Philip Morris International Q4 2024 Earnings Report

Philip Morris International EPS Results

• Actual EPS: $1.55
• Consensus EPS: $1.49
• Beat/Miss: Beat by +$0.06
• One Year Ago EPS: N/A

Philip Morris International Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $9.54 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Philip Morris International Announcement Details

• Quarter: Q4 2024
• Date: 2/6/2025
• Time: Before Market Opens
• Conference Call Date: Thursday, February 6, 2025
• Conference Call Time: 9:00AM ET

Philip Morris International (NYSE:PM) operates as a tobacco company working to delivers a smoke-free future and evolving portfolio for the long-term to include products outside of the tobacco and nicotine sector. The company's product portfolio primarily consists of cigarettes and smoke-free products, including heat-not-burn, vapor, and oral nicotine products primarily under the IQOS and ZYN brands; and consumer accessories, such as lighters and matches. It also offers wellness and healthcare products. Philip Morris International Inc. was incorporated in 1987 and is headquartered in Stamford, Connecticut.

Philip Morris International Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good day, and thank you for standing by. Welcome to the Philip Morris International Fourth Quarter twenty twenty four and Full Year Results Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, James Bushnell, Vice President of Investor Relations and Financial Communications.

[Operator]

Please go ahead.

[James Bushnell, VP, IR and Financial Communications at Philip Morris International]

Welcome. Thank you for joining us.

[James Bushnell, VP, IR and Financial Communications at Philip Morris International]

Earlier today, we issued a press release containing detailed information on our twenty twenty four fourth quarter and full year results. The press release is available on our website at pmi.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 for non GAAP financial measures cited in this presentation are available in Exhibit 99.2 to the company's Form eight K dated 02/06/2025, and on our Investor Relations website.

[James Bushnell, VP, IR and Financial Communications at Philip Morris International]

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. I'm joined today by Jacek Olcak, Chief Executive Officer and Emmanuel Babaut, Chief Financial Officer. Over to you, Jacek.

[Jacek Olczak, CEO at Philip Morris International]

Thank you, James, and welcome, everyone. We delivered an outstanding performance in 2024 with all key elements of the business contributing strongly to deliver best in class organic top and bottom line growth. This resulted in significant acceleration in adjusted diluted earnings per share growth in both currency neutral and equally importantly dollar terms as we mitigated substantial currency headwinds. Our business outperformed the industry and consumer packaged goods overall with growth across all categories to deliver our fourth consecutive year of positive volumes. IQOS continued its strong underlying momentum with continued excellent growth in Japan, robust progress in Europe despite the EU characterizing flavor ban and further strong growth in other global markets.

[Jacek Olczak, CEO at Philip Morris International]

Importantly, the growth of IQOS is increasingly profitable as the benefits of scale and pricing more than offset continued substantial growth investments, including brand building activities and innovations on devices and consumables. ZYN once again delivered strong growth in The U. S. As 2023 demand acceleration continued in 2024. This resulted in short term supply challenges, which we have progressively addressed throughout the year, working towards our goal of matching existing user demand.

[Jacek Olczak, CEO at Philip Morris International]

As we unlock further capacity, we will be in a position to explore the full potential of this dynamic category. Outside The U. S, shipments grew by 75% as we increased our global presence in new Cotton pouches to 37 markets. In e vapor, Veep is progressively contributing to growth with encouraging volume momentum in closed spots and strengthening market position with a premium offer. Our combustible business performed well on all metrics.

[Jacek Olczak, CEO at Philip Morris International]

We delivered double digit gross profit growth in quarter four of last year and around 7% organically for the year, led by strong pricing, resilient volumes in certain markets and the ongoing benefits of our cost actions. Overall, our strong performance across all categories and regions drove meaningful operating leverage, notably in our smoke free business, alongside cost efficiency initiatives across the entire value chain. This enabled us to deliver operating cash flow and adjusted diluted EPS above our expectations at the start of the year despite ongoing currency and input cost headwinds. Our transformation journey and growth drivers have excellent momentum and we are confident in our ability to deliver sustainable growth and returns in 2025 and beyond. Over the past year, we achieved several key milestones in our smoke free journey, including the ten year anniversary of IQOS and ZYN.

[Jacek Olczak, CEO at Philip Morris International]

Our smoke free business is large, profitable and growing fast. Our total smoke free net revenues reached almost $15,000,000,000 in 2024. Combined with a strong combustible performance, our company also surpassed $10,000,000,000 in adjusted net earnings for the first time. Our smoke free business reached 40% of total PMI net revenues in the fourth quarter and around 42% of adjusted gross profit as our transformation becomes increasingly profitable. In our top five markets by operating income, around 60% of net revenues were smoke free.

[Jacek Olczak, CEO at Philip Morris International]

We have deployed our smoke free multi category strategy across almost half of the 95 markets with smoke free products and we closed the year with over 38,500,000 estimated adult users across hypnot burn, oral and e vapor. Our smoke free business surpassed 1,000,000,000 cans, including six forty four million cans of nicotine pouches. The ZYN brand continues to resonate with adult nicotine consumers across The U. S, where it is the number one smoke free brand and the fourth biggest nicotine brand and also Groz International. We are also very pleased that the robust science and responsible marketing practices behind ZYN were recognized by FDA through the recent marketing authorization of all currently commercialized U.

[Jacek Olczak, CEO at Philip Morris International]

S. ZYN variants, making ZYN the first and the only authorized nicotine pouch brand in The United States. We remain at the forefront of the effort to increase understanding of smoke free products and advanced tobacco harm reductions among consumers and regulators. We are encouraged by the increasing number of governments adopting tobacco harm reduction policies to incentivize switching to reduced nicotine product instead of continuing to smoke, which is a sound public health policy. A number of markets are also moving favorably with regards to robust regulation of nicotine pouches and de vapor.

[Jacek Olczak, CEO at Philip Morris International]

Now regretfully, there is also resistance in many places, often driven by ideology not facts and science and therefore a considerable amount of work is stealing from the vast. While reaching important milestones is pleasing, after ten years, we are still in the early stages of industry transformation. With our strong brands and our innovative and commercial capabilities, we have many years of opportunities and growth ahead. I look forward to sharing more with you at the upcoming CAGNY conference on February 19. I will now hand over to Emmanuel to discuss our results and outlook in more detail.

[Emmanuel Babeau, CFO at Philip Morris International]

Thank you, Jacek. I will start with the headline financials for the year. As Jacek said, this was a truly outstanding year of growth across our business as the rapid progress of IQOS and U. S. ZYN was complemented by emerging growth contribution from Veave and ZYN internationally and much improved combustible performance.

[Emmanuel Babeau, CFO at Philip Morris International]

We delivered in line or above our last communicated expectation across key metrics. Organic net revenue growth of plus 9.8%, adjusted IMS and shipments of HTUs and combustible pricing of plus 8.7% were strong. Excellent total shipment volume growth of plus 2.9% including ZYN and combustible volumes performed at the top end of our expectation. Coupled with accelerated cost efficiencies, this led to better than expected plus 14.9% organic operating income growth and plus 15.6% currency neutral adjusted diluted earnings per share growth. Our clear focus on delivering performance in dollar terms was reflected in the plus 9.3% growth in adjusted diluted EPS.

