say liquidity, reducing our exposure.
To Russia in our profit.
Bonnie Herzog: And last year we finished a year with a strong user growth. And we target the same this year. So I have to say it's remarkably stable in the strength, if I can use expression. And, and like I said, you know, we could be at the end of the day, in fact, going in shipments. And in IMS voting more than last year. So user percentage is about the same. Again, the biggest being higher. It means that we're going to be going to increase in terms of voting different should be on you. All right.
That is mechanical.
And we are.
<unk>.
We already said in the USA.
<unk>.
Ltd.
Growth in Russia, there is a market where as we've been saying we've been reducing our commercial activity.
And that's a market where we're investing in that is competing with us on the performance of this market.
Thank you so much.
Thank you Laura.
Thank you. Our next question comes from Pamela Kaufman with Morgan Stanley . Please go ahead.
Hi, good morning.
Good morning.
Bonnie Herzog: Thank you. Our next question comes from Rob Jane with Barclays. Please go ahead. Hi, good morning. Good morning, Goa. Hi, so I have a question on the US cigar side of things. So, you know, clearly, the FDA can this rulemaking process to ban flavored cigars to the OMB. So first, how will you address that? And secondly, if I look at the reported numbers on cigars, it seems that the revenue had a pretty steep decline this quarter.
I have a question on the comp.
First of all business, it's been exceeding expectations and you've taken up your guidance for volumes on the basketball strength can you talk about what's driving the performance in this category and despite the acceleration in pricing growth.
Sure happy to do that so yes convertible is been resilient, we have a decline that it's a moderate decline.
In Q3, let's be clear this is driven by a few markets.
Sure.
We see.
Bonnie Herzog: [inaudible] APS. Yeah, so this is a technical comment on Argentina. Gaurav, you're absolutely right. You know, this is a forex impact that is a kind of learner, if you want, because that is impacting you here. But next year, we're not starting with the base on our profit that is decreased by that is just something that you need to do on your financial exposure. But that is taken and taken. I mean, depending on the evolution of the Argentinian people in the future.
Nice share gain.
One <unk>.
Can you hear the one adjective.
As you can imagine the unmet market needs.
Great.
The ability to seek so let's be very clear we have a nice performance on convertible on volume to some extent on revenue.
All the great work that we're doing now on increasing Oi and growing margin.
First and foremost driven by our smoke free product Iqos first Zane second and led by the SEC. So yes, great performance when it comes to volumes with the home inns vessels and the decline that we've seen in the last few years.
Good impact on revenue, we have been doing good.
Price increases as well, but remember that's a category in which we've seen a lot of.
Inflation on our cost and part of the growth generated by markets with low profitability.
Okay. Thank you.
And then on.
And then when do you expect to hear a decision from.
And the FDA PMA application.
How are you thinking about the prospects.
Right Alright approvals considering the FDA has recently issued unfavorable decisions around our flavored <unk> product.
No.
It goes up three weeks ago and there is nothing on the P&C is we don't know whats going to be the timeline for the discretion of the FDA and.
And we see that a lot of things are putting.
A significant time to the decision to be taken let me make a couple of comments.
On this piece.
PMT a process Nevertheless.
The first one is that.
We have our smooth pullback on the general rule.
And then you have to Ta of level one so the FDA has been recognized with this product.
Bonnie Herzog: But I don't have anything to say about that. I think I just want to clarify the technical impact on Russia, frankly, that is when we make three weeks ago, there is nothing to report on the Russian situation. It's in the market where, of course, we are being very significantly impacted on the profit reported in the art because of the very strong weakening of the Russian rubles, that's what they are and that is one of the biggest impact this year on forex.
Our representing reduced risk vessels convertible.
Crs and we're very clear.
As benefit claims.
We believe that by nature of this product should be considered.
Equally good if not better.
We believe that they have the potential to really convince.
Of smokers to move away from combustible cigarettes to have.
A better way of consuming nicotine. So we are really and schools that are approved at the FDA.
Bonnie Herzog: That is, of course, it's a liquidity reducing our exposure to Russia in our profit, that's that's mechanical and we are, we already said, you know, we are seeing very limited votes in Russia, that is a market where, as we've been saying, we've been reducing our commercial activity and that the market they are investing and that is completing, of course. On the government of this market.
We think that.
As a very important element in that it's important to make this product available for neutrolin in the U S.
Now on the flavor because I think the portfolio is one of your questions.
