Philip Morris International - Q4 2023

Transcript

Operator (participant)

Good day, everyone, and welcome to the Philip Morris International fourth quarter 2024 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. As a reminder, today's call is being recorded. I will now turn the call over to James Bushnell, Vice President of Investor Relations and Financial Communications. Please go ahead, sir.

James Bushnell (VP of Investor Relations and Financial Communications)

Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2023 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 and additional net revenue data are available in Exhibit 99.2 to the company's Form 8-K, dated on today's date and on our investor relations website. 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 Babeau, Chief Financial Officer. Over to you, Jacek.

Jacek Olczak (CEO)

Thank you, James, and welcome everyone. PMI delivered another strong operating performance in 2023. We achieved our third consecutive year of positive volumes and a high single-digit organic top-line growth, driven by smoke-free products. Smoke-free products delivered accelerated accretion to profitability in the fourth quarter as our IQOS business delivered meaningful 2023 operating leverage, mitigating a significant drag from combustibles. I'm also very pleased to report the continued outstanding growth of ZYN, which was not included in organic metrics until mid of November last year. Importantly, smoke-free products reached nearly 40% of total PMI net revenues in the fourth quarter and over 40% of gross profit. For the year, smoke-free gross profit increased by 19% organically, and we expect smoke-free organic growth to accelerate for both net revenues and gross profit in 2024.

ZYN delivered exceptional growth in its first year within PMI, with U.S. pro forma volumes up by over 60% for the year and over 75% in quarter four. Oral smoke-free is accretive to both our smoke-free business and the overall group, with Swedish Match contributing 50 basis points organic uplift to Q4 OI margins from only 50 days of the period. Our IQOS business continues to deliver excellent results, with 15% adjusted in-market sales growth for heated tobacco units, reflecting broad-based momentum in Europe, Japan, and emerging markets. The rollout of IQOS ILUMA is substantially complete and now present in the 51 markets, representing over 95% of IQOS' geographies by volume, excluding Russia and Ukraine.

The superior experience and design of ILUMA, combined with the strong premium brand weight equity of IQOS and our commercial infrastructure, enabled IQOS to outgrow the heat-not-burn category, despite holding a category share of over 75%. Importantly, as we have seen in Japan, the launch of ILUMA is a multi-year growth driver consistent with past IQOS innovation. Our 2023 combustible performance was margin dilutive, despite strong commercial results with very good pricing and higher category share. This reflects the significant cost pressures in the category, geographic mix from volume growth in lower-margin markets without smoke-free products, and the impact of IQOS cannibalization. This was also compounded by the technical impact of third-party manufacturing in Indonesia and Ukraine.

While cost and currency headwinds impacted our earnings in 2023, the strengthening growth and margin profile of smoke-free products set us up well to deliver sustainable growth and returns, including currency, in 2024 and beyond. We reached a number of key transformation milestones in the last quarter of last year. First, IQOS net revenues surpassed Marlboro to become the number one international nicotine brand on this measure. This demonstrates the power of innovative smoke-free alternatives to switch adult smokers away from cigarettes and to address the societal issue of combustible tobacco. It is also a testament to our organization's ability to build strong and sustainable brand equity…. This also applies to ZYN, the fastest growing U.S. smoke-free brand, with another outstanding performance in Q4, marked by an increase in category volume share, retail value share, and overall volume.

We're also proud to have reached 25 markets where smoke-free products exceed 50% of our top line for both Q4 and the full year. We aim to reach 60 markets by 2030, driving our ambition to exceed two-thirds of group net revenue. Last, as I already mentioned, over 40% of our total gross profit was generated by smoke-free products, with the adjusted gross margin rate on smoke-free surpassing combustibles for both the quarter and year. We are encouraged by the increasing number of governments adopting tobacco harm reduction policies to encourage reduced-risk nicotine consumption instead of smoking, which is ultimately more sustainable for society. Nevertheless, a considerable amount of work remains. Sustainable growth requires a sustainable business, and we continue to garner increasing recognition for our sustainability performance across the key product and operational topics for our company.

PMI was included in the Dow Jones Sustainability World Index for the first time, and for the fourth year in a row, the DJSI North America. In addition, PMI was awarded Carbon Disclosure Project's Triple A rating for the fourth consecutive year. I will now hand it over to Emmanuel to discuss our results and outlook in more detail.

