Q3 2024 Philip Morris International Inc Earnings Call

Good day, and thank you for standing by.

Speaker Change: Welcome to the Philip Morris International Inc. 2024, third quarter results conference call.

Speaker Change: At this time, we'll participants are in a listen only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need a press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. Do a draw your question, please press star 1-1 again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: Oh, now I'll like to hand the conference over your speaker today, James Bushnell, Vice President of the Investor Relations and Financial Communications. Please go ahead.

James Bushnell: Welcome, thank you for joining us.

James Bushnell: Earlier today, we issued a press release containing detailed information on our 2024 third quarter results.

James Bushnell: The press release is available on our website at tmi.com.

James Bushnell: A glossary of terms including the definition for smoke-free products, as well as adjustments, other calculations and reconciliation to the most directly comparable US GAAP measures for non-GAAP financial measures cited in this presentation are available in Exhibit 99.2 to the company's 4M8K dated on today's date and on our investor relations website.

James Bushnell: Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements.

Speaker Change: It is now my pleasure to introduce Emmanuel Babeau, our Chief Financial Officer, over to you, Emmanuel

Emmanuel Babeau: Thank you, James and welcome everyone.

Emmanuel Babeau: Following an excellent first ask, we delivered another outstanding performance in Q3. All key elements of the business perform at or above expectations, driving strung double-digit organic top and bottom land growth, margin expansion and a significant acceleration in adjusted the diluted uninforged growth in dollar terms.

Emmanuel Babeau: As expected, both Icos and Zine accelerated on the sequential basis.

Emmanuel Babeau: I close delivered a significant step-up in HTU adjusted IMF volume in Q3, which is historically a quarter impacted negatively by seasonality.

Emmanuel Babeau: This reflects the strong underlying momentum of the business, with adjusted IMS close to plus 16% of head versus prior year, with another very strong performance from Japan, re-accelerating momentum in Europe and promising results from a number of global markets.

Emmanuel Babeau: We continue our efforts to increase U.S. production capacity in response to strong demand, enabling stabilization of share performance, followed by sequential improvement throughout the quarter.

Emmanuel Babeau: This led to a significant increase in sequential U.S. volumes with over 40% year on your growth despite capacity constraint.

Emmanuel Babeau: Outside the US, Nicotin Pouch can't volumes, grew by close to 70%.

Emmanuel Babeau: Our combustible business also accelerated to high single digit net revenue and gross profit gross.

Emmanuel Babeau: Led by further very strong pricing, Regillian volume and the benefit of our collections.

Emmanuel Babeau: Our overall Q3 performance epitomized the soundness of our strategy with underlying momentum across categories with strong volumes, pricing and smoke-renic supported by coast efficiency measures.

Emmanuel Babeau: With double digit growth in both adjusted operating income and diluted earning per share in currency neutral and dotter terms, we are raising our full year guidance.

Emmanuel Babeau: Turning now to the Edeline Financials for Q3

Emmanuel Babeau: We delivered excellent organic revenue growth of plus 11.6%.

Emmanuel Babeau: Driven by Shipman William Gross of plus 2.9% positive from a cricket grimics and pricing.

Emmanuel Babeau: The combination of these positive top line performance with the additional favorable smoke remix impact on profit and ongoing cost efficiencies. An able us to achieve growth of plus 13.8% in organic operating income and plus 18% in currency neutral adjusted diluted an impursure.

Emmanuel Babeau: This excludes an unfavorable currency impact of six cents, notably due to weakness in the Egyptian pound, Argentine peso and the strong Swiss frank, partly offset by the Japanese yen.

Emmanuel Babeau: Despite the currency edwin, our proactive measures on pricing and accelerated cost initiatives drove plus 11.2% dollar growth in adjusted operating income and plus 14.4% dollar growth in adjusted deleted earning per share to a record $1.91.

Emmanuel Babeau: This better than expected earnings delivery reflects ICOs and the in-shipment volume at the I-R-N of our expectation and a very strong combustible performance.

Emmanuel Babeau: In addition, we benefited from a lower net financing cost, including increased interest income, as well as mark-to-market gains on derivatives that we use to manage the currency profile of our debt, driven by interest rate volatility.

Emmanuel Babeau: Combined with an excellent H1, this yields an impressive plus 17.2% year to date.

Emmanuel Babeau: Currency neutral growth in adjusted-deleted earnings per share.

Emmanuel Babeau: With double digit organic top line growth and 190 basis points of organic operating in margin expansion.

Emmanuel Babeau: including currency, we delivered adjusted earning per share growth of close to plus 8% which is a testament to our continued focus on delivering stronger performance in dollar terms.

Emmanuel Babeau: Let's turn to the 23 financial performance by category with both sides of the business producing excellent results.

Emmanuel Babeau: Smoke re-net's revenue and growth profit grew organically by plus 16.8% and plus 20.2% respectively, driving 200 the biggest point of growth margin extension.

Emmanuel Babeau: This reflects a robust icons performance in the quarter, including manufacturing productivities, as well as the continued accretion of Zinn and a small but growing contribution from Zeev.

Emmanuel Babeau: Smokery Gross Margines, where more than 450 basis points higher than combustible in Q3 and more than 200 basis points higher here today.

Emmanuel Babeau: Composible net revenue and growth profit growth accelerated almost plus 9% organically.

Emmanuel Babeau: Computable gross margin improved by plus 10 basis points organically, and by plus 20 basis points in dollar term, marking the second quarter of expansion following a challenging 2023.

Emmanuel Babeau: We continue to target combustible gross margin expansion for the year inorganic and dollar terms as cost pressure, including the impact of the EU single use plastic directive, are more than offset by pressing and ongoing cost initiatives.

Emmanuel Babeau: focusing now on volumes. We are well on track for our fourth consecutive year of volume growth. Our business delivered a remarkable performance of around plus 3% total shipment growth, both into 3 and year to date, with all categories and all four regions growing over both periods.

Emmanuel Babeau: Q3HTU adjusted IMF gross of plus 14.8% reflect the underlying dynamism of our icos business with a continued strong performance in Japan and a re-acceleration in Europe as expected.

Emmanuel Babeau: Q3HQ shipment of 35.3 billion units, where at the upper end of our expectation, with the superior adjusted in-market sets goals compared to shipments due to shipment phasing as I lighted in H1.

Emmanuel Babeau: Our All Smoke Rebusiness Group 2, 3 shipment volume by plus 22.2%, within powering US growth of plus 41.4% and very strong international performance.

Emmanuel Babeau: Our VIVA business exhibited continued volume momentum in the quarter, reaching the equivalent of 1.2 billion units on yet-to-date basis.

Emmanuel Babeau: Q3 cigarette shiftments grew by plus 1.3%, our placing the total estimated international cigarette industry excluding China and the US at plus 0.5%.

Emmanuel Babeau: The unusually resilient industry performance this year reflects growing volume in markets where smoke free products are not permitted, such as Turkey, India and Brazil, alongside a reduction in illicit volume in a number of markets driven partly by geopolitical factors.

Emmanuel Babeau: Our growth includes notable contributions from Turkey, India, and Italy, and reflect good category share performance despite robust pricing.

Emmanuel Babeau: Our exceptional Q3 revenue performance reflected our three structural pillars of top line growth, volume, pricing and smoke-free mid-shift.

Emmanuel Babeau: Building on our very robust volume growth, pricing contributed plus 7.5 points of growth.

Emmanuel Babeau: This was powered by strong combustible pricing of plus 9.7%.

Emmanuel Babeau: Plus 3% pricing for ICO's HTUs and a notable contribution from ZIN.

Emmanuel Babeau: The positive-making impact of our smoke-free business delivered plus 1.4 points despite the strong growth of combustible given the iron net-frevenu per unit of both Icos and Z.

Emmanuel Babeau: As in prior quarters, geographic mix was negative but to a lesser degree, as gross in Europe and the U.S.

Emmanuel Babeau: The year-to-date net revenue drivers were very similar with double digit organic topland growth, built on positive volumes, smoke-free category mixed, of more than plus 2 points and storm pricing.

Emmanuel Babeau: Turning to operating income, we delivered impressive Q3 organic margin expansion of plus 90 basis points and plus 110 basis points in dollar terms.

Emmanuel Babeau: Grossmargin increased organically by 80 basis points and by plus 70 basis points in dollar terms.

Emmanuel Babeau: This was again driven by our Iron Margin smoke-free business, pricing and ongoing productivity savings across the value chain.

Emmanuel Babeau: Moving now to SGNN.

Emmanuel Babeau: Despite the planned step-up in commercial activity, our organic cost evolution was essentially in line with top-line growth, with plus 40 basis points of margin expansion in adjusted dollar term, supported by cost efficiency actions.

Emmanuel Babeau: As previously communicated, we target an organicking increase in S.G.N.A. below the rate of the nature of the new gross for the year. While still supporting our smoke for expansion with continued commercial investments.

Emmanuel Babeau: We delivered an incremental $180 million in gross cost efficiencies in Q3, reaching almost $490 million a year to date with initiatives notably focused on manufacturing and back-of-risk cost.

Emmanuel Babeau: While only the first year, we are progressing nicely towards our 24-26 target of $2 billion in growth savings.

Emmanuel Babeau: Charles.