[Emmanuel Babeau, CFO at Philip Morris International]

As a result, we achieved record operating cash flow of $12,200,000,000 which was significantly above both our initial and most recent forecast supported by excellent profit delivery and favorable working capital. Combined with strong adjusted EBITDA, this allowed us to significantly improve our leverage ratio, which I'll come back to later. We closed the year strongly in Q4 with organic net revenue growth of plus 7.3 despite the impact of timing and comparison effect, most notably related to Red Sea disruption, the EU characterizing flavor ban for HTUs and pre launch ILLUMA I device shipments. This was driven by total volume growth of plus 2.3% alongside positive smoke free mix and robust pricing. Combined with operating leverage and manufacturing efficiencies, we delivered close to plus 12% organic operating income growth and plus 10% currency neutral adjusted diluted EPS growth.

[Emmanuel Babeau, CFO at Philip Morris International]

In dollar terms, adjusted operating income increased plus 15% and adjusted diluted earning per share grew plus 14 to $1.55 This includes a positive currency impact of $0.06 which reflects an unfavorable transactional impact in the prior year in Argentina as well as a move to hyper inflationary accounting in Egypt, which also had a negative impact on our organic growth of around one point on net revenues and two points on operating income. The non cash impairment of our RBH equity investment had no impact on our adjusted financials. In future, we may benefit from RBH dividend income, but we do not include any impact in our twenty twenty five forecast at this time. Let's take a step back and consider 2024 in the context of the last few years. Our organic top line delivery has been consistently strong since the pandemic and further accelerated this year as both Smokefree Product and Combustables stepped up their trajectory.

[Emmanuel Babeau, CFO at Philip Morris International]

Clearly, 2024 was also a standout year for adjusted diluted EPS goals. The profitability of our Smokefree business accelerated due to the operating leverage of FICO's increasing scale, favorable unit economics, pricing, efficiency and the impressive accretion from ZYN's rapid growth at superior U. S. Margins. We also benefited from a notably robust combustible performance, which provide important structural support for our transformation journey.

[Emmanuel Babeau, CFO at Philip Morris International]

These dynamics are further demonstrated by the organic top line and gross profit growth of both categories in the year. Our Smokefree business accelerated to plus 17% net revenue growth and plus 23% gross profit growth, reaching close to $10,000,000,000 in gross profit. This drove an impressive plus three thirty basis points of organic gross margin expansion fueled by the factors I just mentioned. On the combustible side, net revenue and gross profit grew organically by plus six percent and plus 7% respectively, leading to plus 60 basis points of organic gross margin expansion. Our combustible business is once again contributing positively with pricing and cost efficiency more than compensating for the third year of significant input cost headwinds, which we expect to ease in 2025.

[Emmanuel Babeau, CFO at Philip Morris International]

I would also note that adjusted gross margin for Smoke Free Products were plus four ninety basis points higher than combustible in Q4 and plus two seventy basis points higher for the year overall at 66.6%. While we continue to target gross margin expansion in combustible, we expect this gap to grow over time as we continue to drive profitable growth from smoke free product, while investing in new market, brand building and innovation. Taking a closer look now at our volume performance, we delivered our fourth consecutive year of shipment growth, up plus 2.3 in the fourth quarter and close to plus 3% for the full year. Including our VeVe e vapor business in equivalent unit, this growth was plus 2.4% and plus 3% respectively. Our total 2024 smoke free volume growth including Veave, was plus 13.5% or 19,000,000,000 unit equivalent, an acceleration compared to 2023.

[Emmanuel Babeau, CFO at Philip Morris International]

For IQOS, we delivered HTU adjusted in market sales growth of close to 13% and shipment volumes of EUR 139,700,000,000.0, both broadly in line with our expectation. Adjusted IMS growth accelerated in H2 to close to 14%, essentially in line with our target of plus 14% to plus 15%. This includes dynamic growth of close to plus 11% in Europe with strong momentum across the large majority of markets. As I touched on earlier, Q4 HTU shipment growth includes the impact of additional shipment in the prior year to prepare for the EU characterizing flavor ban and the phasing effect of additional shipment to Japan in H1, notably due to Red Sea disruption. Our oral smoke free business grew twenty twenty four shipment volume by plus 24.6%, including ZYN's U.

[Emmanuel Babeau, CFO at Philip Morris International]

S. Growth of plus 51% to five eighty one million cans. Snuff and moist snuff volumes were stable. Cigarette shipments grew by plus 0.6%, approximately in line with the estimated growth of the international industry. The growth of the cigarette market can be largely attributed to growth in markets where small free products are not permitted, such as Turkey, Brazil and India.

[Emmanuel Babeau, CFO at Philip Morris International]

Excluding such markets, we observe a low single digit decline, consistent with historic trends. Our strong full year top line growth of almost plus 10% was again achieved through a combination of volume growth, pricing and the positive mix impact of the shift to smoke free product. Pricing contributed plus 6.2%, reflecting almost plus 9% combustible pricing and plus 2% for smoke free product.

[Emmanuel Babeau, CFO at Philip Morris International]

Smoke free also drove a positive mix impact of plus 1.9% due to the higher net revenue per unit of both IQOS HPE and VIN. Overall smoke free product contributed plus 2.2% to overall group top line growth for the year, demonstrating ZYN's role as a meaningful accelerator to our performance. As in prior years, geographies was negative primarily due to combustible, but to a lesser degree given robust net revenue growth in Europe. Moving down to adjusted operating margins, we delivered full year organic expansion of plus 180 basis points and plus 100 basis points in dollar terms, comfortably achieving our objective of expansion on both basis. This reflects 1Q4 with OI margin expanding organically by plus 140 basis points as gross margin expansion outweighed SG and A investments.

[Emmanuel Babeau, CFO at Philip Morris International]

Full year gross margin increased organically by plus 160 basis points and by plus 120 basis points in dollar terms. SG and A grew plus 20 basis points of margin expansion enabled by cost efficiency action despite significant reinvestment and commercial support behind our small business and U. S. Capabilities, especially in HP. We delivered over $750,000,000 in gross cost efficiency for the year, which caused productivity across smoke free and combustible and continued back office savings.

[Emmanuel Babeau, CFO at Philip Morris International]

This places us well on track for our twenty four-twenty six target of $2,000,000,000 Focusing on our smoke free business. We grew our estimated user base by over 5,000,000 people in 2024 to reach approximately 38,600,000 legal edge users as of December 20 This includes an estimated 32,200,000 IQOS users, 5,700,000 overall users and 1,000,000 BLEEP users. I am pleased to report robust IQOS user growth of plus 3,400,000 versus prior year and plus 1,500,000 during H2. This growth is broad based and consistent with recent years despite limited new market opening and the easy characterizing further bank. Overall, added plus 1,500,000 users year on year, driven by ZYN's continued contraction with legalized nicotine continuing in The U.