Emmanuel Babeau (CFO)

Thank you, Jacek. Let's start with the headline numbers. We finished the year strongly with Q4 organic net revenue growth of +8.3%. This includes +14% growth from smoke-free products, despite slower HTU shipment growth due to comparison effects, and also +5% growth from combustibles. Pricing was a strong driver for both categories, with smoke-free pricing including the impact of retail price increases on HTUs. While Swedish Match was only included in organic metrics as of November 12, it contributed +0.8 percentage point to Q4 organic top line growth and grew by an excellent +26% on a pro forma basis. Operating income grew organically by a very good +8%, including a Swedish Match contribution of +2.2 points.

As expected, Q4 margins were broadly stable organically and grew, excluding the technical effect mentioned by Jacek. This enabled our business to deliver another quarter of double-digit currency neutral adjusted diluted EPS growth at +12.2%. We succeeded our prior expectations with ZYN's remarkable growth as a notable contributor. Despite this strong currency neutral result, Q4 adjusted diluted EPS of $1.36 was adversely affected by a greater-than-expected currency impact of $0.20. This includes a $0.09 balance sheet-related impact under IFRS inflationary accounting in Argentina, following the devaluation of the peso in mid-December. As with the previously mentioned impact in Q3, this reflects the depreciation of monetary net assets denominated in peso, which are subject to capital controls. By its nature, this does not carry forward to future periods.

Turning to the full year, net revenue grew by +7.8% organically, representing the third straight year of high single-digit growth. Similar to Q4, this reflects continued excellent IQOS momentum and strong combustible pricing. In 2023, Swedish Match, led by ZYN, grew pro forma ex currency net revenue by +20%. Operating income grew by +3.7% organically, reflecting a challenging first half, followed by strong growth in H2. We delivered expansion in both adjusted gross margin and operating income margin in H2, driven by the strong progress of smoke-free products. With the impact of accelerated device sales from the ILUMA rollout in the base and a return to sea freight to Japan, the effect of growing HTU volume and ongoing cost optimization are clearly visible.

As expected, OI margin organically contracted 150 basis points for the full year, primarily due to acute cost and supply chain headwinds in H1. As flagged in prior quarters, full-year margins include a 40 basis point headwind from the accounting treatment of third-party manufacturing in Indonesia and Ukraine, primarily reflecting the Indonesia excise tax gross-up of around $250 million growth in both net revenue and cost of sales. While headwinds in combustibles have not fully abated, our smoke-free business is delivering excellent profit growth, and our organic results will include the strong contribution from Swedish Match going forward.... We successfully mitigated inflationary pressure and supported investment with efficiency.

Across our total operating cost base, we delivered an incremental $100 million in gross cost efficiency in Q4, and $2.2 billion for 2021-2023 overall, surpassing our $2 billion target. We target an additional $2 billion over the next two years. These positive factors allowed us to deliver very strong currency neutral adjusted diluted EPS growth of +11%, ahead of our prior expectation. Adjusted diluted EPS of $6.01 includes unfavorable currency of $0.63, primarily reflecting the Japanese yen, Russian ruble, and specific Argentine peso dynamic I just explained. We include a slide in the appendix to this presentation with more detail. Focusing now on volumes. We comfortably achieved a third consecutive year of shipment growth, driven by a +15% increase for IQOS HTUs, in addition to a resilient combustible performance.

Our smoke-free volumes made up over 20% of total PMI in Q4, and with continued mid-teens or better growth expected here, we are very well positioned to continue growing volume over the mid- and long-term. 2023 HTU shipment volume of 125.3 billion units were at the lower end of our targeted range due to delayed launches in Saudi Arabia and Taiwan, combined with lower than expected underlying growth in Russia and Ukraine. For IQOS HTUs, we believe the best indicator of underlying growth is adjusted IMS, as the closest metric to consumer offtake. For the full year, adjusted in-market sales volume and shipment growth were in line at +15%.