Charles: On the yet-to-date basis, our adjusted operating in the margin of evolution was also very positive with plus 190 bezis point organic expansion and plus 40 bezis point in the latter.

Charles: We are well set to meet our fully objective of expansion on both days.

Charles: Turning now to our icos business, which is celebrating the 10 year anniversary of its first launchers in Japan and Italy.

Charles: icos is the world leading smoke free product generating over $10 billion in annual net revenue

Charles: Notwithstanding the incredible growth and success of the brand over the time. There is a very substantial growth runaway over the coming years as more of the world's 1 billion legal etchmoker switch to better alternatives.

Charles: Indeed Robert Gross continues his year.

Charles: We spoke last quarter about our expectation for a strong H2 delivery, we continued user growth momentum supported by our commercial programs, including Evans to celebrate the 10 year milestone.

Charles: As expected, to three momentum accelerated with plus 14.8% year-on-growth in HTU adjusted IMS and a very substantial sequential step-up of 1.8 billion unit versus Q2, which is especially impressive in a quarter that is typically negatively impacted by seasonality.

Charles: This reflect a return to double it grows in Europe, a continued excellent trajectory in Japan, and a further acceleration from our global markets.

Charles: We expect further strong rules into four.

Charles: The success of FICO is built on technology, commercial capabilities, brand building and innovation on both devices and consummables.

Charles: Following the successful launch of the Icos Illuma Eye device in Japan earlier this year, we are expanding the rollout to more markets including Italy, Greece, Portugal, Romania and Switzerland.

Charles: focusing now on ICOs in Europe. I am pleased to report a Q3 reacceleration in adjusted in markets as goes to plus 11.3% following a slower Q2 progression.

Charles: This includes the resumption of growth in market passing through the adjustment phase of the characterizing of a band.

Charles: The majority of EU-HQU volume is now covered by the ban and we observe a return to robust growth in markets such as Greece, Romania and Portugal.

Charles: Following the stronger than expected initial impact in Q2, we are pleased to report positive volume momentum in Italy.

Charles: This was supported by the launch of recent HTO variants, including our mainstream price offering Delia and Tobacco Free Livia, jointly accounting for close to 7% of Italy's HTO of tech three months from launch.

Charles: In addition, we see excellent momentum in markets such as Germany, Spain and the UK and increasingly balanced growth across markets overall regardless of eco-spinitrition.

Charles: Regional Q3 adjusted HTU share was up by 0.8 point year on year, to 9.5%.

Charles: And modestly lower sequentially due to the typical impact of seasonally higher combustible volume in the summer.

Charles: HQ adjusted IMF's volumes, which 13.2 billion units on the 4-quarter moving average, maintaining our eye share of the category with robust sequential growth.

Charles: Looking at our kisiti of tech shares in Europe, we see continued rapid progress in the last number of cities.

Charles: An increasing number are posting rows of over two points year on year, which is the most meaningful comparison given seasonal factors.

Charles: Particular collage include bidapest, Athens, Bratislava, Bucharest, London and Amsterdam.

Charles: Turning now to Japan, we delivered our 8 consecutive quarter of double digit progression with adjusted HTOIMS growth of plus 14%.

Charles: Riching 10.9 billion units on the 4-quarter moving average.

Charles: Our commercial programs continue to drive meaningful results with innovation on devices and consummable, propelling a plus 3.2 point market share increase to 29.8% into 3 and surpassing the landmark of 30% in September.

Charles: This includes the impact of the Icosiluma I device, which was launched in Q1 and deliver an ends consumer satisfaction.

Charles: As soon on the previous slide, I caused HTO of Texas ineticities such as Tokyo, continue to advance rapidly.

Charles: We have previously flagged that Tokyo of Texture for the overall, if not been category which 50% earlier this year This is also now true in eight cities, overall including Yokohama, Kawasaki, Sondai and Fukuoka We several of the rapidly approaching the same march code

Charles: This is a positive sign of the enduring growth potential in a market with already eye penetration.

Charles: Taking a more global view, we continue to see very good growth across a number of global markets, as I lighted by the TCT of TechShare.

Charles: This includes cities in Saudi Arabia, Mexico and Egypt, where Cairo which close to 10% share.

Charles: of the share of more than 5% in Jakarta is indicative of the strong acceleration in Indonesia. As we continue our geographic and portfolio expansion, including the growing offer of closed area H.C.U. variants.

Charles: Finally, I would like to call out duty-free, where the ongoing travel recovery combined with the strength of our multi-categorie portfolio, delivered dynamic growth with Zine and VIEV, increasingly offered alongside ICOs.

Charles: Moving now to Zinn, the number one U.S. 목rybrand continued to see very strong underlying momentum.

Charles: As flag produced, we are working to progressively increase our production volumes and this was reflected in a sequential acceleration to 149 million cans shipped in 23.

Charles: As we continued working through this supply constraint, zinc category share stabilized and then resume growth on the sequential basis through the quarter despite a further 50 cent per can lease price increase, taken at the start of September .

Charles: We continue to expect shipments to match consumer demand at some point during the fourth quarter.

Charles: While goaging the level of underlying demand is not an exact science in the current circumstances. Our promotional and commercial activity has naturally been lower as we prioritize meeting existing consumer needs over growing the legal age user-based from other liquiding categories.

Charles: With ongoing efforts to increase our U.S. production capacity to run 900 million can for the full year of 2025 And significant expansion beyond 2025 from our planned new facility in Colorado We believe we are well positioned to capture the instant potential over the coming years

Charles: We remain committed to driving industry standards in under 21 prevention with policies and initiatives designed to prevent youth success.

Charles: Our robust US marketing code prohibits social media influencers and we refuse request for such partnership.

Charles: All our own products website use edge verification technology and we partner with Ricard and ProEdge to support edge restriction check for retail sales.

Charles: Overall, we are encouraged by the result of our efforts which I come back to.

Charles: Combating trade in illicit tobacco and nicotine products remain a top priority and we dedicate a significant level of resources to support these efforts.

Charles: We have strong governance and supply chain control in place and we take appropriate action awareness theory, including limiting and all terminating cells.

Charles: to certain customer in both the online and traditional trade, and we are continuously improving these conforming measures.

Charles: We also closely monitor in part of product which may be illicit or infringing our patent and we are committed to act on our own or in conjunction with your authority to prevent this product being illegally commercialized.

Charles: Our multi-category approach continues to gain momentum as we leverage the strengths of our leading brands whilst expanding the rich of our small people for you.

Charles: For nicotine powders, we are focused on responsibly building the category with thin and international markets.

Charles: Increasing category awareness and interest among legal age nicotine users is driving positive traction in a growing number of geography.

Charles: We have increased these presence year-on-year to 30 markets, including the Philippines, Mexico, several European markets as well as within duty free.

Charles: Despite still limited distribution in some market, we see continuous construction in Mexico, Pakistan, South Africa, the UK and the UK Free.

Charles: The category also continues to grow robustly in Scandinavia.

Charles: He's a proper performance, we men dynamic in Q3 and we reach profitability at product contribution level, in September on the back of excellent volume momentum and cost of good fall improvement.

Charles: Europe is at the forefront, as close spots continue to take share from this possible and we lead the category with our flagship V1 close spot system in several markets including Italy, Romania and the Czech Republic.

Charles: We are seeing good repeat purchase and regular usage within the competitive environment as we continue to build distribution and brand awareness.

Charles: I would say Europe, we are investing by life for future profitability in a number of focus market.

Charles: We are, and the way with the first stage of our IQ-3 consumer pilot in the U.S. with the launch of our B-The First Campaign in Austin, Texas.

Charles: As explained previously, the focus is on adult consumer engagement, building awareness through category and burn education in legal and smoker communities.

Charles: We do not anticipate any commercial volume in 2024.

Charles: The learning from the pilots in Austin and other cities will be used to fine-tune our approach in anticipation of the ask-a-lange of Icos Iluma, where we continue to assume an FDA authorization in H2 2025.

Charles: Finally, a brief comment on our wellness and escape business.

Charles: As we disclose in September, we have entered into an agreement to sell victory to a group and expect the transaction to close by the end of the year.

Charles: Our ownership of Victoria was important to develop the required scale and scientific expertise to advance our in-else rapid-x pipeline.

Charles: Significant progress has been made on this front, however, given that Victua Sanfic Engagement and Commercial CDMO relationship were being impacted by unwanted opposition to PMI's ownership.

Charles: We believe the overall future of Vector Ra will be better served under its new ownership.

Charles: Together with the divestment, we announce the establishment of master service agreements to support the continued development of our in-else rapidic property by plane.

Charles: Our wellness and healthcare strategy continues and we look forward to updating you on future developments, including launchers of consumer wellness products.

Charles: Moving now to combustibles where our portfolio delivered a very strong financial performance.

Charles: Net revenue grew plus 8.6% driven by 23 pricing of plus 9.7%.

Charles: This includes pricing, taken during the quarter, as we continue to focus on value maximization and was laid by markets such as edgy, Turkey and Germany.

Charles: As covered earlier, this drove a very robust plus 8.7% increase in gross profit.

Charles: With better than expected pricing of plus 8.8% on the year today basis, we now forecast fully approaching of plus 8.2 plus 9%.

Charles: Siegfried Volumes were resilient as global industry trends remain benign.