[Emmanuel Babeau, CFO at Philip Morris International]

S. Despite supply constraints. Zooming in now on IQOS. All user momentum is reflected in adjusted IMS volume with 2024 growth of over 15,000,000,000 units, in line with the prior year despite the impact of the EU level band. This growth is also in line with the five year average and more than 1,000,000,000 units above, while excluding contributions from markets launched in the current or preceding year.

[Emmanuel Babeau, CFO at Philip Morris International]

Importantly, following the rollout of IQOS cinema and with the increasing scale of the business, the profitability of IQOS is growing strongly. We illustrate this here with the index product contribution over time at constant return rate. As we've explained before, the outcome cost of the business to consumer operation results in declining infrastructure plus per user over time as the user count grows in the market. This is a dynamic we expect to continue in the future. Turning to IQOS in Europe.

[Emmanuel Babeau, CFO at Philip Morris International]

As expected, HTU adjusted IMF growth accelerated strongly in HT to almost plus 11% following H1 progression of around eight percent. This resulted in robust plus 9.4% growth overall for the year despite the significant disruption of the characterizing level band. This double digit adjusted AMS growth in HP was driven by strong progress in a large number of markets, including growth of around 20% or more in markets such as Bulgaria, Greece, Germany, Romania and Spain, while growth was less dynamic in Poland, Czech Republic and Italy. Recovery in Italy is ongoing following the disruption of the silver band, although at a slightly slower pace than expected in Q4. The continued momentum in the region drove Q4 adjusted share growth of plus 0.9 points year on year to 10.6% with adjusted IMS volume reaching 13,500,000,000 units on a four quarter moving average.

[Emmanuel Babeau, CFO at Philip Morris International]

Q4 shipment volume increased by plus 6% against the prior year comparison, which included additional volumes related to the implementation of the laser band, notably in Italy. The laser band is now active in all but fixed EU markets with a generally consistent pattern of short term disruption followed by a return to the pre band growth trajectory. Following an impact of around 2,000,000,000 units in 2024, we expected a 2025 impact of around 1,000,000,000 on both segments and IMS including annualization effect with the most prominent effect in the first quarter of twenty twenty five. We also continue to roll out the IZUMA I device and new considerable volumes such as DILIA and VIVEA to more markets, providing an increasing choice of test profile and price points for this network. Looking at our key city of TechShares in Europe, we reached a number of important milestones with Budapest achieving over 40% share, Rome over 30% and London approaching 10% with Madrid not far behind.

[Emmanuel Babeau, CFO at Philip Morris International]

Japan delivered outstanding results yet again with HTU adjusted IMS growth of close to plus 13% in both the quarter and the full year to reach an adjusted Q4 share of 30.6% plus 3.1 points higher year on year. This was supported by continuous share growth of Tera and Cynthia as well as a positive fraction of the IQOS FilumR I device as we reach over 9,500,000 adult users. Pertek share in Tokyo for the overall insulin category reached 52.8 in December

[Emmanuel Babeau, CFO at Philip Morris International]

with

[Emmanuel Babeau, CFO at Philip Morris International]

the addition of Shizuoka and Amamatsu to make 10 cities and five perfectures exceeding the 50% share threshold. On a national off-site basis, 47% of the total industry is now more free. Outside of Europe and Japan, adjusted in market sales growth continued to grow strongly in Q4. Promising growth in a number of markets is illustrated by TCP shares in Saudi Arabia, Indonesia and Mexico. Continuous innovation is a key driver of this growth with Tera Fuel variant and capsule in Indonesia driving an uplift in the quarter and some good initial results from the trial of bonds, our lower tier offering.

[Emmanuel Babeau, CFO at Philip Morris International]

IQOS continues to perform well in Cairo, though our wholesale performance was impacted by the dynamic of the combustible market, where competitor supply normalized and a very strong prior year quarter following the launch of Alcosylina. Our duty free HPE of the share increased nicely as we start to harness the strength of our multi category portfolio to drive sales of IQOS, Vee and VeeV together. Turning now to The U. S, where our IQOS will be the first campaign in Austin is progressing well, and we expect to commence direct sales of device and HPUs in our spin around the end of Q1. We are seeing high interest from consumers with over 4,000 adult smokers on our way to.

[Emmanuel Babeau, CFO at Philip Morris International]

As we learned from this initial consumer engagement, we are planning the rollout of pilots to other cities. As you know, seen our focus will be on selective adult consumer engagement and gaining awareness to category and brand education in legal edge motor community. We do not assume any significant volume from U. S. IQOS before the at play launch of IQOSILUMA, and we continue to hope for an FDA authorization in HP 2025.

[Emmanuel Babeau, CFO at Philip Morris International]

Switching categories now to ZYN, where we continued strong demand supported Q4 U. A. C. E. A.

[Emmanuel Babeau, CFO at Philip Morris International]

Shipment volume growth of plus 42% year on year to CHF165 million. Despite ongoing production limitation, this reflects an acceleration to a near record sequential increase of plus 60,000,000 tonnes versus 63. On a full year basis, shipment volumes grew by plus 196,000,000 tonnes of 2023, highlighting both the magnitude of growth and the tremendous effort made to maximize our production capacity. Wind category share incrementally improved to the second half, reaching 65.9% in Q4 as we progress in increasing production further supported the growth of the category. Indeed, category growth slowed significantly during the summer peak of our supply constraint as shown on this chart.

[Emmanuel Babeau, CFO at Philip Morris International]

As the situation started to gradually improve, zinc was again leading and outpacing the category. I am pleased to share that underlying demand for ZYN from adult consumer continued to grow in Q4 and was higher than previously as seen. We continue to experience some out of stock at retail. And while production capacity continues to increase, we now target full normalization sometime in the second half of twenty twenty five. We continue to target around 900,000,000 tons of capacity for the full year from our ten fifty facility.

[Emmanuel Babeau, CFO at Philip Morris International]

And as supply continues to improve, we will look to further extend growth beyond our existing container base to other legal entities. Our Greenfield site in Colorado is due to come online in early twenty twenty six, and we believe we are well positioned to capture this potential over the coming years. Responsible regulation of the industry is fundamental in supporting sustainable future growth for this dynamic category. We are therefore encouraged by the recent FDA authorization for the marketing and sale of all ZYN nicotine pouches currently marketed in The U. S.

[Emmanuel Babeau, CFO at Philip Morris International]

Following extensive '96 review by the agency. As mentioned, this makes ZYN the first and only authorized nicotine pouch in the market. Among several considerations was the substantially lower amount of harmful constituent versus cigarette and other smokeless tobacco products as well as currently low use use at label. The FDA's authorization marks an important step in the protection of public health by recognizing the role that zinc can play in providing better alternatives to cigarettes and other traditional tobacco products for legal age adults. We remain committed to driving industry standard in 21 prevention, this policy and initiative designed to help preventative access.