In the fourth quarter, HTU shipment growth of +6% reflect trade inventory buildup in the prior year quarter, and the +14% adjusted IMS growth is therefore a more reliable measure of continued strong growth momentum. Excluding Russia and Ukraine, adjusted in-market sales grew by more than +17% for the year. For context, across the two years before the war began in 2022, these markets made up 23% of HTU shipment volume and exceeded the company's growth rate by a notable margin. These smoke-free volume growth rates exclude the excellent development of our oral nicotine portfolio, driven by ZYN, with shipment volumes up by +23% in Q4 and +17% in 2023 on a pro forma basis.

Cigarette shipments declined by a modest 1.4% in 2023, outperforming the international category decline of 2.4%. Turning to profits, organic operating income growth stepped up in H2 to +10%, following the exceptional headwind of H1. We believe this is more representative of the underlying momentum of our business and in line with our 2024-2026 CAGR target range of +8% to +10%. Focusing now on some key drivers of our full-year operating income. Smoke-free gross profit grew organically by an excellent +19%, expanding gross margin by 340 basis points. This reflects part of the operating leverage of IQOS, I already mentioned, with a notable contribution from Swedish Match oral nicotine in the last 50 days of Q4, with organic operating profit growth of over 50%.

With smoke-free commercial costs also increasing by less than net revenue, this clearly bodes well for 2024 as we continue to benefit from scale effect and manufacturing optimization. Despite very strong pricing, there was only marginal organic growth in combustible gross profit. This partly reflects the negative geographic mix I already mentioned, with greater volume decline in higher margin market like Japan, as adult smokers switch to smoke-free products, and better volume trends in lower margin geographies, where smoke-free products are small or not available, such as Turkey. There were also significant inflationary pressures on leaf, direct materials, and other manufacturing costs. Cost increases on leaf, where inventory cover multiple crop years and wages are likely to carry over into 2024, and should ease thereafter.

Moving now to Swedish Match, which delivered outstanding performance in its first full year as part of PMI, with adjusted pro forma currency neutral top line growth of +26% in Q4 and +20% in 2023. When we announced our offer for Swedish Match in 2022, we targeted a return on investment in excess of our cost of capital within five years. With the growth of ZYN surpassing our expectation, we now expect to achieve this well ahead of time... ZYN delivered another remarkable U.S. performance, with +78% volume growth in Q4, and +62% in 2023. Internationally, we have launched or relaunched ZYN in 10 markets as planned, as we continue to focus on building a truly global brand. U.S. cigars posted robust 2023 results, growing net revenues and profit.

This was driven by strong pricing following an increase in April, partially offset by volume decline, which reflect lagged competitor pricing and comparison effects. ZYN's excellent U.S. progress continued in Q4, with +15% sequential growth in 12 months volume shipments. Impressively, category volume share grew for the third consecutive quarter to 72.8%, an increase of +5.4 points year-on-year, and +2 points sequentially. Retail value share also grew during the quarter to 77.4%, highlighting ZYN's premium positioning and superior brand equity. This accelerated growth again reflects a growth step up in nationwide store velocity and gradual distribution expansion as the category gains strong traction with adult nicotine user for its convenience and pleasurable experience. Now, focusing on IQOS, starting with user growth.

We estimate there were 28.6 million IQOS users as of December 31, representing growth of 1.2 million user in the quarter and plus 3.7 million for the full year. It's a nice acceleration compared to 2022. This includes notable progress in Japan and Europe, in addition to a broad range of other geographies. ILUMA is now available in essentially all major markets outside Russia and Ukraine, with over 70 million estimated adult user as of December 31st, 2023. This reflect the switching of existing IQOS user and the acquisition of adult smokers. We expect ILUMA to drive continued strong IQOS user growth in 2024 and beyond. Considering the seasonal fluctuation and volatility in total user estimation, we plan to report this metric on a semi-annual basis going forward.

With the addition of ZYN to our portfolio and the smaller but growing VEEV e-vapor business, we also intend to provide a more holistic view of our total smoke-free user base to investors. Moving now to IQOS in the Europe region, where smoke-free product made up more than 45% of Q4 net revenues. Our Q4 adjusted HTU share increased by +1.2 points to 9.6% of total cigarette and HTU industry volume. A key driver is the growing uptake of ILUMA, which is available to around 90% of IQOS user in the region after eight further launches during the quarter. In the EU, 11 markets, making up nearly 30% of regional IQOS volumes, adopted the delegated directive to implement a characterizing flavor ban on heated tobacco products and implemented clean shelf policy in October.