Charles: As I touch on earlier, this can be lovely attributed to markets where smoke free products are not allowed or are early in their development, as well as impact of significant industry for and geopolitical factors on global illicit trade in a number of markets.

Charles: Our cigarette category share grew by plus 0.1 points into 3 and yet to date.

Charles: Both Malboro and our overall global brands achieved their IS quality share since the 2008 pin-off with the corresponding positive impact on value share.

Charles: yeah

Charles: As announced last week, there has been some long awaited progress towards the resolution of the decade or cigarette-related litigation claims in Canada.

Charles: Our Canadian affiliate Airbnb H was decomposed in 2019 after entering the mediated CCW process.

Charles: The Mediators' proposed plan would enter a settlement of around 23.5 billion dollars for the industry, payable from cash and cash equivalent in Canada and future combustible profit in Canada.

Charles: The reconciliation of AirBH Financial Result after the plan is implemented, would be subject to the final term of the proposed plan and US gap.

Charles: We estimate reconciliation would be incremental to PMI cash and cash equivalent, cash flow and adjusted EBDA, adjusted operating income and adjusted EPS number.

Charles: I directed to last week's press release for further details.

Charles: Moving now to sustainability, we are making continuous from progress towards our product transformation targets, including on access to smooth-free products.

Charles: I was moved to the product and now available in 92 markets, placing us on track for our application of Android by 2025.

Charles: As a remainder, there remain a notable number of markets where smooth free products are not yet available due to regulatory constraints, which is the case of ETA tobacco, make a close to one fifth of industry volume, excluding China, as covered at our invested day last year.

Charles: We are also moving nicely towards our objective for low and middle income countries to comprise over 50% of smoke-free product market.

Charles: Our efforts to increase access to smoke free products are specific to legal age nicotine user and tackling underage nicotine use is a critical area of focus.

Charles: We are encouraged by the result of the U.S. 2024 National Youth Tobacco Survey, which reported use usage of nicotine pouches, remained very low at less than 2% with no statistically significant change year-on-year despite the strong growth of the overall category.

Charles: The Treasurer can only be achieved through responsible stewardship of the category, and we are committed to continue driving standards in new success prevention through a multi stakeholder approach.

Charles: Addressing our company's environmental impact is another key pillar of our sustainability strategy.

Charles: We are working towards carbon neutrality in our direct operation, including certification of all our manufacturing facility as carbon neutral.

Charles: Here today, we certified four additional sites, bringing us to a total of 52%.

Charles: We have concrete plans for the remainder of our footprint in order to achieve the 100% aspiration by 2025.

Charles: Additionally, we are progressing with the alliance for what the stewardship stand-up, certifying one additional factor in year-to-date to places at 86% against our goal of 100% by 2025.

Charles: Combining our ongoing initiatives to address our environmental impact with robust and rigorous reporting processes, we believe we are well prepared for upcoming reporting requirements, including the EU Corporate Society report in directives.

Charles: so

Charles: Okay, turning out to our outlook for the full year.

Charles: Following this stronger and expected year-to-date performance, we are raising our fully-evolution, organic set growth, organic, oil growth, and bottom-line currency-neutral and U.S. dollar-forker.

Charles: First two volumes, where we target record, organ growth and increase our outlook to plus two to plus 3% total shipment progression.

Charles: Within this, we continue to expect adjusted IMS H-2U volume growth of around plus 13%. And shipment volumes of around 140 billion.

Charles: This forecast continues to assume an impact from the EU characterizing Flavaban of just over 2 billion units and no volumes in Taiwan where we continue to await regulatory approval.

Charles: For U.S. Zen, we forecast shipment volume at the upper end of our prior guidance in the range of 570 to 580 million cans, reflecting the progress made on capacity expansion as well as continued from demand.

Charles: Our outlook also factors in robust combustible performance driven by a resilient total category as produced outside.

Charles: Given the combination of strong volume is with the accelerator pricing and continued smoke remix, we are increasing our forecast organic net revenue rose to around plus 9.5%.

Charles: This includes strong double-gid organic growth in smoke-free nets with a new and should result in close to $15 billion in total for the year.

Charles: With the impact of this improved top-line performance, coupled with icodes and thin operating leverage and further cost efficiency. We now also raise our forecast adjusted organic OI growth to plus 14 to plus 14.5% for the year.

Charles: We continue to target adjusted gross margin expansion for both smoke free product and combustible and adjusted OI margin expansion for total PMI, all in both organic and their atoms.

Charles: Accordingly, we are raising our forecast for current in-utual adjusted-deluted EPA growth, to plus 14 to plus 15%, which also factors in lower than anticipated net financing cost, including higher interest income.

Charles: This translate into a range of $6.45 to $6.61, including an unsavourable currency impact of 40 cents for the year at prevailing rates.

Charles: The sixth sentence increase in expected currency, Edwin, largely reflect the same factor as Q3.

Charles: On the US dollar basis, this forecast represents very robust growth of approximately plus 7 to plus 8%.

Charles: As reflected in this forecast, we expect another Robert delivery in Q4, despite a more challenging top-line comparison on the mix of shipments between categories.

Charles: We also target another quarter of adjusted growth and operating margin expansion, including a planning increase in commercial investment behind our smoke rebrands.

Charles: Q4, let's find financing costs are likely to be sequentially higher, notably given the mark to market benefit in Q3 from the volatility in interest at market I mentioned earlier.

Charles: Our expectation for stronger trading cashflow of around 11 billion dollars for the year are unchanged.

Charles: And factoring in the most recent currency move, we know target 0.3 0.4 time improvement in our net debt to adjusted EBD ratio in 2024.

Charles: This places us well on track for our target ratio of a long to time by the end of 2026, with bybacks to be considered subject to what approval, once we are within sight of this

Charles: In conclusion, we delivered another outstanding quarter, reflecting the strong underlying momentum of our business, coupled with our proactive step to support superagross in the latter.

Charles: We are delivering on ultimatrics with best-in-class volume and pricing in addition to substantial margin expansion and earning growth on both a reported and dollar basis.

Charles: We are raising our growth outlook for an exceptional 2024 with growth rate, and we are going to build our 2024-26 targets.

Charles: While the industry dynamics affecting combustible volumes may be specific to 2024, the key drivers of our growth are both structural and sustainable.

Charles: Legal Edsmoker are looking for smoke free alternatives and we are building strong and profitable premium brands with ICOs, ZIN and VIEV to lead the smoke free category.

Charles: As we continue our book for a full sum of free transformation, we have significant further opportunity both in the US and internationally.

Charles: Importantly, we raised our dividend in September for the 17th successive year in line with our progressive policy.

Charles: We retain a strong and growing Keshe nation profile, which enables both to invest in long-term growth and the capacity for substantial shoulder returns.

Charles: Thank you very much for your attention and we are now very happy to answer your questions.

Speaker Change: As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.

Speaker Change: To withdraw your questions, please press star 1-1 again.

Speaker Change: Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from Bonnie Herzog with Goldman Sachs, your line is open.

Bonnie Herzog: All right, thank you. Hi, Emmanuel, hope you're well. Good morning, good night.

Bonnie Herzog: I have a question on I go. So I wonder if you could maybe comment a little bit further on the expected volume trajectory for I go, you know, ship and volume growth did to celebrate to the

Bonnie Herzog: High Signal Digit Range in Q3 from, you know, double digit history. So I know there were some timing impacts and seasonality, but could you maybe update us a little bit further on, you know, that in the quarter, then maybe how that will reverse in Q4. And then also hoping for more color on volume, I could find that is an East Asia, which is also decelerated just, you know, the drivers of that and whether you expect shipments to improve in the region in Q4.

Speaker Change: Chobony with pleasure and you're giving me the opportunity to maybe be back on the fact that when you look at Icos I really urge you to watch at the in-market cell, the adjusted in-market cell, which is the best proxy we can have from consumer of tech.

Speaker Change: And on that indicator, the good news was the confirmation of the re-acceleration that we were expecting and we had been flagging the fact that we were expecting Accelerator momentum on ICOs in H2 And we are in teaching that in our Q3 adjusted in market sales

Speaker Change: because we are almost at 15%, you are asking the question about East Asia. Actually, Japan delivered again a run 14% of adjusted in market sales.

Speaker Change: So, the market for Icos women, extremely dynamic, you know, despite the fact that we have, of course, already close to 30% market share, but we continue with strong double digit and that's what the very good news.

Speaker Change: What happened in Q3 to explain the acceleration is, as I said, continued very strong dynamism in Japan, by the way South Korea is also doing well and I think we are showing the number in Seoul where we are nicely going the market share.

Speaker Change: Then there was a reacceleration in Europe and I know that we receive a lot of questions, you know, okay, how confident can you be in the fact that Europe is going to reaccelerate? We knew that we were going to this transition phase.

Speaker Change: for the flavor ban. And we see the market progressively exiting the description of the ban with the reacceleration. Italy was, of course, during the short quarter the country with the reacceleration. And that was nice to see Italy clearly restarting on the very strong foot the growth on ICOs. And we resume WG growth on adjusted AMS in Europe in Q3.

Speaker Change: And then you have a number of other markets in the world and I would say we see momentum here building up which is very good news for the future. I could mention of course Indonesia, Saudi Arabia, Mexico, I think you know, you know.

Speaker Change: I mean, we should remember of market where there is a new procedure, but Egypt has been known for.

Speaker Change: More than a year I was gross.