[Emmanuel Babeau, CFO at Philip Morris International]

Further, combating trade in illicit tobacco and nicotine products remain a core priority and we dedicate a significant level of resources to support this year. Zinc also has an exciting future outside of The U. S. While still in its very early stages, international retail import shipments grew by GBP 27,000,000 or plus 75%. And we already see strong volume momentum in key international markets, such as Pakistan, South Africa, Mexico, The UK and global VP3.

[Emmanuel Babeau, CFO at Philip Morris International]

We launched nicotine pouches in six new markets during the quarter to reach a total of 37 worldwide, including Italy, Romania and Thailand. Within e vapor, we continue to see strong consumer traction behind VIVE ONE. The brand holds a top three postcard position in 13 European markets and has the number one position in five, including Italy. This plays an important role within our multi category strategy as an increasingly trusted choice for small food category poly users as a source of incremental growth with improving economy. Our primary focus for the combustible business is to maximize value over time while supporting the growth of the smoke free business.

[Emmanuel Babeau, CFO at Philip Morris International]

Pricing and cost efficiency are the key levers to drive performance, while maintaining our category leadership. We delivered another robust volume quarter with growth of plus 1.1%. All regions contributed to 24% organic net revenue growth of plus 6.2% with gross profit increasing by plus 10.8%. Full year pricing of plus 8.7% included strong contribution from Germany, Egypt and Turkey. We expect organic 2025 combustible pricing to normalize to plus 5% to plus 6%, partly reflecting Egypt to higher inflationary accounting in Q4 twenty twenty four.

[Emmanuel Babeau, CFO at Philip Morris International]

Category share was flat in Q4 with positive contribution from Turkey and India, offset by decline in Egypt and Indonesia with continued growth in the below Tier one segment. On a full year basis, we grew category share plus 0.1 points, reaching all time high for both Marlboro and our global brands overall. This brings me to the outlook for 2025, where we expect another year of strong growth from all categories, driving top and bottom line delivery. We anticipate a fifth consecutive year of positive volumes with growth of up to plus 2%, notably driven by another year of strong growth in smoke free product at around plus 12% to plus 14%. For IQOS, we expect the continuation of strong momentum with the absolute growth in HPU adjusted IMS volume expected to be at the similar level to 2024, translating it to plus 10% to plus 12% growth 12% growth.

[Emmanuel Babeau, CFO at Philip Morris International]

We expect shipment growth to be broadly in line with this double digit trajectory, subject to the usual inherent volatility of shipment timing and trade inventory move. We expect ongoing strong growth dynamic within The U. S. Nicotine pouch category. Despite the supply constraints I mentioned before, we forecast a U.

[Emmanuel Babeau, CFO at Philip Morris International]

S. Zinc volume shipment range of seven eighty to eight twenty million cans for the year, supported by capacity expansion. This represents another year of substantial acceleration in volumes with an expected increase of approximately 200,000,000 to two forty million cans compared to the 196,000,000 tonnes increase in 2024. This supports the total PMI forecast of plus 6% to plus 8% organic net revenue growth. This includes a headwind of over 100 basis points due to hyper inflationary accounting in Egypt and the technical impact of implementing a new commercial model in the Indonesia below Tier one segment.

[Emmanuel Babeau, CFO at Philip Morris International]

The change in Indonesia has no effect on operating income. Moving down to the P and L, we expect ongoing smoke remix effect, operating leverage and cost efficiency to drive double digit adjusted operating growth, operating income growth of plus 10.5 to plus 12.5%. This includes strong gross profit growth with gross growth and adjusted operating margin forecast to expand in both organic and adjusted dollar terms at prevailing expense. We expect SG and A costs to increase broadly in line with net revenue on an organic basis as we invest behind our smart deposit. We forecast currency neutral adjusted diluted EPS growth of plus 10.5% to plus 12.5%.

[Emmanuel Babeau, CFO at Philip Morris International]

This factors in essentially stable net interest expense and an increase in our executive corporate tax rate to approximately 22.5 to 23.5% due to tax increases in line with OECD Global Minimum Tax and the mix of international earnings. In dollar terms, we forecast growth of plus 7% to plus 9% to a range of $7.04 to $7.17 This includes an unfavorable forecasted earnings impact of $0.22 at revenue exchange rate, primarily driven by the growth trends of the dollar mitigated by our hedging activity. For the first quarter of twenty twenty five, we expect a strong start to the year with net revenue and operating income growth, broadly in line with our full year objective despite the mid year comparison. We forecast HTU adjusted IMS growth of around plus 10%, which factors in the large annualization impact from the EU laser ban in the quarter with a progressive improvement through the year. We forecast shipment volume of EUR 35,000,000,000 to EUR 36,000,000,000 for HPUs and 170,000,000 to 180,000,000 for USD.

[Emmanuel Babeau, CFO at Philip Morris International]

We project Q1 adjusted diluted EPS of $1.58 to $1.53 including a negative currency variance of $0.04 at prevailing rates and an effective corporate tax rate two to three points higher than the prior year quarter. With our 2024 delivery and 2025 outlook, we are well positioned to meet or exceed all metrics of the twenty twenty four-twenty twenty six staggered targets presented at our twenty twenty three Investor Day. This is especially true at the level of operating income growth as well as for EPS delivery where our algorithm assumes constant 2023 corporate tax rate. This level of top and bottom line growth reflects a best in class growth profile within the context of large cap consumer capabilities. Importantly, we're also well on track to deliver high single digit adjusted diluted EPS growth in dollar term across the twenty twenty four, twenty twenty six period at seven percent rate.

[Emmanuel Babeau, CFO at Philip Morris International]

Indeed, we measure our cash flows in dollar and after a record delivery in 2024, we expect to deliver operating cash flow of around $11,000,000,000 for 2025. This is broadly in line with 2024, once accounting for two non recurring payments with a total impact of around $1,000,000,000 While we continue to achieve the German tax surcharge case, we have decided to make a $800,000,000 payment this year and we also anticipate a final transition tax payment related to The U. S. Tax Cuts and Jobs Act. We anticipate capital expenditure of around $1,500,000,000 is the last portion of this related season as we prioritize the investment behind our gross margin perspective.

[Emmanuel Babeau, CFO at Philip Morris International]

Our strong 2024 cash flow and EBITDA growth, combined with a favorable impact from our euro balance sheet hedging, allowed us to reduce our net debt to adjusted EBITDA ratio by 0.5 times to 2.66, ahead of our expectation and representing a dramatic acceleration of our deleveraging. We expect further progress in 2025, placing us on track for our target ratio of around two times by the end of twenty twenty six. I will now turn it back to Jacek for concluding remarks.

[Jacek Olczak, CEO at Philip Morris International]

Thank you, Emmanuel.

[Jacek Olczak, CEO at Philip Morris International]

In summary, 2024 was a remarkable year for PMI. Our financial results epitomized the strength of our strategy and the success of our transformation with underlying momentum across categories bolstered by our proactive measures on pricing and cost additions. I remain confident in our position as the global smoke free champion as we continue to execute on our multi category strategy, the leading premium brands, IQOS, ZEM and ZEM. Our key strategic priorities for 2025 are clear as we continue to support the function and development of our smoky business both in The U. S.