For the same reason, we believe it is important that.
G.
Consumer has the choice of flavor.
The reason for them to move away from Congress to push to get it to just better product.
Said that we have the example of a band.
Rob Jane: Thank you so much. Thank you, Laura. Thank you. Our next question comes from Pamela Kauffman with Morgan Stanley, please go ahead. Hi, good morning. Hi, Pam, good morning. I have a question on a combustible business. It's been exceeding expectations and you've taken up your guidance for volumes on the combustible strength. Can you talk about what's driving the performance in this category, despite the acceleration and pricing growth? So Pam, I'm happy to do that.
On flavor.
California.
And the reality is that.
There was an adjustment during a couple of months and then the growth.
With you.
Without flavor in California, and we are today very very significantly I think we are close to 50% above the pre ban level in California. So it shows that these products are extremely attractive and resonate with the nicotine users with a smoker than he doesn't continue there.
The favor which is very good.
Okay. Thank you.
Rob Jane: So yes, combustible is being resilient. We have a decline that it's a mother's decline into three. Let's be clear, this is reason by a few markets where we see a nice share gain, one in Turkey, the other one in Egypt. As you can imagine, they are not market with great profit ability to speak. So let's be very clear, we have a nice performance on combustible volume to some extent on revenue. Over the great work that we are doing now on increasing OI and growing margin is, you know, first and foremost reason by our social product.
Thank you Bob.
Thank you. Our next question comes from Matt Smith with Stifel. Please go ahead.
Hi, good morning.
Good morning, Matt.
If we take the full year organic profit margin guidance to down 150 basis points or so and the year to date performance along with your commentary around.
A flattish year over year performance in the fourth quarter can you talk about some of the factors in the fourth quarter I understand there's a lot of cross wins here, but you get the benefit of Swedish match rolling into the organic base.
And then you mentioned you've completed the shift to back to sea freight for Hte consumables in Japan. So can you talk about some of the headwinds to margin in the fourth quarter.
Rob Jane: I go first, the second and not by the season. So yes, great performance when it comes to volume, the performance versus the decline that we met in the past few years. We impact on the new, we've been doing good on on pricing for the world, but remember that category on which is to a lot of inflation on our cost. And part of the group is generated by market and profit. Thank you.
Maybe some detail around your expectations around the incremental alumina launches or any other factors would be helpful.
Sure so.
They're going to be some mix impact.
Q4, and notably on the devices as we are.
Rolling out.
A significant number of new market.
We're also launching some new innovation in some markets on the EBIT by device.
Rob Jane: And then on Zen, when do you expect to hear a decision from the FDA on Zen's PMTA applications? And how are you thinking about the prospects for Zen's flavor approvals? Considering the FDA has recently issued unfavorable decisions around flavored e-fed products? Look, we have discussed that three weeks ago and there is nothing more on the PMTA. We don't know what going to be the timeline for the discretion of the FDA and we see that a lot of things are taking a significant time to be decision to be taken.
Going to generate.
I would say significantly accelerated activity on our device sales and that is adding.
Negative impact on the margin so that's going to be.
Clearly one element that is on top of that there will be certainly some.
Investment during the fourth quarter and that has an impact on the margin and then you can have some mix coming from from geographies in them.
And other.
Mix element that is what is today the R&D guidance of.
Rob Jane: Let me make a couple of comments on this PMTA process, nevertheless. The first one is that we have these our students project on the general and energy play of level one. So the FDA has been recognized that these products are representing reduced risk versus combustible TRS. And we're very clear at benefit claims. We believe that by nature, this product should be considered as equally good, if not better. And we believe that they have the potential to really convince millions of smokers to move away from combustible cigarettes to have a better way of consuming equity.
<unk> flat and it doesn't mean that if you're a big positive.
<unk>.
But today, we are seeing this loan stability situation for our.
Oi margin.
Year on year for Q4.
Rob Jane: So we are really and through that, up through that the FDA will really take that as a very important element and that it's important to make this product available for you to use there in the US. Now, on the flavor, because I think that was probably one of your questions, you know, for the same reason, the ability is important that the consumer at the choice of flavor, if it is a reason for them to move away from combustible cigarettes to this better product.
Thank you for that and just as a follow up when you talked about investments in the fourth quarter should we think of that as a sequential step up in investment relative to the level in the third quarter or is that more of a year over year higher investment compared to the fourth quarter of 2023.