Speaker Change: Where we see real momentum emerging behind Icos.

Speaker Change: with, of course, we're just at the beginning, so a lot of potential but that is very encouraging on the fact that we have nice growth relay outside Japan and EU for the future. So that's really what we've seen in Q3. Now you have the question on the shipment. Well, we've been flagging the fact that shipment would be a trajectory, would be disconnected from the consumer of tech. [inaudible]

Speaker Change: We had some very strong growth in the first two quarter, which was notably driven by comparison year on year. There was, of course, a red seed disruption that generated some shipment in the first part of the year. And therefore, today we have shipment that are a bit lower for the third quarter than the M.

Speaker Change: that the adjusted IMS and we're just if you want to hear for the nine months.

Speaker Change: oh

Speaker Change: Going to a situation where, gradually we are equalizing adjust to the imes.

Speaker Change: and the shipment. So that's what we are seeing. And in Q4, we're going to be with more equalization because we're going to be facing two elements. The first one regarding the red C disruption, we're going to have some reversal in Q4 so that we play negatively on the shipment. And we also are facing some icons last year as we are building inventory. [inaudible]

Speaker Change: to prepare the transition for the flavor ban in Europe . So that's a high constant amount of shipment last year. But at the end of the day, you should expect adjusted IMS and shipment, you know, through a certain period to evolve in parallel way. And as we said, we continue to expect for Q4, a renewed momentum on a consumer of tech or what we call adjusted in market sales, which is really what matters, that's what's important because that's that's what is talking about the else of ICOs.

Speaker Change: Okay, all of that makes sense and it's really helpful. Thank you. And then maybe a second question on then. So, you know, the supply constraints appear to be easing, which is great. So just wanted to confirm. A manual that you are on track to fully restore supply levels this quarter or is there a chance, you know, this bleeds into maybe early next year. And then when it happens, you know, how, how quickly do you expect then to recapture some of the last market share? And just curious what role will, you know, potential stuff to promote play. I guess if at all, how are you thinking about that? Thank you.

Speaker Change: Sure, on Zimbany.

Speaker Change: We said someone in 24 we will have the supply to the market meeting consumer demand.

Speaker Change: which clarifies again doesn't mean that we will have fully been replenishing all level of inventory here at that point.

Speaker Change: We believe for what we can assess of the consumer demand, that what we bring to the trade will correspond to what the consumer will take from the trade. We buy from the trade.

Speaker Change: But then they will certainly be and you know I'm not able to tell you when it's going to happen during this quarter, but I think we are seeing this perspective then but that's probably more for 2025 there will be a replenishment of the out of stock situation and we will gradually, but that's going to happen and we gradually, probably, 2025, put back the level of inventory to what it should be normally and that certainly will take some months as we continue to increase the capacity.

Speaker Change: Remember, we said that for the full year 2025, we are targeting an overall capacity of around 900 million can. Of course, that is a capacity that we are going to build gradually to be there at the beginning of the year. And I would say the replenishment and being back to a fully normal situation is going to happen only gradually through 2025. And of course, you know, when we can be more specific about that, we will be more specific with the topic.

Speaker Change: So that's for supply, when it comes to regaining share, so what we see is that

Speaker Change: In fact, when the availability of Zinn went down, we've seen the categories flowing down because obviously it's seen that a number of buyer of Zinn are not intending to buy another brand and therefore when they don't find their Zinn, they are made it fully using or consuming something else.

Speaker Change: But that probably has been slowing down a bit the category.

Speaker Change: We will see how we regularly recover. We've seen in the second part of the Q3.

Speaker Change: Assuming movements sequentially on our market share, which

Speaker Change: is good news. We believe that we have some positive outlook as we regain the availability for the product, but it's difficult to be more specific than that at that stage.

Speaker Change: Thank you, and our next question comes from the Raw of Jane with Bartleys, your line is open.

Speaker Change: Hi, good morning, Emmanuel. Hope you all going, girl.

Speaker Change: A couple of questions from me, to just looking at the cigarette markets internationally, you know, you're pricing, guidance, you have increased to 8 to 9% and yet volumes are positive. The factor that you're mentioning, why volumes are so strong, which is lack of a decrease in Brazilian turkey, lack of smuggling property from, you know, Russia, Belarus, all these countries, they should continue in FY25. So shouldn't then FY25 also be a pretty strong year for cigarette volumes and price. And internationally, and within that, can you also touch on if there are any disruptor excise tax hike happening in the next few months.

Speaker Change: Thank you for your question, so...

Speaker Change: I don't want to end now into commenting in 2025 and of course in due course we'll share with you all the outlook for the year. I think what we are seeing in 24 is well identified. We talk about a number of markets where smoke free products are not allowed. Sometimes you have increasing the prevalence, sometimes you have demographic that are tumbling positively for the consumption of cigarettes. Let's go ahead.

Speaker Change: I think India is a clear market when it comes to demographic for instance. And it's difficult to say how long all that is going to play and what's going to be the continuation of this trajectory. I think we need to be a bit cautious on the outlook, but it's true that I cannot say that everything will finish on the 31st of December 24, so we don't know what's going to be the trajectory in 25. What is certainly good is to see that we are able to actually grow volume, grow share of segment and at the same time increase price in a very dynamic manner which is.

Speaker Change: A tribute to the strengths of our brand and it's true that the 9.7% in Q3 was a remarkable price increase. Don't take that for Q4 as a guidance, but that was very good in Q3. And that shows that in this category we've been clear on our objective, which is really to maximize the performance on combustible in order to accompany and help.

Speaker Change: the fastest transition to smoke-free. I think this strategy on combustible is working and delivering.

Speaker Change: And remember, we also said that in 2025 we expect a number of positive solutions for combustible cigarettes when it comes to cost of goods where we will have a lower level of headwinds

Speaker Change: So there will be a continuation of price increase in the future without doubt.

Speaker Change: Neva Zaleth, don't take the A to 9 as the guidance for the future. We always said that we were more mid-Sigal DJ to know on the medium term. And we should see less Edwin on cost of wood, which is probably good for the combustible cigarette profitability.

Speaker Change: On exercise tax, at that stage, there is nothing...

Speaker Change: Really matter your, I can report, I would say...

Speaker Change: for additional discussion, but we're still a bit early, you know that many, many decisions are made in November, it's not in December. So probably we'll know more at the end of the year, but so far I would say nothing specific or unusual to flag.

Speaker Change: Thank you. And my second question is on your e-cigarette comments. So what you told us is that you have shipped 1.2 billion Essex here to date. If I understand correctly, I using the conversion factor with one ml is 10 sticks. And if I assume one pod is 0.7 ml, then you are shipping 160 million pods. So that will suggest that your e-cigarette revenue is under 300 to 400 million dollars at which your contribution they feel breakeven. So am I ballpark correct and all these numbers I have done.

Speaker Change: Yeah, I can say the concerns that one milliliter equals to 10 cigarettes, that's the equivalence. And I would say that Bolparks, you know, I'm not going to consume exactly, but you're not million miles away from the reality on volumes. On revenue, I won't comment.

Speaker Change: Short, thank you so much. Thank you.

Speaker Change: Thank you.

Speaker Change: For our next question comes from Faham Big with UBS, your line is a bit.

Speaker Change: Hi, Emmanuel, James, thanks for taking my questions, a couple from me, please.

Speaker Change: I want to start with vapor, particularly because one of your peers highlighted that in Europe , vapor is seeing greater success in sort of fully converting smokers than heated tobacco. In several markets. And the second question.

Speaker Change: goes back to nicotine pouches in the US. I noted in your prepared remarks you've also seen some illicit products coming into the market, some that may be infringing your patents. Could you think this will differ from the current environment we see in vapor in the US please?

Speaker Change: Sure, with pleasure. So, on a greater success from vaping in commenting smoker, we don't see any of that.

Speaker Change: The experience is very different. It's quite obvious that versus it not burn eating a liquid, which has not tobacco is delivering a very, very different.

Speaker Change: Experiences and I think all markets are pointing to the fact that

Speaker Change: There is clearly a much, much higher and much better condition from smokers.

Speaker Change: To it not burn them too vaping and I think the success of Icos is brightly illustrating that I have to say and let's come back on the performance on Icos.

Speaker Change: I don't think we are really seeing an acceleration in the adoption of

Speaker Change: vaping, vaping market, vaping category is impacted

Speaker Change: Today by many, many regulation, evolution of potential evolution, we know that one of the problems of the vacant category is that you have a responsible player going for.

Speaker Change: Fancy Flavour, you know, an acceptable marketing interview that can generate.

Speaker Change: and the range consumption that can be creating some disruption. We know that Motably is a disposable category as been generating some of that. But if you look at what we can assess of the legal age, an equity user, I don't think that we can report any acceleration that would be meaningful from vaping.

Speaker Change: Regarding the nicotine pouch in the US and your question on what we do.

Speaker Change: Can you first allow me a general comment?

Speaker Change: I think that...

Speaker Change: PMI

Speaker Change: is at the forefront, at the very forefront.

Speaker Change: when it comes to fighting illicit trade.

Speaker Change: and that is true for the U.S. that is true everywhere in the world.

Speaker Change: We commit huge resources.