[Jacek Olczak, CEO at Philip Morris International]

And internationally. We expect continued strong momentum in 2025 and we remain confident in our ability to deliver or exceed our twenty twenty fourtwenty twenty six growth target as we progress towards our ambition of becoming substantially small key by 2013. Finally and importantly, our strong growth output and highly cash generative business enables us to continue reinvesting in our small key transformation while we return in cash to shareholders. In September, we increased our annual dividend for the seventeenth consecutive year in line with our long term commitment. Thank you.

[Jacek Olczak, CEO at Philip Morris International]

And Emmanuel and I will be happy now to answer your questions.

[Operator]

Thank you. And our first question today comes from Matt Smith of Stifel. Your line is open.

[Matthew Smith, Director - Food & Tobacco Saint Louis at Stifel Financial Corp]

Hi, Yossik and Emmanuel.

[Emmanuel Babeau, CFO at Philip Morris International]

Good morning, Matt.

[Matthew Smith, Director - Food & Tobacco Saint Louis at Stifel Financial Corp]

The 2025 outlook calls for HTU shipments in numbers or in market sales growth fairly in line with what you saw in 2024. But could you talk about the composition of the growth? If it's overall in line, are you seeing different contribution by geography in your outlook? And can you remind us on if there has been any progress in new markets contributing to growth in 2025? Or if you've made any progress in those markets as you look out to your 2026 goals?

[Matthew Smith, Director - Food & Tobacco Saint Louis at Stifel Financial Corp]

Thank you.

[Jacek Olczak, CEO at Philip Morris International]

Now, so in the guidance, we essentially continue seeing good growth in Japan and in the number of parts in Europe. I mean, Emmanuel mentioned about the Italy, Czech Poland, right, when the growth is a bit below what we would expect at this stage, especially Italy and Czech following the flavor to ban. But we also see that there is some recovery coming in. So I think hopefully in the second part of the year, we should bring Italy and other geographies at par to what the rest of the Europe is going through. And we have not in the guidance assume any significant new market opening in terms of the volume.

[Jacek Olczak, CEO at Philip Morris International]

As you know, we've been ahead in my remarks. I mean, we're dealing with this rational world, fighting with the rational world. I hope that the most recent authorizations of FDA following the authorizations of HIT NOT BIRG, now the pouches will be a good incentive or encouragement by other governments, which to be very frank, stupidly oppose smoke free products while allowing cigarettes. But in the guidance, we have not put any significant volume coming from the new geography. So this is all organic growth.

[Jacek Olczak, CEO at Philip Morris International]

And as you could saw it in the quarter of this year, despite the fact given you do look at Japan when almost half of the market is already on a smoke free products, the growth continues there.

[Matthew Smith, Director - Food & Tobacco Saint Louis at Stifel Financial Corp]

Thank you. Yes, I'll pass it on.

[Operator]

Thank you. Our next question comes from Bonnie Herzog of Goldman Sachs. Your line is open.

[Bonnie Herzog, Managing Director at Goldman Sachs]

All right. Thank you. Hi, Manuel and Jacek.

[Emmanuel Babeau, CFO at Philip Morris International]

Good morning, Bonnie.

[Bonnie Herzog, Managing Director at Goldman Sachs]

I had a question on your margins. You're guiding robust operating leverage on a currency neutral basis this year. So hoping you could highlight the some of the key drivers behind this. Also, sort of wanted to verify if your guidance assumes a potential entry of Alumna in The U. S.

[Bonnie Herzog, Managing Director at Goldman Sachs]

Or just possibly continued investments without any corresponding sales. And then how should we think about the margin contribution from Aluma in The U. S? And how long it might take after your entry in the market for those margins to really be meaningful?

[Jacek Olczak, CEO at Philip Morris International]

Yes. So maybe I start, Bonnie, good morning. Is that I mean, yes, we're looking for a robust margin expansion this year, maybe not precisely to the same level as we had last year, but still it's going to be robust. So I think in 100 basis points. So territory, this is what we're looking into, is that combinations of a few factors, we're still looking at the pricing contributions, pretty obvious.

[Jacek Olczak, CEO at Philip Morris International]

There's obviously positive mix, right, between the categories and especially now that we have a free smoke free categories on the positive margin path, including the vape. So we're very happy that our strategy of going selectively, but with the right impacts in the geographies that is needed, we're not leaving money behind, if you like, or margin behind. So this will contribute. And we've had in the past, as you remember, quite the headwinds coming from a COGS. And I think those have I think they are behind us, okay.

[Jacek Olczak, CEO at Philip Morris International]

Then obviously, this whole conversations these days here and there, especially coming from The U. S. About the tariffs and so on. But the way we organize our supply chain, as you know, U. S.

[Jacek Olczak, CEO at Philip Morris International]

On the zone is essentially self sufficient. Our supply chains in Europe, I mean, we organized our supply chain almost by blocks. So I don't see at this stage that there should be any surprises coming on the tariff side. So I think we're pretty confident where we'll land with the COGS for the year. There is obviously ongoing support coming from the scale of IQOS, specialty devices.

[Jacek Olczak, CEO at Philip Morris International]

When there was economy of scale, there was a robustness of the device in terms of a quality, etcetera. So we actually don't have this like in the past, a bit of a pressure on the margins coming from a device sales. So this we have well stabilized for 2024. It was behind the margin expansion. And I think we should expect the same we are expecting the same in 2025.

[Jacek Olczak, CEO at Philip Morris International]

Now your questions with regards to Illumina margins U. S, again, maybe one by one, we still expect that hopefully we will get authorization for Iconsilumab around the mid of this year. Again, on the one hand, one could read this as encouragement that after, as we said, it's total scientific, etcetera, review of FDA has gave authorizations for all variants of the I wouldn't be myself if I wouldn't comment that obviously, if something takes five years, it must be thorough because otherwise I cannot explain the length of the process. But I do hope that FDA will move faster and already I could do my spending for a while. And by the way, a few other also authorization for ZYN.

[Jacek Olczak, CEO at Philip Morris International]

So the margin story, I would repeat myself that obviously when we start adding support behind the Loma, I mean, at the initial period, it will be a negative, right? But in a scheme of the things in the P and L size, if you like, of our business in The U. S, I don't think it should be something which is that much worried. And I believe U. S.

[Jacek Olczak, CEO at Philip Morris International]

Will go in the similar path as we had on a Hypnot burn in other places. So two to three years, we should IQOS should be net net contributor to the bottom line. Bearing in mind, as always, reminding everyone that we don't really have the headwind of cannibalization, right? So we don't really we're in a better starting position. And we had a growing confidence in the Iconsilum on international, but we know where IQOSILOMA brought us on international over the last three years and that continues generating the growth user acquisition.

[Jacek Olczak, CEO at Philip Morris International]

So I believe it's really a great proposition for adult smokers in The U. U.

[Jacek Olczak, CEO at Philip Morris International]

S.