Sure Mitch.
Yeah, I think you should expect.
Certainly continuation of.
Significant level of investment as we are accompanying the growth of our star product Iqos and on.
Dean.
That should probably mean.
Quarter on quarter with the sequential increase.
Increase and still Sydney.
A significant ways.
Versus the versus last year.
Thank you for that.
Thank you.
Thank you. Our next question comes from Owen Bennett with Jefferies.
Good morning, <unk> morning.
Yeah.
And I just wanted to ask what has been very very strong in the U S. But wanted to ask about.
Rob Jane: I've said that we have the example of a ban on flavor in California, and the reality is that there was an adjustment during a couple of months. And then the world's regime with a flavor in California, and we are today very, very significant. I think we are close to 30% of both the pre ban level in California. So it shows that these products are extremely attractive and resonate with the nicotine user with the smoke and the other nicotine user beyond the flavor, which is very beautiful.
And how cheap <unk> volumes only flat <unk> scan the on X Sandy.
Change you also have been launching in Switzerland, and Spain during the quarter. So I was just wondering how you see the near term outlook for volumes at <unk> do you expect any meaningful acceleration over the next several quarters.
Second question linked to that and Thats, an increasing chatter now that the EU is looking to potentially bond pouches as part of the game and Tpa and does this impact how you think about investing in the space that you ask Nathan Thank you.
Thank you and yes so.
We have this.
Situation in Scandinavia.
Rob Jane: Great. Thank you. Thank you, Bob. Thank you. Our next question comes from Matt Smith with people. Please go ahead. Hi, good morning, manual. If we take the full year organic profit margin guidance, the down 150 basis points or so, and the year-to-day performance along with your commentary around a kind of a flatish year-over-year performance in the fourth quarter. Can you talk about some of the factors in the fourth quarter? I understand there's a lot of crosswinds here, but you get the benefit of Swedish match rolling into the organic base, and then, as you mentioned, you've completed the shift back to sea freight for HTU consumables in Japan.
On nicotine portion of the productive already present, mainly Sweden, where.
It's it's a nicely growing market, where we enjoyed the biggest market share. So we are globally year to date growing on nicotine pouch in Sweden, but.
We're not talking about big volume year.
As we have our strong leadership in Sweden on <unk>.
Outside.
In Scandinavia.
We are just at the beginning so yes, we are launching so extreme that we'd been launching in.
Rob Jane: So can you talk about some of the headwinds to margin in the fourth quarter, maybe some detail around your expectations around the incremental loomal launches or any other factors would be helpful. So indeed, they're going to be some niche impact in Q4 and notably on the devices as we are voting out in a significant number of new market. We're also launching some new innovation and some market on the even my device.
In Switzerland.
<unk> revenue in the Nordics, there will be more market to come now is going to be.
I'm also really nice, but he is going to be small versus what we see in the U S. You see earnings.
It's going to be difficult to see given the strengths.
We are seeing in the U S.
Two to see.
Volume outside.
The U S.
I'm showing that strength now, yes, youre going to add very nicely additional numbers, but again, its not going to be huge compared to the U S.
Rob Jane: That's going to generate significantly accelerated activity on our device cells and that is having a negative impact on the margin. So that's going to be clearly one element. Then on top of that, there will be certain needs from investment during the fourth quarter and that is having an impact on the margin. And then you can have some mix coming from from geographies and other mix elements. But that is what is today behind the guidance of along flat and it doesn't mean that, you know, it can be a bit positive.
We'll see.
CPD if there is any decision taken around nicotine pouch of course.
But if there is anything decided on.
That respect, which will allude today.
It influences the way we invest on this category.
But frankly at this stage, it's too early to tell because we don't know what's going to be discussed if anything on that one.
And therefore.
We'll see.
Okay. Thank you Sir appreciate it.
Thank you our last question will come from Entre country here with UBS.
Rob Jane: But today, we are seeing this along stability situation for our OI margin year on year organically for Q4. Thank you then for that. Just as a follow up when you talk about investments in the fourth quarter, should we think of that as a sequential step up investment relative to the level in the third quarter? Or is that more of a year over year higher investment compared to the fourth quarter of 2023?
Hi, Good morning, I wanted to ask.
Just one from me please.
And I know, it's a bit of a topic for sure but the GOP one drug obviously theres been talk about this having anti addictive.
Properties.
Do you think this could be an issue for PMI in the long term rather.