Speaker Change: I mean, investment in fighting illicit trade, working with authorities, regulators in many countries to do that and for us it's a very, very important battle, a very important fight. So, the US make no exception and yes, when we are aware of illicit, when we are aware of product infringing potentially our patent.

Speaker Change: We are acting. I think that in my remarks, I signal some of the things that we do. You know, when we identified sources that are potentially outside the US, we could go to even, you know, terminating cells to these sources. I said it. We are working with distributor. It can be, you know, informing, creating the awareness for a listed product, writing to distributor. It can be sending seeds and this is later to distributor retail where we see an issue. And we do that on our own or working with a regulator, as I said, in the US, like everywhere in the world. So you can be sure that we take that extremely seriously.

Bonnie Herzog: Thanks, Emmanuel. Thank you very much.

Speaker Change: Thank you.

Speaker Change: As a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. Again, that is star 1-1 to ask a question.

Speaker Change: Our next question comes from Priya O'Rea Gupta with Parklace, your line is noob.

Speaker Change: Hi, Emmanuel, thank you so much for squeezing me. Just two quick ones for me. First, it does look like you modestly, sure.

Speaker Change: took down the top end of your potential delivery.

Speaker Change: for this year by a little bit, so if you could address sort of what drove that and then secondly.

Speaker Change: You do have a fairly sizable amount of materties over the course of 2025. Any thoughts on polling some of that recent answer?

Speaker Change: and sing for word in...

Speaker Change: You um...

Speaker Change: and remainder of the year just given where markets are.

Speaker Change: Thank you.

Speaker Change: Yeah, we're taking this question with pleasure. So on the, uh...

Speaker Change: Slightly and very modestly narrowing the guidance for delivering, it's because of the Eurostrengths at the end of September.

Speaker Change: that was because as you know we have

Speaker Change: Significant part of the debt in Euro and therefore in the Euro is going over this dollar that can have a kind of one of element Because we always have this discrepancy between an EBIT

Speaker Change: that is calculated on an average rate for the year. When the debt is going to be calculated on the spot on the 31st of December. So we'll see where we land, but the trajectory is clear and you may have seen that at the end of...

Speaker Change: The third quarter, we have generated a cash flow of 8.2 billion dollars.

Speaker Change: and that is simply 2.3 billion above the cash flow generation at the end of Q3, 2020, 3. So we are highly generating cash.

Speaker Change: Of course, you know, on the back of a very strong momentum in the business.

Speaker Change: But that's that we use.

Speaker Change: Yeah, I'm certainly going to discard the previous video for us to be active on the refinancing market in the coming months.

Speaker Change: I'm not going to elaborate on that and we have a number of options that are open to us.

Speaker Change: But you can be sure that we are already working on how to put in place the best refinancing again in the coming months for PMI.

Speaker Change: Great, thank you so much.

Speaker Change: Thank you.

Speaker Change: Thank you. Our next question comes from Garov Jane with Barkley's, your line is open.

Speaker Change: Hi, you know, just a follow up on the Canadian litigation settlement. Would these payments be tax deductible? And what, when do you think, you know, something final will happen in this long women sort of cold case?

Speaker Change: Thank you, Gorav, on the Caninely Tigation, so you have what we can say at the stage in our press release that we have issued last week.

Speaker Change: It's too preliminary and as I said I'm not able to tell you whether it's going to be tack deductible, of course as soon as we know

Speaker Change: We will let you know, but for the time being I'm not able to say and as you may have seen in our release where we shared what we can share that stage, there are still a number of elements in this.

Speaker Change: Proposed solution put on the table by the mediators to be to be finalized. And of course once we have the final terms, we'll come back to you with this answer of course. But also, you know, all the questions I'm going to be the impact for PMI of the final settlement.

Speaker Change: Thank you so much. Thank you.

Speaker Change: Thank you.

Speaker Change: I'm showing you no further questions at this time, I would now like to turn it back to James Bushnell for closing remarks.

James Bushnell: Thank you for joining us today. Please reach out to the investor relations team if you have any follow up questions. I'm wishing you a good rest of the week and only season. Look forward to sticking you to soon. Thank you. Have a good day.

Speaker Change: Good day, and thank you for standing by.

Speaker Change: Welcome to the Philip Morris International Inc. 2024, third quarter results conference call.

Speaker Change: At this time, we'll participants are in a listen only mode.

Speaker Change: After the speaker's presentation, there will be a question and answer session.

Speaker Change: To ask a question during the session, you will need a press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised.

Speaker Change: Do a draw your question, please press star 1-1 again.

Speaker Change: Please be advised that today's conference is being recorded.

Speaker Change: Oh, now I like to hand the conference over your speaker today, James Bushnell, Vice President of the Investor Relations and Financial Communications. Please go ahead.

James Bushnell: Welcome, thank you for joining us.

Speaker Change: Earlier today, we issued a press release containing detailed information on our 2024 third quarter results.

James Bushnell: The press release is available on our website at pmy.com

James Bushnell: A glossary of terms, including the definition for smoke-free products, as well as adjustments, other calculations and reconciliation to the most directly comparable US gap measures for non-gap financial measures cited in this presentation, are available in exhibit 99.2 to the company's 4-mate K dated on today's date and on our Investor Relations website.

James Bushnell: Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements.

Speaker Change: It is now my pleasure to introduce Emmanuel Babeau, our Chief Financial Officer over to you, Emmanuel

Emmanuel Babeau: Thank you, James and welcome everyone.

Emmanuel Babeau: Following an excellent first ask, we delivered another outstanding performance in Q3.

Emmanuel Babeau: Olki elements of the business perform at or above expectations driving strung double digit organic top and bottom line growth margin expansion and a significant acceleration in adjusted deleted earning pressure growth in dollar terms.

Emmanuel Babeau: As expected, both Icos and Zine accelerated on the sequential basis.

Emmanuel Babeau: I close delivered a significant step-up in HTU adjusted IMF's volume in Q3, which is historically a quarter impacted negatively by seasonality.

Emmanuel Babeau: This reflects the strong and allowing momentum of the business with adjusted IMS close to plus 16% of head versus prior year with another very strong performance from Japan, re-accelerating momentum in Europe and promising results from a number of global markets.

Emmanuel Babeau: We continue our efforts to increase US production capacity in response to strong demand, enabling stabilization of share performance followed by sequential improvement throughout the quarter.

Emmanuel Babeau: This led to a significant increase in sequential U.S. volumes with over 40% year on your growth despite capacity constraint.

Emmanuel Babeau: I would say the U.S. nicotine pouch can volumes grew by close to 70%.

Emmanuel Babeau: Our combustible business also accelerated to high-single-digit net revenue and gross profit gross.

Emmanuel Babeau: Led by further very strong pricing, resilient volume and the benefit of our collections.

Emmanuel Babeau: Our overall Q3 performance epitomized the soundness of our strategy with underlying momentum across categories with strong volumes, pricing and smoke remix supported by coast efficiency measures.

Emmanuel Babeau: With double digit growth in both adjusted operating income and diluted earning per share in currency neutral and dollar terms, we are raising our full year guidance.

Emmanuel Babeau: Turning now to the Edeline Financials for Q3. We delivered excellent organic revenue growth of plus 11.6% driven by shipman rolling growth of plus 2.9% positive smoke-free category mix and pricing.

Emmanuel Babeau: The combination of these positive top line performance with the additional favorable smoke remix impact on profit and ongoing cost efficiencies An able us to achieve growth of plus 13.8% in organic operating income and plus 18% in currency neutral adjusted diluted earning pressure.

Emmanuel Babeau: This excludes an unfavorable currency impact of six cents, notably due to weakness in the Egyptian pound, Argentine peso and the strong Swiss frank, partly offset by the Japanese yen.

Emmanuel Babeau: Despite the currency at win, our proactive measures on pricing and accelerated cost initiative drove plus 11.2% dollar gross in adjusted operating income and plus 14.4% dollar gross in adjusted-deleted earning pressure to record $1.91.

Emmanuel Babeau: This better than expected earnings delivery were effected ICOs and the in-shipment volume at the IRN of our expectation and a very strong combustible performance.

Emmanuel Babeau: In addition, we benefited from a lower net financing cost, including increased interest income, as well as mark-to-market gains on derivatives that we use to manage the currency profile of our debt, driven by interest rate volatility.

Emmanuel Babeau: Combined with an excellent H1, this yields an impressive plus 17.2% year to date.

Emmanuel Babeau: Currency neutral growth in adjusted-deleted earnings per share with double-digit organic top-line growth and 190 basis points of organic opposing income margin expansion.

Emmanuel Babeau: including currency, we delivered adjusted earning per share gross of close to plus 8% which is a testament to our continued focus on delivering strong performance in the late hours.

Emmanuel Babeau: Let's turn to the two three financial performance by category with both sides of the business producing excellent results.

Emmanuel Babeau: Smoke re-net revenue and growth profit grew organically by plus 16.8% and plus 20.2% respectively, driving 200 the biggest point of growth margin extension.

Emmanuel Babeau: This reflect a robust icons performance in the quarter, including manufacturing productivities, as well as the continued accretion of Zinn and a small but growing contribution from Zeef.

Emmanuel Babeau: Smokery goes margins, where more than 450 basis points higher than combustible in Q3 and more than 200 basis points higher here today.

Emmanuel Babeau: Conversable Networking New and Growth Profit Growth Accelerated almost plus 9% organically.