While still early days, we estimate only a small impact on offtake as consumers adjust, as well as on trade inventory levels. Indeed, adjusted IMS volume continued to exhibit very good sequential growth and reached a record high 12.4 billion units on the four-quarter moving average. This reflects double-digit year-on-year progression of +13% in Q4, despite the lack of growth in Ukraine. We expect the remaining EU market to adopt the characterizing flavor ban in 2024 and estimate a full-year consumer adjustment impact of around 2 billion units on both shipments and IMS, representing less than 5% of regional volume and less than 2% of total PMI. This is consistent with other past flavor restrictions, such as the EU ban applied to combustibles in 2020.

Based on the initial data from markets that have enacted the ban, our fundamental view remains the same. We do not expect a meaningful change in the structural trajectory of the category and indeed expect Europe adjusted IMS progression to be broadly in line with the group growth rate in 2024. Europe is also an important geography for innovation. LEVIA zero tobacco HTUs were launched in the Czech Republic in mid-October through limited channels, with an encouraging initial response. We plan a broader Czech rollout later this month and further market launches this year. In Japan, the heat-not-burn category now represent close to 40% of the total industry, with IQOS driving its growth and reaching over 8.5 million adult users.

In Q4, the adjusted total tobacco share for our HTU brand increased by +3.1 percentage points to 27.6%, with IQOS shares surpassing 34% in Tokyo. Adjusted IMS volume increased by +14.5% year-over-year for 2023 and +13.4% in Q4 alone, reaching a record high of almost 10 billion units on a four-quarter moving average. Such increasing growth in a market with already high category penetration is a clear testament to the sustainable potential of IQOS around the world. HTU shipment volume returned to a more normalized state in the fourth quarter as compared to a tough prior year inventory comparison, following the substantial completion of the transition back to sea freight in Q3.

In addition to strong IQOS share gain in developed countries, we continue to see very promising growth in low- and middle-income markets. This slide highlights a selection of Q4 key city IQOS shares across markets in Eastern Europe, Africa, Asia, and Latin America. Egypt continues to impress, with Cairo IQOS share up +3 points to 9.4%. Also noting encouraging results elsewhere in the region, such as Morocco and Lebanon. Indonesia also saw notable progress in its capital city, especially given limited commercialization. We continue to see dynamic IQOS volume growth across these important future markets, with the city shares toward the right of this chart, an indication of the exciting potential. While we have already covered the margin dynamic on combustible, our 2023 commercial performance was very robust, with organic top line growth of +5.5%.

This reflects both strong pricing, with notable contribution from Germany and Indonesia, and positive share performance within a resilient international category. Our cigarette category share grew by +0.1 point in Q4 and +0.2 points in 2023, with notable contribution from Egypt, Poland, and Turkey. Although flattered by competitor supply constraints in Egypt, which may normalize in 2024, we again achieved our ongoing objective of stable category share, excluding this effect, despite the impact of IQOS cannibalization. This remains key as our leadership in combustibles helps to maximize switching to smoke-free product. This combustible share performance, combined with structural growth of IQOS, led to an increase of +0.6 points of international cigarette and HTU share for the full year.

As mentioned previously, our superior share of smoke-free products give us a formidable platform for sustainable share gains with superior unit economics. Before we turn to the 2024 outlook, let me briefly reflect on our strong delivery over the past three years, in spite of a number of substantial headwinds. The performance was clearly positive compared to our currency neutral 2021-2023 target of more than 5% organic top line and more than 9% bottom line growth, supported by overall growing volumes. For the next few years, we target a similar strong volume delivery, a +6% to +8% organic net revenue CAGR, and a step-up in organic operating income growth to +8% to +10%.

We target an adjusted EPS CAGR of +9% to +11% ex-currency growth at constant 2023 corporate tax rate, including an increase in net financing costs, which skews toward the first year of the period in 2024. Okay, this brings me to the outlook for 2024, where we expect a strong acceleration in smoke-free performance across IQOS volume, smoke-free net revenue, and gross profit. We forecast the highest ever absolute increase in HTU adjusted IMS volumes to deliver +14% to +16% growth in percentage terms, despite the inclusion of an estimated impact of around 2 billion units from consumer adjustment to the EU characterizing flavor ban I mentioned earlier, and essentially, no offtake growth in Russia.