Rob Jane: I think we should expect a certain continuation of significant level of investment as we are compiling the growth of our start product, icons and then and then that should probably be a quarter on quarter with a sequential increase. And there's still a significant risk versus that last year. Thank you for that. Thank you. Our next question comes from Owen Bennett with Jeffries. Morning, Manuel. Morning, Owen. And I just wanted to ask also then very, very strong in the US, but wanted to ask about and how she's actually where so volumes.
Okay.
Frankly.
I mean I've been.
Hearing things about that.
I mean, I know with the assumption is everybody going to the end of <unk>, one and therefore, they are going to drive massive change in consumer behavior.
And I'm not even.
To tell you what will be the impactful somebody either neutral to us.
<unk> is going to take you to and I am not sure. We have any serious study on human behavior on that that is going to say that so first of all I don't.
Our broad usage of this.
<unk> seen a drug is going to be second I don't know what is going to be potentially impactful.
I'm not sure that today, we can say anything.
Relevant on and it makes sense. Thank.
Rob Jane: Only flat versus two Q for scandy and X candy. And you mentioned you also had relaunched in Switzerland and Finland during the quarter. So I was just wondering how you see the near term outlook for volumes. Do you expect any meaningful acceleration over next several quarters? And then a second question linked to that. There's some increasing charts are now with the EU is looking to potentially find pouches as part of the new.
Thank you.
No that makes sense. Thank you very much.
Thank you.
Okay.
Thank you and there are no further questions at this time I'll turn the call back to Emmanuel for closing remarks.
Hi, This is Jay personal vice President of Investor Relations that concludes our call today. Thank you again for joining us if you have any follow up questions. Please contact the investor relations team. Thank you.
Rob Jane: And TPD and this impact how you think about investing in the space at US near them. Thank you. Thank you, Owen. Yeah, so, you know, we have this situation in Scandinavia on nicotine pressure, the product is already present. Many in Sweden, where it's nice to go in market, that's not where we enjoy the biggest market share. So we are, you know, globally, we are today growing on nicotine pouch in Sweden, but, we're not talking about big volume here.
You again and have a great day.
Thank you for Q2 in Dubai.
This does conclude today's call. We thank you for your participation you may disconnect at any time.
Rob Jane: As we have our strong leadership in Sweden on smooths. Outside, Scandinavia, we are just at the beginning. So, yes, we are launching to explain that we've been launching in Switzerland, Finland as well. In the morning, there will be more market to come. Now it's going to be. I'm hopefully nice, but it's going to be small versus what we see in the US. It's going to be difficult to see given the strengths that we are seeing in the US.
Rob Jane: To see volume outside the US. Foring, you know, their strengths. Now, yes, it's going to add very nicely additional numbers, but again, it's not going to be used compared to the US. We'll see, you know, with ppd, if there is any decision taken around nicotine pouch, of course, if there is anything decided, but in that respect, which we don't know today. That influence the way we invest on this category in view.
Rob Jane: But frankly, as I've said, it's too early to say because we don't know what's going to be discussed if anything on that one. And, and therefore, we'll see. Okay, thank you. Thank you. The last question will come from Andre country with UBS. Hi, good morning, Emmanuel. Just one from me, please. And I know it's a bit of a topic to sure, but the GLP one drug, obviously, there's been talk about it, having anti addictive properties.
Rob Jane: Do you think this could be an issue for PMI in the long term, rather? Thank you. So, frankly, I mean, I've been hearing things about that. I mean, I don't know what the assumption is, everybody going to be in the GLP or one, and therefore, you know, we're going to drive massive change in consumer behavior. And I'm not even able to tell you what would be the impact for somebody is a new producer, and you're going to take the GLP, and I'm not sure we have any serious study on human behavior on that that is going to say that.
Rob Jane: So, first of all, you know, I don't know how good the usage of this medicine is going to be. Second, I don't know what going to be the potential impact. And I'm not sure that today we can say anything relevant and that makes sense from on that page. Thank you. No, that makes sense. Thank you very much. Thank you.
James Bushnell: Thank you, and there are no further questions at this time. I'll turn the call back to Emmanuel for closing remarks. Hi, this is Jace Bushnell, Vice President of Investor Relations. That concludes our call today. Thank you again for joining us. If you have any follow-up questions, please contact the Investor Relations team. Thank you again and have a great day.
Unknown Executive: Thank you. Good to see you soon.
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