Emmanuel Babeau: Computable Gross Margin, improved by plus 10 basis points organically and by plus 20 basis points in dollar term, marking the second quarter of expansion following a challenging 2023.

Emmanuel Babeau: We continue to target combustible gross margin expansion for the year inorganican.r terms, as cost pressure, including the impact of the EU single-use plastic directive, are more than offset by pressing and ongoing cost initiatives.

Emmanuel Babeau: Tocusing now on volumes we are well on track for our fourth consecutive year of volume growth. Our business delivered a remarkable performance of around 3% total shipment growth, both into 3 and year to date with all categories and all four regions growing over both periods.

Emmanuel Babeau: Q3HTU adjusted IMF growth of plus 14.8%, reflect the underlying dynamism of our icos business with the continued strong performance in Japan and a re-acceleration in Europe as expected.

Emmanuel Babeau: Q3HTU Shipments of 35.3 billion units, where at the upper end of our expectation, with a superior adjusted in-market says goals compared to shipments due to shipment phasing as I lighted in H1.

Emmanuel Babeau: Our All Smoke Rebusiness Group 2, 3 shipment volume by plus 22.2%, within powering US growth of plus 41.4% and very strong international performance.

Emmanuel Babeau: I will leave Evpe Business, exhibited continued volume momentum in the quarter, reaching the equivalent of 1.2 billion units on yet-to-date basis.

Emmanuel Babeau: Q3 cigarette shiftments grew by plus 1.3%. Outpacing the total estimated international cigarette industry, excluding China and the US at plus 0.5%.

Emmanuel Babeau: The unusually resilient industry performance this year reflects growing volume in market where smoke free products are not permitted.

Emmanuel Babeau: Such as Turkey, India and Brazil, alongside a reduction in illicit volume in a number of markets driven partly by geopolitical factors.

Emmanuel Babeau: Our growth includes notable contributions from Turkey, India, and Italy, and reflect good category share performance despite robust pricing.

Emmanuel Babeau: Our exceptional Q3 revenue performance reflected our three structural pillars of top line growth, volume, pricing and smoke-free mix shift.

Emmanuel Babeau: Building on our very robust volume growth, pricing contributed plus 7.5 points of growth.

Emmanuel Babeau: This was powered by storm combustible pricing of plus 9.7%.

Emmanuel Babeau: Plus 3% pricing for ICO's HTUs and a notable contribution from ZIN.

Emmanuel Babeau: The positive mixing practice of our smoke free business delivered plus 1.4 points despite the strong growth of combustible, given the iron net revenue per unit of both Icos and Z.

Emmanuel Babeau: As in prior quarters, geographic mix was negative, but to a lesser degree, as growth step up in Europe and the US.

Emmanuel Babeau: The year-to-date net revenue drivers were very similar with double digit organic topland growth, built on positive volumes, smoke free category mixed, of more than plus 2 points and stone pricing.

Emmanuel Babeau: Turning to operating income, we delivered impressive Q3organic margin expansion of plus 90 basis points and plus 110 basis points in dollar terms.

Emmanuel Babeau: Gross margin increase organically by 80 bezis points and by plus 70 bezis points in dollar terms.

Emmanuel Babeau: This was again driven by our Iron Margin smoke-free business, pricing and ongoing productivity savings across the value chain.

Emmanuel Babeau: Moving now to Esjanae [inaudible]

Emmanuel Babeau: Despite the planned step-up in commercial activity, our organic cost evolution was essentially in line with top-line growth, with plus 40 basis points of margin expansion in adjusted the alarm system, supported by cost efficiency actions.

Emmanuel Babeau: As previously communicated, we target an organicking increase in S.G.N.A. below the rate of nature of new growth for the year. While still supporting our smoke for expansion with continued commercial investments.

Emmanuel Babeau: We delivered an incremental $180 million in gross cost efficiencies in Q3, reaching almost $490 million a year today, with initiatives notably focused on manufacturing and back-of-risk cost.

Emmanuel Babeau: While only the first year, we are progressing nicely towards our 24-26 target of $2 billion in growth savings.

Emmanuel Babeau: On the yet-to-date basis, our adjusted operating in the margin of evolution was also very positive with plus 190 bezis point organic hismansion and plus 40 bezis point in the latter.

Emmanuel Babeau: We are well set to meet our fully objective of expansion on both basis.

Emmanuel Babeau: Turning now to our icos business, which is celebrating the 10 year anniversary of its first launches in Japan and Italy.

Emmanuel Babeau: Icos is the world leading smoke free product generating over 10 billion dollars in annual net revenues

Emmanuel Babeau: Notwithstanding the incredible growth and success of the brand over the time, there is a very substantial growth runway over the coming years as more of the world's 1 billion legal etchmoker switched to better alternatives.

Emmanuel Babeau: Indeed Robert Gross continues his year.

Emmanuel Babeau: We spoke last quarter about our expectation for the strong H2 delivery, we continued use of Roswell Mentum supported by our commercial programs, including Evans to celebrate the 10 year milestone.

Emmanuel Babeau: As expected, Q3 momentum accelerated with plus 14.8% year-on-growth in HTU adjusted IMS and a very substantial sequential step-up of 1.8 billion unit versus Q2, which is especially impressive in a quarter that is typically negatively impacted by seasonality.

Emmanuel Babeau: This reflect a return to double-gid growth in Europe, a continued excellent trajectory in Japan, and further acceleration from our global markets.

Emmanuel Babeau: We expect further strong roads into four.

Emmanuel Babeau: The success of FICO is built on technology, commercial capabilities, brand building and innovation on both devices and consumables.

Emmanuel Babeau: Following the successful launch of the Icos Illuma Eye device in Japan earlier this year, we are expanding the rollout to more markets including Italy, Greece, Portugal, Romania and Switzerland.

Emmanuel Babeau: focusing now on ICOs in Europe. I am pleased to report a Q3 re-acceleration in adjusted in markets as gross to plus 11.3% following a slower Q2 progression.

Emmanuel Babeau: This includes the resumption of growth in market passing through the adjustment phase of the characterizing flavor ban.

Emmanuel Babeau: The majority of EU-HTU volume is now covered by the van and we observe a return to robust growth in markets such as Greece, Romania and Portugal.

Emmanuel Babeau: Following the stronger than expected initial impact in Q2, we are pleased to report positive volume momentum in Italy. This was supported by the launch of recent HQ variants, including our mainstream price offering Delia and Tobacco-free Libya, jointly accounting for close to 7% of Italy's HQ of tech 3 months from launch.

Emmanuel Babeau: In addition, we see excellent momentum in markets such as Germany, Spain and the UK and increasingly balanced growth across markets overall regardless of eco-spinutrition.

Emmanuel Babeau: Regional Q3 adjusted HTU share with a by 0.8 point year on year to 9.5%.

Emmanuel Babeau: And modestly lower sequentially due to the typical impact of seasonally higher combustible volume in the summer.

Emmanuel Babeau: HTU adjusted IMF's volumes, which 13.2 billion units on the 4-quarter moving average, maintaining our eye share of the category with robust sequential growth.

Emmanuel Babeau: Looking at our kisiti of tech shares in Europe, we see continued rapid progress in the last number of cities.

Emmanuel Babeau: An increasing number are posting rows of over 2 points year on year, which is the most meaningful comparison given seasonal factors.

Emmanuel Babeau: Particularly the college include better past, Athens, Bratislava, Bucharest, London and Amsterdam.

Emmanuel Babeau: Turning now to Japan, we delivered our A's consecutive quarter of double digit progression with adjusted HTO IMF growth of plus 14%, reaching 10.9 billion units on the four-quarter moving average.

Emmanuel Babeau: Our commercial programs continue to drive meaningful results with innovation on devices and consumable, propelling a plus 3.2 point market share increase to 29.8% into 3 and surpassing the landmark of 30% in September.

Emmanuel Babeau: This includes the impact of the Icosiluma I device, which was launched in Q1 and delivered an ends consumer satisfaction.

Emmanuel Babeau: As soon on the previous slide, I caused HTO of textures in TCTs such as Tokyo, continued to advance rapidly. We have previously flagged that Tokyo of texture for the overall, it not done category, which 50% early as is here.

Emmanuel Babeau: This is also now true in eight cities, overall, including Yokohama, Kawaiki, Sondai and Fukuoka, with several other rapidly approaching the same much thought.

Emmanuel Babeau: This is a positive sign of the enduring growth potential in a market with already eye penetration.

Emmanuel Babeau: Taking a more global view, we continue to see very good growth across a number of global markets, as I lighted by a key city of texture.

Emmanuel Babeau: This includes cities in Saudi Arabia, Mexico and Egypt, where Cairo, which close to 10% share.

Emmanuel Babeau: of texture of more than 5% in Jakarta is indicative of the strong acceleration in Indonesia as we continue our geographic and portfolio expansion including the growing offer of closed area HTO variants.

Emmanuel Babeau: Finally, I would like to call out duty-free, where the ongoing travel recovery combined with the strength of our multi-category portfolio delivered dynamic growth with Zine and VIEV, increasingly offered alongside ICOs.

Emmanuel Babeau: Moving now to Zinn, the number one U.S. 목ry brand continued to see very strong underlying momentum.

Emmanuel Babeau: As flag produced, we are working to progressively increase our production volumes, and this was reflected in a sequential acceleration to 149 million cans shipped in 23.