[Emmanuel Babeau, CFO at Philip Morris International]

Maybe just to complement on the margin side, Bonnie. As you can judge from our guidance, we have significant ambition in terms of margin improvement in 2025. And what is driving that is the fact that we are flying on several engine here on margin improvement and everything is coming together positively at the same time. So indeed, we have, of course, the mix evolution that is very favorable to us with smoke free product coming with higher margin and they are growing very fast.

[Emmanuel Babeau, CFO at Philip Morris International]

Among the smoke free product, we have The U. S. And ZYN that is growing even faster and which, as we already said is best in class in terms of margin. So that's obviously a plus. We're also increasing price.

[Emmanuel Babeau, CFO at Philip Morris International]

Yes, of course, we're not going to continue to deliver 8% plus price increase on combustible, but it's going to remain extremely robust. And we also have the ambition to grow our price not at the same level, but significantly on our smoke free portfolio. And then when we look at our COGS, we are working on productivity. They have scale effect that are delivering positively. And as you know, we were facing until now a significant headwind on cost, notably on the combustible business.

[Emmanuel Babeau, CFO at Philip Morris International]

This is easing. '25 should be better and 26% could be even better than 25% by the way. So we are going in the right direction there and that is making us clearly targeting nice margin improvement both organically and in the long term for '25

[Bonnie Herzog, Managing Director at Goldman Sachs]

Okay. Super helpful. And actually, I'm just going to ask a quick follow-up because you kind of touched on this, but you also mentioned this morning about targeting or you're continuing to target gross margin expansion in combustibles. And then you did say that you expect the gap to grow relative to your smoke free product gross margin. So previously, you guys have talked about, I think, a 10 gap.

[Bonnie Herzog, Managing Director at Goldman Sachs]

So as your gross margins expand on combustibles, I think what I'm hearing you say is that not only is that an opportunity, but also continued margin expansion on Smokefree is what you just mentioned. So do you foresee that gap expanding? I mean, does it go to 15 spread or could it go to 20? Just kind of trying to think through that in the next couple of years.

[Emmanuel Babeau, CFO at Philip Morris International]

Look, on the consumable, we've already highlighted the fact that there was a 10 percentage point gap. And it has been expanding in the last few years. So indeed, we have the ambition to do better on the gross margin for combustible and we explain why. But as we continue to progress also rapidly on smooth free product and both with mix effect coming from ZYN, but separately on IQOS and ZYN, we want to continue to progress. So we could have indeed a gap that could continue to expand between smoke free product and combustible in the coming years.

[Bonnie Herzog, Managing Director at Goldman Sachs]

All right. Thank you. I'll pass it on.

[Jacek Olczak, CEO at Philip Morris International]

Thank you.

[Emmanuel Babeau, CFO at Philip Morris International]

Thank you, Brian.

[Operator]

Thank you. Our next question comes from Gaurav Jain of Barclays. Your line is open.

[Gaurav Jain, Analyst at Barclays Capital]

Good morning, Gaurav and Gasset.

[Emmanuel Babeau, CFO at Philip Morris International]

Good morning, Gaurav.

[Gaurav Jain, Analyst at Barclays Capital]

Thank you for taking

[Gaurav Jain, Analyst at Barclays Capital]

my questions. Kevin, I have a couple of questions. One is on VIN. So if I look at the scatter data, your volumes have decelerated to mid teens growth and your guidance is for 34% to 41% growth. And then you also mentioned that the supply normalization would only happen in 2H twenty twenty five.

[Gaurav Jain, Analyst at Barclays Capital]

So just wanted to understand what gives us the confidence that the Southern Leasing will be accelerating to this almost 40% growth rate again?

[Jacek Olczak, CEO at Philip Morris International]

Yes. So I would take it, Gaurav. Good morning. So we look also on how the volumes were evolving in Q4 of the weeks of the last quarter. We see the growing velocities behind Zen.

[Jacek Olczak, CEO at Philip Morris International]

And actually, there was the only brand, I think, over the last few weeks, which was growing in the velocities, not the rest of the at least the big four other brands or smaller but big other brands. Look, we all also have to understand that we're reading all this data with no full supply of the supply constraint environment, right? So it's a bit difficult that you see at the retail. It depends even in which stores you're looking at that something which be significantly different than what we're shipping to the trade. But Q4, as we predicted with the increased capacity in Owensboro, we had the first quarter with the significant sequential quarter on quarter growth.

[Jacek Olczak, CEO at Philip Morris International]

Even if you will take the run rate of what we see the last weeks, etcetera, I think the guidance is somehow reflecting what we see there. Now our comments that we should we think that we should be meeting demand by about mid of this year, I have to make one reservation is that it's difficult to actually read what the demand is because we know what is the level of out of stock, we know what is the existing users of Azim demand for the product and knowing that this purchases or the purchases are somehow impacted by the fact that unfortunately, they are confronted with the lack of availability out of stock. And then is the all the positive momentum which doesn't have. I believe also the FDA authorizations, which on the one hand, one could read product was in the market, so there is no change. But actually, I think it gives a lot of visibility and stability to all the market participants, including the trade.

[Jacek Olczak, CEO at Philip Morris International]

And I believe also the consumers that the product now has the full fledged, my language, authorization in all of flavor variance. So all of these things, I think, will translate into the volumes, which we prefer projections of the volumes which will reflect it in our guidance.

[Gaurav Jain, Analyst at Barclays Capital]

Sure. And a follow-up question to that, so then clearly in supply shortage, retailers have been putting their markups. I think you increased prices at $0.3 last year while retail has increased pricing by $1 or $3.05 dollars How do you control retail price? And is there a way for you to as supply normalizes to reduce retail price so that, that will also have a positive effect on your volume?

[Jacek Olczak, CEO at Philip Morris International]

Yes. So if you have a degree of the out of stock as ZEN is experiencing, it's obviously of managing the price at the retail level is a little bit more challenging, right? I mean, it's pretty obvious. But I believe with the growing demand sorry, with the growing supply of the product, I think this pricing will come to the sums of naturally to the normalization. So I have to also admit that, look, we are very happy with the support we're getting from retailers handling our products.

[Jacek Olczak, CEO at Philip Morris International]

And it's not that easy for them also to be confronted with a product, which on the one hand has the demand. On the other hand, they cannot realize their margins and they take from a ZYN price. And I hope but again, I think that this pricing situations in the market will sort out somehow naturally the moment when the product will be in a fuller unconstrained supplier. As we said, second half of twenty twenty five, we should start seeing improvement on this.

[Gaurav Jain, Analyst at Barclays Capital]

Sure. And if I could just squeeze in one last question on ZYN Ultra. Could you just talk about that PLTA, what the product is and when do you think we can see it in the market?

[Jacek Olczak, CEO at Philip Morris International]

Yes. So obviously, as well as we all noticed, right, the ZYN authorization came essentially last days or hours of the one administration. Now I guess, we'll have to wait for the new sorry, for the new administration. Look, as I said in the answers to the questions before that I do hope that period of four or five years waiting for authorization is too much, is too long. And I do believe that there will be some I hope there will be some accelerations in the processing because of the authorizations.