For shipment volume, we target more than 140 billion units, subject to the usual inherent volatility of shipment timing, new market launches, and potential supply chain disruption, such as the ongoing situation in the Red Sea. While shipment growth rates naturally follow adjusted IMS over time, there is a possibility of some lower inventory level compared to 2023, given the substantial completion of ILUMA launches and opportunities for working capital optimization. We expect continued excellent U.S. ZYN volume growth to around 520 million cans. We have also accelerated our capacity expansion plan to support this further significant step-up in volume and to manage inventory level, which are naturally affected by the recent level of growth.

Such a strong outlook for IQOS and VEEV means we expect to deliver an acceleration in organic smoke-free top line growth compared to 2023, reaching close to $15 billion in net revenue at prevailing exchange rate. This supports a total PMI forecast of +6.5% to +8% organic net revenue progression, including a fourth consecutive year of total volume growth and mid-single-digit combustible pricing. We also forecast an acceleration in smoke-free growth, profit growth from the organic +19% delivered in 2023, as IQOS profitability expands and VEEV's excellent economics continue. We expect smoke-free to again drive the lion's share of our forecast organic OI growth of +8% to +9.5%, notably given the enduring cost pressure and negative geographic mix in combustibles I just mentioned.

This naturally implies organic margin expansion, even factoring in the ongoing technical dilution impact of third-party manufacturing in Indonesia. We expect a meaningful organic improvement in overall gross margin, excluding technical impact, and a very limited currency impact on adjusted OI margin. This forecast includes notable capability investment in the U.S., but as mentioned at Investor Day, we still expect to deliver strong double-digit operating income growth in this market. As flagged at last year's Investor Day, we anticipate an increased net financing expense this year as debt is renewed at higher rates. We forecast a range of $1.3 billion-$1.4 billion, as compared to $1.1 billion in 2023. We also assume a higher effective corporate tax rate due to Russia's suspension of certain double tax treaties and earnings mix.

These tax and interest factors combined impact our currency neutral adjusted EPS growth projection by around 2 percentage points. Accordingly, we forecast currency neutral adjusted diluted EPS growth of +7% to +9%. This translates into an adjusted diluted EPS range of $6.32-$6.44, including an unfavorable currency impact of $0.11 at prevailing rates. This notably includes a net favorable impact of $0.13 related to the revaluation of monetary balances in hyperinflationary economy in 2023, skewed to the second half comparison. Moving to the shape of expected 2024 performance on a quarterly basis, we anticipate good double growth in adjusted IMS HTU growth every quarter, supporting the full year forecast of +14% to +16%.

We forecast a strong Q1 overall, with HTU shipment volume of 31-32 billion, and continued strong volume growth from then. We expect organic top line and operating income growth to be broadly consistent with the full year outlook, which implies organic margin expansion as with the full year. We project strong Q1 currency neutral adjusted EPS growth of +7% to +10%. This translates to a range of $1.37-$1.42, including a negative currency variance of $0.10 at prevailing rates, with currency comparison improving in the second half as we lap the Argentina impact of 2023. Our business remains highly cash generative. However, the $9.2 billion in 2023 operating cash flow was lower than expected.

This was due to currency effect on net earnings, including the Argentine peso devaluation, other year-end currency impact, and higher than expected working capital needs. In 2024, we target between $10 billion and $11 billion in operating cash flow at prevailing exchange rate and subject to working capital requirements. We continue to prioritize investing in innovation and the growth of our smoke-free portfolio. In 2024, we expect capital expenditure of around $1.2 billion, including the ZYN capacity expansion I just mentioned. Deleveraging remains a key priority for us, and as expected, our 2023 net debt to adjusted EBITDA ratio was around 3x, given the 2023 purchase of the remaining Swedish Match minority and the final U.S. IQOS payment to Altria.

We target much better progress of 0.3x-0.5x deleverage in 2024, driven by continued EBITDA growth and strong cash flow generation. We continue to target a ratio of around 2x by the end of 2026, with buybacks to be considered once confirmed we are on track. Finally, our commitment to our progressive dividend policy is unwavering and in line with our long-term commitment to return cash to shareholders. I will now turn it back to Jacek for concluding remarks.