Emmanuel Babeau: As we continued working through this supplied constraint, the incategories share stabilized and then with you growth on a sequential basis through the quarter despite a further 50 cent per least price increase taken at the start of September.

Emmanuel Babeau: We continue to expect shipments to match consumer demand at some point during the fourth quarter.

Emmanuel Babeau: While goaging the level of underlying demand is not an exact science in the current circumstances. Our promotional and commercial activity has naturally been lower as we prioritize meeting existing consumer needs overgrowing the legal age user base from other liquiding categories.

Emmanuel Babeau: We're on going a fourth to increase our U.S. production capacity to around 900 million can for the full year of 2025 And significant expansion beyond 2025 from our planned new facility in Colorado We believe we are well positioned to capture the in-spotential over the coming years

Emmanuel Babeau: We remain committed to driving industry standards in under 21 prevention with policies and initiatives designed to prevent use access.

Emmanuel Babeau: Our robust US marketing code prohibits social media influencers and we refuse request for such partnership.

Emmanuel Babeau: All our own products website use Edge Verification Technology and we partner with Ricard and Pro Edge to support Edge Restriction Check for retail sales.

Emmanuel Babeau: Overall, we are encouraged by the result of our efforts which I'll come back to.

Emmanuel Babeau: Combating trade in illicit tobacco and nicotine products remain a top priority and we dedicate a significant level of resources to support these efforts.

Emmanuel Babeau: We are strong governance and supply chain control in place and we take appropriate action awareness theory including limiting and all terminating cells to certain customer in both the online and traditional trade and we are continuously improving this control measures.

Emmanuel Babeau: We also closely monitor in part of product which may be illicit or infringing our patent and we are committed to act on our own or in conjunction with your authority to prevent this product being illegally commercialized.

Emmanuel Babeau: Our multi-category approach continues to gain momentum as we leverage the strengths of our leading brands whilst expanding the rich of our smoke creeper for you.

Emmanuel Babeau: For nicotine pouches, we are focused on responsibly building the category with thin and international markets.

Emmanuel Babeau: including category awareness and interest among legal age nicotine user is driving positive traction in a growing number of geography.

Emmanuel Babeau: We have increased the incidence year-on-year to 30 markets, including the Philippines, Mexico, several European markets as well as within duty free.

Emmanuel Babeau: Despite still limited distribution in some market, we see continuous construction in Mexico, Pakistan, South Africa, the UK and the UK.

Emmanuel Babeau: The category also continues to grow robustly in Scandinavia.

Emmanuel Babeau: He's a proper performance, we men dynamic in Q3 and we reach profitability at product contribution level in September on the back of excellent volume momentum and cost of good fall improvement.

Emmanuel Babeau: Europe is at the forefront as close spots continue to take share from this possible and we lead the category with our flagship V1 close spot system in several markets including Italy, Romania and the Czech Republic.

Emmanuel Babeau: We are seeing good repeat purchase and regular usage within the competitive environment as we continue to build distribution and brand awareness.

Emmanuel Babeau: I would say Europe, we are investing in my life for future profitability in a number of focus market.

Emmanuel Babeau: We are, and the way with the first stage of our IQ-3 consumer pilot in the U.S. with the launch of our B-The First Campaign in Austin, Texas.

Emmanuel Babeau: As explained previously, the focus is on adult consumer engagement, building awareness through category and burn education in legal and smoker communities.

Emmanuel Babeau: We do not anticipate any commercial volume in 2024.

Emmanuel Babeau: The learning from the pilots in Austin and other cities will be used to fine-tune our approach in anticipation of the ask-a-lange of Icos Illuma, where we continue to assume an FDA authorization in H22025.

Emmanuel Babeau: Finally, a brief comment on our wellness and healthcare business.

Emmanuel Babeau: As we are disclosing September, we have entered into an agreement to sell victory to a group and expect the transaction to close by the end of the year.

Emmanuel Babeau: Our ownership of Victoria was important to develop the required scale and scientific expertise to advance our in-else rapidics pipeline.

Emmanuel Babeau: Significant progress has been made on this front, however, given that Victo-Azansik engagement and commercial CDM or relationship were being impacted by unwanted opposition to PMI's ownership. We believe the overall future of Victura will be better served under its new ownership.

Emmanuel Babeau: Together with the divestment, we announce the establishment of Master Service Agreements to support the continued development of our in-else rapidic property by-pline.

Emmanuel Babeau: Our wellness and healthcare strategy continues and we look forward to updating you on future developments, including launchers of consumer wellness products.

Emmanuel Babeau: Moving now to combustibles, where our portfolio delivered a very strong financial performance.

Emmanuel Babeau: Net revenue grew plus 8.6% driven by 2.3 pricing of plus 9.7%.

Emmanuel Babeau: This includes pricing, taken during the quarter, as we continue to focus on value maximization and was laid by markets such as Egip, Turkey and Germany.

Emmanuel Babeau: As covered earlier, this drove a very robust plus 8.7% increase in gross profit.

Emmanuel Babeau: With better than expected pricing of plus 8.8% on the year-to-date basis, we now forecast fully appricing of plus 8.2 plus 9%.

Emmanuel Babeau: Sieger Edward Williams were resilient as global industry trends remain benign.

Emmanuel Babeau: As I touch on earlier, this can be largely attributed to markets where smoke free products are not allowed or are early in their development, as well as impact of significant industry for and geopolitical factors on global illicit rate in a number of markets.

Emmanuel Babeau: Our cigarette category share grew by plus 0.1 points into 3 and yet to date.

Emmanuel Babeau: Both Malboro and our overall global brands achieved their IS quality share since 2008's Pinoff, with the corresponding positive impact on value share.

Emmanuel Babeau: As announced last week, there has been some long awaited progress towards the resolution of the decade or cigarette-related litigation claims in Canada.

Emmanuel Babeau: Our Canadian affiliate RBH was decomposed in 2019 after entering the mediated CCW process.

Emmanuel Babeau: The mediators' proposed plan would enter a settlement of around 23.5 billion dollars for the industry, payable from cash and cash equivalent in Canada and future combustible profit in Canada.

Emmanuel Babeau: The reconciliation of AirBH Financial Result after the plan is implemented would be subject to the final term of the proposed plan and USGAP.

Emmanuel Babeau: We estimate reconciliation would be incremental to PMI cash and cash equivalent, cash flow and adjusted EBDA, adjusted operating income and adjusted EPS number.

Emmanuel Babeau: I direct you to last week's press release for further details.

Emmanuel Babeau: Moving now to sustainability, we are making continuous from progress towards our product transformation targets, including on access to smooth-free product.

Emmanuel Babeau: I was moved free products are now available in 92 markets placing us on track for our aspiration of Android by 2025.

Emmanuel Babeau: As a remainder, there are notable number of markets where smooth free products are not yet available due to regulatory constraint, which is a case of heated tobacco, make a close to one fifth of industry volume, excluding China, as covered at our invested last year.

Emmanuel Babeau: We are also moving nicely towards our objective for low and middle income countries to comprise over 50% of smoke-free product market.

Emmanuel Babeau: Our efforts to increase access to smoke-free products are specific to legal age nicotine user and tackling underage nicotine use is a critical area of focus.

Emmanuel Babeau: We are encouraged by the result of the US-2024 National Youth Tobacco Survey, which reported use usage of nicotine pouches, remained very low at less than 2% with no statistically significant change year on year despite the strong growth of the overall category.

Emmanuel Babeau: The Treasurer can only be achieved through responsible stewardship of the category and we are committed to continue driving standards in new success prevention through a multi-stakeholder approach.

Emmanuel Babeau: Addressing our company's environmental impact is another key pillar of our sustainability strategy.

Emmanuel Babeau: We are working towards carbon neutrality in our direct operation, including certification of all our manufacturing facility as carbon neutral.

Emmanuel Babeau: Here today we certified four additional sites bringing us to a total of 52%.

Emmanuel Babeau: We have concrete plans for the remainder of our footprint in order to achieve the 100% aspiration by 2025.

Emmanuel Babeau: Additionally, we are progressing with the Alliance for Water Stewardship Thunder, Certifying one additional factor in year-to-date to places at 86% against our goal of 100% by 2025.

Emmanuel Babeau: Combining our ongoing initiatives to address our environmental impact with robust and rigorous reporting processes, we believe we are well prepared for upcoming reporting requirements, including the EU Corporate Society of Reporting Directives.

Emmanuel Babeau: Okay, turning out to our outlook for the full year.

Emmanuel Babeau: Following this stronger than expected year-to-date performance, we are raising our fully-evolume, organic set growth, organic ore growth, and bottom-line current in your soul, and U.S. dollar forecast.

Emmanuel Babeau: First two volumes, where we target record, organ growth and increase our outlook to plus 2 to plus 3% total shipment progression.

Emmanuel Babeau: Within this, we continue to expect adjusted IMFHC U volume growth of around plus 13%. And shipment volumes of around 140 billion.

Emmanuel Babeau: This forecast continues to assume an impact from the EU characterizing flavor ban of just over 2 billion units and no volumes in Taiwan where we continue to await regulatory approval.

Emmanuel Babeau: For U.S. Zinn, we forecast shipment volume at the upper end of our prior guidance in the range of 577 to 580 million cans, reflecting the progress made on capacity expansion, as well as continued from demand.