[Jacek Olczak, CEO at Philip Morris International]

And we have to also understand that partially the challenge, which The U. S. Market has very much on the eWave product is by the fact that the legal part of the market has not been created. So on the one hand, FDA is doing a lot of right things in terms of law enforcement and chasing the illegal Chinese or whatever imports. But on the other hand, there is a demand among the smokers, adult nicotine users for this type of a product.

[Jacek Olczak, CEO at Philip Morris International]

And unless we create in a fast manner, the legal part of that market, and then we're essentially wasting our time and money. So I do believe that the EBITDA will take this also into considerations that this situation shouldn't happen in our product at

[Jacek Olczak, CEO at Philip Morris International]

the end. The reason if there is a demand for the product to be recognized as a better way to have an office to be developed, we also have

[Jacek Olczak, CEO at Philip Morris International]

a lease of insurance in the legal part of the market and then a controlling for the law enforcement, etcetera, the illicit market. But you cannot just control the illicit market if you haven't provided the legal solutions in the market, which are available. So I do believe that the ICOS sorry, ICOS as well, but ZYN has some pending authorizations or applications, I should say. I do believe that they're going to be processed in a faster manner than before.

[Gaurav Jain, Analyst at Barclays Capital]

Thank you so much.

[Emmanuel Babeau, CFO at Philip Morris International]

Thank you, Laura.

[Operator]

Thank

[Operator]

you. And our next question comes from Eric Sarada of Morgan Stanley. Your line is open.

[Eric Serotta, Analyst at Morgan Stanley]

Great. Thanks guys.

[Emmanuel Babeau, CFO at Philip Morris International]

Good morning Eric.

[Eric Serotta, Analyst at Morgan Stanley]

Hoping you guys give

[Eric Serotta, Analyst at Morgan Stanley]

some color in terms of what you're seeing in Italy. You mentioned that the fourth quarter was a little bit softer than you had anticipated after the nice recovery you saw in the third quarter from the Characterizing Flavor ban. And then in terms of Poland, can you remind us when you expect to see some disruption from the ban being implemented and what sort of an impact you expect in terms of overall European combustibles business? And then lastly, on FX, it seems like the FX headwind that you called out for the year in the guidance was a bit less than what seems to be implied based on spot rates and your typical yen hedge. Wondering if there's been any change in the hedging policy or if there's any reason why it may be a bit lower than anticipated?

[Eric Serotta, Analyst at Morgan Stanley]

Thank you.

[Jacek Olczak, CEO at Philip Morris International]

Yes. So maybe I take the last one is the easiest one and I come back to Italy, which is a bit the longer story. I mean, in a $0.22 set spot rates right now, I mean, frankly speaking, the biggest contributor to the negative is the Russian ruble. And that's well above the 60% of the variance. The yen actually goes in a sense.

[Jacek Olczak, CEO at Philip Morris International]

I guess it was, if I recall about the $0.04 in our estimates that the spot rate, obviously, as we all know, we're living in the pretty dynamic times as we speak, but this is what it is. There was a big contribution last year coming from the Egyptian pound, right? When we had to take it a hit that obviously will not be repeated in the will not repeat in that in 2025. Actually, this will result in a positive currency variance, but this is on the currency. So frankly speaking at this stage is ruble and as I said, $0.04 or so on the yen and the rest is just the mix back due to our international footprint.

[Jacek Olczak, CEO at Philip Morris International]

Emmanuel wants to add something.

[Emmanuel Babeau, CFO at Philip Morris International]

No, I want to add

[Emmanuel Babeau, CFO at Philip Morris International]

something because I think I mean, the volatility we're seeing on the currency market today will be a good touch of trust on how things are working for us. I should first remind you that we have a natural important edging in our balance sheet with more than 60% of our debt that is in euro. And therefore, when we have a weakness in the euro versus dollar, which is situation we've seen recently, Of course, we have a negative impact on our P and L, but we have also a decrease of our debt in dollar terms. And we are also benefiting from lower cost of the debt in euro plus, of course, lower interest cost in euro translated into dollar. So that has been certainly helping our trajectory in 2024.

[Emmanuel Babeau, CFO at Philip Morris International]

And if there was continued weakness of the euro that will continue to help us in the future. Probably what is not fully captured by the market is the fact that indeed on top of that, we have two significant edge position. One on our exposure to the yen for 2025. We have around 60% of our exposure that is covered at a rate of around JPY 138 for $1 So that means that we are not impacted by the possible deterioration of the yen for that part of our exposure. And we have also a lower exposure to lower aging, sorry, on euro, where we have around a bit more than one fifth sorry, one fourth of our exposure to euro, where we are covered at 1.12, which is also limiting a bit the impact on the P and L when the euro is going down.

[Emmanuel Babeau, CFO at Philip Morris International]

So with everything I've been saying, you have all the explanation for Scott Jelleck has been sharing with you on the ForEx impact for us today.

[Jacek Olczak, CEO at Philip Morris International]

Yes. Now on Italy. So I think, yes, the second half was a bit weaker than we would maybe expect. I mean, Italy was going as many others, not all, but many other member states of the EU for the flavor ban. I think what we see is that, okay, some smokers, some users have helped temporarily, but the return to cigarettes, which always was that risk.

[Jacek Olczak, CEO at Philip Morris International]

So it also explains in some geographies the cigarette trends are slightly or better than one could expect or could think. There is some polyures between the Yvei product very much. And that's, I believe, maybe partially also explains why our beef proposition has advanced most in Italy, right? And this was in a beef in a pot in a closed system very shortly after a short period of time, jump or travel to the number one proposition. I think we need to maybe look at the category of a smoke free over period of time on a total basis, because there will be some poly usage and sometimes driven by the events like this flavors ban.

[Jacek Olczak, CEO at Philip Morris International]

But we also have a geography in Europe that very shortly after the implementation of the flavors ban, I mean, they actually returned to the growth rates, which we had before. So maybe Italy is our player, we're looking into the call fee. But as I said, part of our multi category strategy is also should there be any leakage at the kidnap burn users, we can capture this with our proposition. And then I guess we need a bit more time to see the stabilization. Poland, you asked about the Poland.

[Jacek Olczak, CEO at Philip Morris International]

I don't think Poland has put the stake in the ground at which moment they really want to fully implement the buy. So it literally will happen, I think, somewhere in the '25, but it has to be if this is not if this peak has not been put in the ground, it is more towards the end of this year.

[Eric Serotta, Analyst at Morgan Stanley]

Great. Thanks so much.

[Emmanuel Babeau, CFO at Philip Morris International]

Thank you.

[Jacek Olczak, CEO at Philip Morris International]

Thank you.

[Operator]

Thank you.

[Operator]

And our next question comes from Faham Begg of UBS. Your line is open.

[Faham Baig, Analyst at UBS Group]

Good morning, guys. Thank you for the questions. Hi, guys. A couple from me as well. Firstly, on ZYN again in The U.