Jacek Olczak (CEO)

Thank you, Emmanuel. Let me now take a moment to cover our key strategic priorities for 2024. First, is supporting the sustained growth momentum of IQOS through continuous innovation. This includes leveraging the rollout of ILUMA to maximize user growth while innovating further on both devices and consumables. Second, is to continue the strong U.S. growth of ZYN supported by targeted commercial investment, long-term capacity expansion, and organizational infrastructure, which will also support IQOS. Outside the U.S., we intend to continue developing our integrated multi-category offering to adult nicotine users with further launches of ZYN and, where relevant, our VEEV e-vapor portfolio. Of course, in 2024 will be a landmark year for IQOS in the U.S. While the ultimate launch of IQOS ILUMA is the main priority, we continue to prepare for the first city test of the IQOS 3 Blade product starting in Q2 this year.

The small-scale pilot launches will allow us to experiment with different aspects of commercialization and support our drive for a scale commercial success once ILUMA is authorized. While we have no update on the expected PMTA timeline, the patent settlement agreement announced last week allows for commercialization of both Blade and induction products while mitigating risks of patent-related disruptions and enables us to leverage the scale, optimize cost, and flexibility of our global supply chain. In combustibles, we continue to target the stable category share over time, despite the impact of IQOS cannibalization, while taking judicious pricing actions to drive a positive profit contribution. Our capital allocation priorities are crystal clear. We will continue to invest in the growth of smoke-free products, and our commitment to dividend remains steadfast. Following the acquisition of Swedish Match, the leveraging remains our key balance sheet objective.

We aim to continue our excellent progress on sustainability initiatives, including those related to product impact, such as youth access prevention and post-consumer waste. Finally, and importantly, we remain committed to transforming the tobacco harm reduction landscape by providing superior alternatives to adult smokers who would otherwise continue smoking and advocating for science-based regulations. We will be expanding further on many of these topics at the CAGNY Conference in two weeks' time. Let me now conclude today's presentation. Overall, our business delivered a strong 2023 performance in the face of notable cost headwinds, driven by structural smoke-free momentum. The continued excellent performance of IQOS and remarkable growth of ZYN strengthened their position as leading brands with excellent equity. Combined with our unrivaled commercial and innovative capabilities, we have a powerful platform to expedite our smoke-free future as we broaden our portfolio and reach to adult smokers.

We expect 2024 to be a year of accelerated growth for smoke-free products and remain confident in our 2024-2026 growth targets. We have exciting opportunities in the U.S. and internationally, which we are fully dedicated to capture as we progress towards our ambition of being sustainably smoke-free by 2030. Finally, and importantly, our strong growth outlook and highly cash-generative business underpins our ability to leverage while returning cash to shareholders. Thank you, and Emmanuel and I are now happy to answer your questions.

Operator (participant)

Thank you. We will now conduct the question-and-answer portion of the conference. Again, in order to ask a question or make a comment, please press the star key followed by one on your touchtone phone. In the interest of fairness and time, we ask that participants keep to a maximum of two questions each. If time allows, follow-up questions may be taken. You may rejoin the queue by, again, by pressing star and then one on your touchtone phone. Our first question will come from Bonnie Herzog with Goldman Sachs.

Bonnie Herzog (Managing Director, Senior Consumer Analyst)

Hi, everyone. I, I actually to ask a high-level question on the year. You originally guided FX neutral EPS growth in 2023 of 7%-9%, yet, you know, you really did finish out the year a lot stronger, reporting 11% currency neutral EPS growth. So as you look back, you know, what were some of the key areas of outperformance versus your initial expectations? And then, as you think about this year, you know, you're initially guiding the 7%-9% FX neutral EPS growth again. So, you know, just trying to understand, you know, how conservative this may be, especially considering, you know, your 9%-11% midterm growth target.

Jacek Olczak (CEO)

So Bonnie, with regards to 2023, I think the momentum of which we have and the category growth in Japan is really well worth singling out. And despite the fact that, as you know, IQOS occupies a very sizable part of the segment, I mean, we capture well above our segment share. I think we capture about 80% of the entire segment growth in Japan. So this is very strong. You know, Japan is on the forefront of a smoke-free transformation. We're approaching the 10-year anniversary of IQOS in Japan. And if I just look over the last few weeks, how categories continuously expansions in Japan, I think in the Tokyo area, the smoke-free products now about exceeded the size of the cigarette category.