Emmanuel Babeau: Our outlook also factors in robust combustible performance driven by a resilient total category as produced outside.

Emmanuel Babeau: Given the combination of volume is with the accelerator pricing and continued smoke remix, we are increasing our forecast organic net revenue rose to around plus 9.5%.

Emmanuel Babeau: This includes strong double-gid organic growth in smoke-free nets with a new and should result in close to $15 billion in total for the year.

Emmanuel Babeau: With the impact of this improved supply and performance coupled with ICOs and the operating leverage and further cost efficiency. We now also raise our forecast adjusted organic OI growth to plus 14 to plus 14.5% for the year.

Emmanuel Babeau: We continue to target adjusted gross margin extension for both smoke free product and combustible and adjusted OI margin extension for total PMI, all in both organic and their atoms.

Emmanuel Babeau: Accordingly, we are raising our forecast for current neutral adjusted diluted EPS gross to plus 14% to plus 15%. Which also factors in lower than anticipated net financing cost, including higher interest income.

Emmanuel Babeau: This translate into a range of $6.45 to $6.51, including an unsavourable currency impact of 40 cents for the year at prevailing rates.

Speaker Change: The sixth-sentimentary increase in expected currency, Edwin, largely reflect the same factor as Q3.

Speaker Change: On the U.S. dollar basis, this forecast represents very robust growth of approximately plus 7 to plus 8%.

Speaker Change: As reflected in this forecast, we expect another Robert delivery in Q4, despite a more challenging top-line comparison on the mix of shipments between categories.

Speaker Change: We also target another quarter of adjusted growth, and operating margin expansion, including a planning increase in commercial investment, behind our smoke rebrands.

Speaker Change: Q4, let's find financing costs. I like it to be sequentially higher. Notably given the mark to market benefit in Q3 from the volatility in interest at market I mentioned earlier.

Speaker Change: Our expectation for stronger trading cashflow of around 11 billion dollars for the year are unchanged. And factoring in the most recent currency move, we know target a 0.3, 0.4 time improvement in our net debt to adjusted EBD ratio in 2024.

Speaker Change: This places us well on track for our target ratio of a long to time by the end of 2026, with bybacks to be considered subject to what approval, once we are within sight of this

Speaker Change: In conclusion, we delivered another outstanding quarter, reflecting the strong underlying momentum of our business, coupled with our proactive step to support superagross in the latter.

Speaker Change: We are delivering on ultimetrics with best-in-class volume and pricing in addition to substantial margin expansion and earning growth on both a reported and dollar basis.

Speaker Change: We are raising our growth outlook for an exceptional 2024 with growth rate, both our 2024-26 targets.

Speaker Change: Why the industry dynamics affecting combustible volumes may be specific to 2024. The key drivers of our growth are both structural and sustainable.

Speaker Change: Legal Edsmoker are looking for smoke-free alternatives and we are building strong and profitable premium brands with ICOs, VIM and VIEV to lead the smoke-free category.

Speaker Change: As we continue our program for some of the information, we have significant further opportunities, both in the US and internationally.

Speaker Change: Importantly, we raised our dividend in September for the 17th successive year in line with our progressive policy.

Speaker Change: We retain a strong and growing cash donation profile, which enables both to invest in long-term growth and the capacity for substantial shoulder returns.

Speaker Change: Thank you very much for your attention and we are now very happy to answer your questions.

Speaker Change: As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.

Speaker Change: To withdraw your questions, please press star 1-1 again.

Speaker Change: Please stand by while we compile the Q&A roster.

Speaker Change: Our first question comes from Bonnie Herzog with Goldman Sachs, your line is open.

Bonnie Herzog: All right, thank you. Hi, Emmanuel, hope you're well. I'm going in goodnight.

Bonnie Herzog: I have a question on ICOs. I wonder if you could maybe comment a little bit further on the expected volume trajectory for ICOs. Ship and volume growth did decelerate to the high single digit range in Q3 from, you know, double digit history. So I know there were some timing impacts and seasonality. But could you maybe update us a little bit further on, you know, that in the quarter than maybe how that will reverse in Q4. And then also hoping for more color on volume ICOs that is in East Asia, which is also decelerated just, you know, the drivers of that and whether you expect shipments to improve in the region in Q4.

Speaker Change: Chobony with pleasure and you're giving me the opportunity to maybe be back on the fact that when you look at Icos I really urge you to watch at the in-market cell, the adjusted in-market cells, which is the best proxy we can have from consumer of tech.

Speaker Change: and on that indicator the good news

Speaker Change: was the confirmation of the re-acceleration that we were expecting and we had been flagging the fact that we were expecting accelerated momentum on ICOs in H2. And we are indeed seeing that in our Q3 adjusted in market sales.

Speaker Change: because we are almost at 15%, you are asking the question about East Asia, actually Japan delivered again, around 14% of adjusted in market sales.

Speaker Change: So, the market for Icos women, extremely dynamic, you know, despite the fact that we have, of course already close to 30% market share, but we continue with strong double digit and that's what the very good news.

Speaker Change: What happened in Q3 to explain the acceleration is, as I said, continued very strong dynamism in Japan, by the way South Korea is also doing well and I think we are showing the number in Seoul where we are nicely going the market share.

Speaker Change: Then there was a reaction in Europe and I know that we receive a lot of questions, you know, okay, how confident can you be in the fact that Europe is going to react accelerate? We knew that we were going to this transition phase for the flavor ban and we see the market progressively exiting the disruption of the ban with the react acceleration. Italy was, of course, during the third quarter the country with the with the react acceleration and that was nice to see Italy clearly restarting on the very strong food, the growth on ICOs and we resume double-get growth on adjusted AMS in Europe into through.

Speaker Change: And then you have a number of other markets in the world, and I would say we see momentum here building up which is very good news for the future. I could mention of course Indonesia, Saudi Arabia, Mexico, I think, you know,

Speaker Change: EAU as well. I mean, we see a number of markets where there is, and of course, EG, but EG doesn't know for more than a year with growth. Where we see real momentum emerging behind ICOs, with of course, you know, we're just at the beginning so a lot of potential. But that is very encouraging on the fact that we have nice growth relay outside Japan and EU for the future. So that's really what we see in Q3. Now you have the question on the shipment. Well, we've been flagging the fact that shipment would be a trajectory would be disconnected from the consumer of take.

Speaker Change: We had some very strong goals in the first two quarter, which was a notably driven by a comparison year-on-year. There was, of course, the Red Sea disruption that generated some shipment in the first part of the year. And therefore, today we have shipment that are a bit lower for the third quarter than the...

Speaker Change: the DIAG, adjusted IMS and we're just if you want to hear for the nine months.

Speaker Change: Ohri,

Speaker Change: Going to a situation where, gradually, we are equalizing adjust to the imes.

Speaker Change: and the shipment. So that's what we are seeing. And in Q4, we're going to be with more equalization because we're going to be facing two elements. The first one regarding the Red Sea disruption, we're going to have some reversal in Q4, so that would play negatively on the shipment. And we also are facing some icons last year as we're building inventory.

Speaker Change: to prepare the transition for the flavor ban in Europe . So that's a high constant term of shipment last year. But at the end of the day, you should expect adjusted IMS and shipment through a certain period to evolve in parallel way. And as we said, we continue to expect for Q4, a renewed momentum on a consumer of tech, or what we call adjusted in market sales, which is really what matters, that's what's important because that's what is talking about the else of ICOs.

Speaker Change: Okay, all of that makes sense and is really helpful. Thank you. And then maybe a second question on then. So, you know, the supply constraints appear to be easing, which is great. So just wanted to confirm the menu that you are on track to fully restore supply levels this quarter or is there a chance, you know, this bleeds into maybe early next year. And then when it happens, you know, how, how quickly do you expect then to recapture some of the last market share and just curious what role will, you know, potential stuff to promote play. I guess if at all, how are you thinking about that. Thank you.

Speaker Change: Sure, on Zing Beni.

Speaker Change: We said someone in two four, we will have the supply to the market meeting consumer demand.

Speaker Change: which clarifies again doesn't mean that we will have fully been replenishing all level of inventory here at that point.

Speaker Change: We believe for what we can assess of the consumer demand, that what we bring to the trade, we'll correspond to what the consumer will take from the trade. We'll buy from the trade.

Speaker Change: But then they will certainly be and you know I'm not able to tell you when it's going to happen during this quarter but I think we are still in this perspective then but that's probably more for 2025 there will be a replenishment of the out of stock situation and we will gradually but that's going to happen you know gradually probably through 2025 put back the level of inventory to what it should be normally and that certainly will take some months as we continue to increase the capacity.

Speaker Change: Remember, we said that for the full year 2025

Speaker Change: We are targeting an overall capacity of around 900 million can. Of course that is a capacity that we are going to build gradually to be there at the beginning of the year. And I would say the replenishment and being back to a fully normal situation is going to happen only gradually through 2025. And of course, when we can be more specific about that, we will be more specific with the topic.

Speaker Change: So that's for supply, when it comes to regaining share, so what we see is that

Speaker Change: In fact, when the availability of Zinn went down, we've seen the categories flowing down because obviously it's seen that a number of buyer of Zinn are not intending to buy another brand and therefore when they don't find their Zinn, they are made it fully using or consuming something else.