[Faham Baig, Analyst at UBS Group]

S, we noticed a couple of your peers have launched synthetic moist nicotine products and according to the scanner data have seen some initial uptick. How do you see the moist versus dry dynamic in The U. S? And where do you think the consumer may end up in the future recognizing that in Europe most products are moist? And the second question maybe comes back to your comments around Italy.

[Faham Baig, Analyst at UBS Group]

But just longer term, we see the vapor category continuing to grow quite strongly and we can discuss its flaws around flavors, marketing, underage use, etcetera. But do you see this as a headwind for the tobacco industry? Or do you believe the total pie can continue to grow with limited impact on tobacco?

[Jacek Olczak, CEO at Philip Morris International]

Yes. So maybe the second part, I take it. I think the total pie grows despite the fact that the movements between the categories within a smoke free, there is some dynamics, right, between a heat not burn and e vape and a pouches now depends on market is organized and regulated. We also know that the most difficult actually to read category due to the way the market is organized currently is the e vape category, right? Because you have disposables, you have parts, you have open tank systems still and some products are under the regulations and properly authorized depends on the jurisdiction.

[Jacek Olczak, CEO at Philip Morris International]

Some products are just popping up in the market, so you could call it the different forms of illicit trade. But I think you see this in The U. S, but also in Europe, in The UK and a few other places, the regulators, governments are taking more serious look into properly organizing that market. I can't tell you whether this will be completed in the '25, but definitely there is the move the movements the moves are in the right direction. So I believe 2526, the category should be normalized by the fact that it's going to be properly regulated and then we take it from there.

[Jacek Olczak, CEO at Philip Morris International]

I don't want to talk about the yield for exposure, etcetera, because we our policy what our views on this one. But definitely, it's difficult to control or to discipline the market if you're dealing with all of the different emanations of the product coming essentially illegally to the marketplace that obviously also enjoys the less discipline trade channels or completely invisible trade channels, if you like, etcetera. When it comes to your questions about the synthetic versus dry, so just to take it from a perspective, the way we look at the data in The U. S, for example, this whole new things, which are coming into the market, there was a quite a long list of different SKUs and the moist, the others and the whole market, the bad part of the market, if I'm not mistaken, move year on year by barely 20 basis points. So in a scheme of these things, just presumably a lot of dynamics on the weekly basis, but doesn't seem that it has any major attractions, etcetera.

[Jacek Olczak, CEO at Philip Morris International]

The insights which we have when we talk over consumers, we see and obviously, when you read the consumer insight, it's not a pure mathematical accuracy and the exact number. But I think that the moist product, moist pouch products is more appealing to the moist snuff type of users, right, like snooze, etcetera. While what we see in the marketplace that the dry product has more appeal towards the smokers and e vapor or e vapor. That is what I can tell you at this stage.

[Faham Baig, Analyst at UBS Group]

Thank you guys. Really appreciate that.

[Emmanuel Babeau, CFO at Philip Morris International]

Thank you.

[Operator]

Thank you. Our last question today comes from Philip Stane of JP Morgan.

[Philip Spain, Vice President - Equity Research at Philip Morris International]

I just had one question, please. It was just on the HTU guidance. If I look at where the volumes landed at the end of twenty twenty four, and then I look at the guidance range, you've the 10% to 12% you've guided to for 2025%. But then just extrapolating that out for 2026 and looking at your guidance there of the $180,000,000 to $200,000,000 of shipment volume. Just trying to get a sense of what gives you confidence in by my math that implies reacceleration in the growth in 2026.

[Philip Spain, Vice President - Equity Research at Philip Morris International]

And just wanted to understand, I suppose, what gives you that confidence that you will see that reacceleration in 2026? Thank you.

[Jacek Olczak, CEO at Philip Morris International]

Yes. So as I said earlier, I mean, in the guidance for this year for 2025, we essentially stayed very low into we essentially focus on organic growth in the markets, existing markets. Obviously, if you open the '25 and beyond '26, I think it's becoming maybe more prudent or fair to assume that there will be some geographies also coming finally and opening the markets to the new proposition. There is one point, which I maybe we haven't articulated well in our remarks and the answers to the questions before is that there is still about the 20 or so percent of the volumes on the Hypnot burn that we don't really do we can't really realize the full growth potential that I'm referring here to the geographies of Russia and Ukraine, now for obvious reasons. But if I was just look at the numbers of 24, I think we have left behind about 0.6 maybe even more point of a growth, which we would normally expect to deliver if all these markets were subject to the same sort of market conditions as other places, right, the Zillooma, etcetera.

[Jacek Olczak, CEO at Philip Morris International]

So, okay, let's see how this unwind. I think the growth which we projected very much focused on organic, organic meaning the geographies which we have today on hand, I think is a good growth. Volume terms is essentially the same volume growth as we used to have in the past. But also in a broader sense, we more and more see the potential of the multi category and the total volumes of the smoke through products is just the one category. And as we know very well, the margin from the margin perspective, they all essentially create a great opportunities.

[Jacek Olczak, CEO at Philip Morris International]

I mean, they all are greatly accretive to where we are today and to especially to the combustibles. Second thing is, and I think we will zoom a little bit tomorrow, try to zoom a bit tomorrow to this at our CAGNY presentations. But from the user's perspective is actually pretty nice economic proposition, because we're essentially then leveraging all the investments for the user acquisitions, etcetera. And one of the category obviously takes the burden of acquiring the user, but all the other product categories actually very nicely benefited from this whole thing. So you will hear from us more and more talking.

[Jacek Olczak, CEO at Philip Morris International]

Obviously, we'll give you the granularity about the Hypnot Verdi Bay Benezen. But I think in the next few years, the focus will be more and more turning into total of a smoke free rather than just the individual because this also somehow reflects the user directions, the user consumer dynamics.

[Philip Spain, Vice President - Equity Research at Philip Morris International]

Thank you very much.

[Emmanuel Babeau, CFO at Philip Morris International]

Thank you.

[Operator]

Thank you. I'm showing no further questions at this time. I would like to turn it back to James Birsenault for closing remarks.

[James Bushnell, VP, IR and Financial Communications at Philip Morris International]

Thank you. Before closing our call, I'd like to remind you that as Jacek mentioned, we will be presenting at the CAGNY conference on February 19, and we hope you'll be able to join us either in person or virtually. Thank you again for joining us today. If you have any follow-up questions, please contact the Investor Relations team and have a

[James Bushnell, VP, IR and Financial Communications at Philip Morris International]

great day. Thank you.

[Emmanuel Babeau, CFO at Philip Morris International]

Thank you. Speak to you soon.

[Operator]

This concludes today's conference call. Thank you for participating and you may now disconnect.

Participants

Executives

• James Bushnell, VP, IR and Financial Communications
• Jacek Olczak, CEO
• Emmanuel Babeau, CFO
• Philip Spain, Vice President - Equity Research

Analysts

• Matthew Smith, Director - Food & Tobacco Saint Louis at Stifel Financial Corp
• Bonnie Herzog, Managing Director at Goldman Sachs
• Gaurav Jain, Analyst at Barclays Capital
• Eric Serotta, Analyst at Morgan Stanley
• Faham Baig, Analyst at UBS Group