So if IQOS continues after 10 years participating in this phenomenal growth, this is really worth single out. Three is ZYN, and as we indicated very much, we've been very keen, and very pleased that we could conclude the acquisition of Swedish Match. This adds the important element of our portfolio of alternative to smoking, the pouches, and obviously creates a very good opening for us in entering the U.S. market, and as ZYN clearly is going, is growing above the expectations. What is very important, as we hear from time to time, quite lively conversations about, you know, some unintended consequences about the use of the product. I am so pleased that both IQOS and ZYN actually are delivering of, as they were designed for, are going after adult smokers in the U.S. above 21 years.

We're all familiar with the CDC data, less than 2%, you know, youth usage, as the same is for IQOS internationally. So we have a good, I, in my view, we have a very good, sustainable, growing two fabulous propositions in a smoke-free product, and we're also trying to, to be a very, focused from a financial perspective with regards to the rate. So right now, roll this through to 2024, I think that Japan is on the good momentum. ZYN in the U.S. is continuing this momentum. Europe is doing very strongly, very well. Yes, we have this distortion, maybe potential headwinds, which I think, we very clearly indicated the $2 billion potential impact from the, the flavor, the flavor ban in the EU.

Other than that, you know, these key geographies and these key geographies also are very important from the margin perspective, expansion. They really are on the positive side. I don't want to sound negative on the rest of the world.

Bonnie Herzog (Managing Director, Senior Consumer Analyst)

No.

Jacek Olczak (CEO)

However, one thing which I know that, you know, on occasions there might be some conversations around the growth trajectory of IQOS and so on, and you remember during Investor Day, I've been very clear. We're running IQOS in 10 consecutive, you know, years of a fabulous growth, despite the fact that we essentially lost any growth, access to any growth in Russia and Ukraine. And historically, I mean, Russia alone was delivering, it depends how, you know, which period you pick up, but easily about the 4, maybe even 5 billion per annum growth, growth of the, of the category. So I think we need to, to look at this trajectory from this perspective, which makes me even more confident about the, about our 3-year outlook.

Bonnie Herzog (Managing Director, Senior Consumer Analyst)

Okay, thank you. That was helpful. And then I did wanna ask a little bit more on margins. You know, just hoping for a little bit more color on your margins in Q4, especially in Americas, where, you know, they were actually negative. I'm assuming, I think you called this out, you know, a key driver of this is your investments ahead of, you know, the IQOS relaunch in the U.S. in May. So in the context of this, you know, how should we think about, you know, operating income growth in Americas this year? Will it continue to be negative? And then for the full year of 2024, your just total company, your guidance is, you know, for FX neutral revenue growth and operating income growth does imply operating margin expansion.

Could you maybe touch on, you know, your expectations for gross margin and OpEx in the context of that? Thank you.

Jacek Olczak (CEO)

Yeah. Yeah, here's what Emmanuel can chip in with more details. I think in the America segment, there is more the impact of the devaluation in Argentina, which drove the margins down rather than the U.S. market. Now, specifically about the U.S. market, yes, there is the increased investment also to continue supporting VEEV growth and expansion, but also in preparing the Swedish Match organization, and Philip Morris International in the U.S. organization, for being able to handle IQOS soon, and obviously have the organization which is up to the opportunities and the challenges of the U.S. market. So there is a, there are some investments which are already flowing through the P&L, even ahead of the IQOS process start of a commercialization. Emmanuel, you want to?

Emmanuel Babeau (CFO)

Yeah, just to complement answer your question, Bonnie, and complement what Jacek was saying on what is behind the higher than expected performance for 2023. Clearly, Jacek described the very strong dynamic on the volume, on the commercial dimension, if you want. But we've been very pleased as well with the development of our margin on our smoke-free product. We are today seeing the margin both on IQOS and on VEEV being above the average margin on CC. We are making progress on the profitability of the IQOS product, and we have some price increase in Q4 overall. So that was the plan dynamic, but it is happening maybe even a bit better than what we're expecting, and we expect that to continue in Q4.

