Philip Morris International Inc

Good day and welcome to the Philip Morris International fourth quarter 2022 and full year earnings conference call. Today's call is scheduled to last about one hour, including remarks by Philip Morris International Management and the question and answer session. In order to ask a question, please press the star key followed by the number one on your touchtone phone at any time. Media representatives on the call will also be invited to ask questions at the conclusion of the questions from the investment community. I will now turn the call over to Mr. James Bushnell, Vice President of Investor Relations and Financial Communications. Please go ahead, sir.

Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2022 fourth quarter and full year results. You may access the release on 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. gap measures, and additional smoke-free volume and net revenue data are at the end of today's webcast slides, which are posted on our website. Growth rates presented on an organic basis reflect currency-neutral adjusted results, excluding acquisitions and disposals. As such, figures and comparisons presented on an organic basis exclude Swedish Match up until November 11, 2023. As mentioned previously, starting in the second quarter of 2022 and on a comparative basis, PMI excludes amortization and impairment of acquired intangibles from its adjusted results. 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 Olczak, Chief Executive Officer, and Emmanuel Barbeau, Chief Financial Officer. Over to you, Jacek.

Thank you, James, and welcome, everyone. We had a remarkable year for our smoke-free transformations in 2022. Despite the exceptional challenges of the war in Ukraine, severe supply chain disruptions and global inflation, we delivered very strong financial performance and took two major strategic strides towards a smoke-free future. I would like to express my deepest thanks to all my colleagues who spared no effort to drive excellent business results during these unprecedented times. Our thoughts also continue to be with those affected by the war in Ukraine and the recent tragedy in Turkey and Syria. In 2022, PMI delivered its second consecutive year of total volume growth reflecting continued ICOS progress and broadly stable cigarette volumes. Full-year smoke-free net revenues reach almost one-third of total PMI and over 50% in 17 markets. This is impressive progress towards our ambition of becoming a predominantly smoke-free company by net revenues in 2025. ICOS Outstanding results continued with over 21% full-year growth in both shipment volumes and in-market sales, excluding Russia and Ukraine. This reflects broad-based momentum in the European Union region, Japan, and emerging markets. ICO Ziluma continues to generate excellent growth in its launch markets, with upgrades from existing users and new user acquisition outperforming our initial expectations. The success is supported by the increasing deployment of a two-tier heated tobacco units portfolio, providing adult smokers with an expanding range of innovative and high-quality alternatives to cigarettes. Incombustibles we delivered a robust performance with a 3.7% growth in organic net revenues and 0.3% higher share of segments, excluding Russia and Ukraine, despite the impact of adult smokers moving to smoke-free products. We also achieved two critical strategic milestones this year, reaching an agreement to take full control of ICOs in the U.S. in 2024, and successfully completing the acquisition of Swedish March. These achievements will accelerate our smoke-free journey and further position us to lead the transformation of the wider industry. Clearly, currency headwinds were extremely strong and weighed on our US dollar performance, but although volatility remains, I am pleased that they seem to significantly abate in 2023. Overall, 2022 was a pivotal year and we look forward with confidence to 2023 and beyond. Let me now take a moment to cover our key strategic priorities for the coming year. With the acquisition of Swedish March and securing the rights to ICOS in the US, we are now a global smoke-free champion. The addition of the world's biggest market and the leading nicotine pouch brand Zin, alongside Icos, provides us with significant untapped opportunities to further accelerate the growth of smoke-free products. As the strength of our Icos business continues to grow rapidly, the full global rollout of Icos Ziluma is a major priority and we expect to make substantial progress on this in 2023. The success of Illumai in launch market so far demonstrates the importance of groundbreaking consumer-centric innovation, and we continue to broaden our portfolio with new science-backed offerings. This includes Bonds by Icos, our latest heat-not-burn device, aimed at low- and middle-income adult smokers. Pilot city launches in Colombia and the Philippines in the last quarter of last year show encouraging early results and we intend to take the learnings from these markets before deploying on a wider scale. Following a successful first three years of partnership with KT&G, We also recently extended our long-term agreement to commercialize their innovative smoke-free portfolio outside South Korea. I am very pleased to welcome Swedish Match to the PMI family. In particular, the fast-growing potential of ZEN is an incredibly exciting addition to our company. We are focused on supporting the Swedish match team to continue and accelerate Zyn's outstanding success in the US while also leveraging PMI commercial capabilities to prepare for international expansion of nicotine pouches. IQOS and Zyn are premium brands leading the global categories. In the US, Zyn is helping American smokers leave cigarettes behind and offers great growth prospects. For ICOS, the world's biggest smoke-free market is a fully untapped opportunity and our plans are well underway in anticipation of our commercialization in the second quarter of 2024. We will be leveraging the sales and distribution capabilities of Swedish Match and deploying our commercial model, digital engine, organization and infrastructure for a successful rollout. We continue to expect to file an FDA application for Illuma in the second half of 2023. Logically, the international expansion of pouches, US ICOS penetration, and the replacement of ICOS through Illuma entail additional investments this year, which combined with inflationary pressure will weigh temporarily on our margins. Indeed, many of the ILUMA-related costs are one-off in nature, as Emmanuel will explain shortly. In combustibles, we continue to target a stable category share over time despite the impact of ICOS cannibalization while taking judicious pricing actions. As we have explained previously, maintaining our leadership in combustibles helps us maximize switching to smoke-free products through the connection to adult smokers and the retail trade. In terms of our financials, the strength of our business provides a robust operating cash flow, which we intend to maximize to provide reinvestment in our smoke-free business, the leveraging and growing dividend. Finally, and importantly, Shaping tobacco harm reduction by providing better alternatives to smokers and advocating for science-based regulation is critical to accelerate the end of smoking. Harm reduction is also at the core of our transformation as we lead on sustainability to achieve a positive impact. We will be expanding on some of these topics at the CAGNI conference on February 22nd. And we also plan to host an investor day in September this year, where we will go into greater detail on our strategies and future vision, particularly with regard to the U.S. Now, I will hand it over to Emmanuel to discuss our results in 2023 and outlook in more detail. Thank you, Jacek.