In that perspective, I mean, clearly the U.S. is a fantastic market. We've described the fact that the margin of ZYN in the U.S. is best in class among our portfolio of product. And therefore, make no mistake, even if indeed we're gonna continue to invest in the U.S., the U.S. is gonna be super nicely accretive in all parameter of our P&L at the level of, of course, revenue growth, but also at the level of the margin evolution and at the level of the operating income. I mean, reflect the fact that we talk about double-digit growth and very strong double-digit growth. U.S. is a very powerful contributor to our financial performance.

Bonnie Herzog (Managing Director, Senior Consumer Analyst)

Okay, Emmanuel, if I may just clarify something then. For this year, you are expecting gross margin and possibly, you know, op margin expansion based on your guidance? It implies op margin.

Emmanuel Babeau (CFO)

Yes. Yes, we do. Absolutely, Bonnie. Yes.

Bonnie Herzog (Managing Director, Senior Consumer Analyst)

Okay. All right, thank you.

Jacek Olczak (CEO)

Thank you.

Operator (participant)

We'll go next to Gaurav Jain with Barclays.

Gaurav Jain (Consumer Analyst)

Hi, good morning. Two questions from me. One is just to clarify the Argentine peso impact. So you have a $0.19 impact this year, which is linked to balance sheet revaluation. On the slides, you are using the Argentine peso rate, which is equal to the spot rate. So there shouldn't be any further balance sheet revaluation down, which means that there is an automatic $0.19 benefit to EPS. Isn't that the way the math works?

Jacek Olczak (CEO)

Look, of course, we cannot speculate on any further deviation of the peso. The reality is that the amount in dollar term has been significantly reduced by the last devaluation. So a further devaluation would impact to a much lower amount. Now, you know, I don't know whether more devaluation could come. Frankly, we're not able to anticipate this kind of thing. What you have to take into account is that the basis has been, in fact, halved, basically with the devaluation in December. So any further devaluation would apply to a lower base, in Argentinian peso.

Gaurav Jain (Consumer Analyst)

Sure. Maybe I can ask it separately. And my second question is around ZYN. You know, we are hearing a lot of statements, you know, we had a statement by Chuck Schumer. You know, a lot of investors are concerned. They think that regulation is coming on ZYN, flavors will get banned. So how do you plan to get ahead of this entire potential controversy that could emerge around ZYN?

Jacek Olczak (CEO)

Yeah. So as we observed over the last few weeks, you know, had a lot of conversations around the ZYN in the social media and generally internet and media. I think, look, ZYN is in the U.S. market for 10 years, okay? And if you look even on the CDC, it's, you know, latest data on the youth underage usage, et cetera, it's, you know, stays well below at 2.2%, which is the lowest from any product, nicotine and also other products where there's some age restrictions applied. I think we know about the Swedish Match marketing practices, and we were taking this very seriously during the acquisition, the due diligence, et cetera.

We have said that the alignment with Swedish Match was not only that, you know, they were pursuing the smoke-free trajectory, but also that they have a very responsible and a disciplined approach to the marketing, as we are on with IQOS with Philip Morris International. We have reached out to the few people who've been the most vocal to in this conversation, so Senator Schumer, but also to FDA. I think, you know, the facts are, the facts are different, but sometimes it is being trying to be the positions in the media. So, you know, the product is helping adult smokers. We very strict with the age verifications.

Obviously, when it comes to the, you know, conversations among the adults in the social media, that's going a little, well, going frankly speaking in a territory where we don't have controls. ZYN is not using any paid ambassadors or whatever this is being called in the social media. So we think what we're doing is pretty right. Product from the potential of a reduction of the harm and where the product is based on science positioned on the risk reduction continuum, it's frankly speaking, it is the best nicotine alternative to any other nicotine product, very much obviously, versus the cigarettes. We have a pending PMTA with FDA, but I think the science is very, very strong and very conclusive on the side. So I feel very confident.

From the very beginning of our transformation, so is Swedish Match, we put the marketing and very much the protection of the youth very, very, very high on our agenda. So I think it gives me the confidence that, as I said earlier, to Bonnie's question, we have a progress, phenomenal growth on the products which are delivered in a very sustainable manner to adult smoker.

Gaurav Jain (Consumer Analyst)

Thank you so much.

Jacek Olczak (CEO)

Thank you.

Operator (participant)

We'll go now to Pamela Kaufman with Morgan Stanley.

Pamela Kaufman (Executive Director and Equity Analyst)

Good morning.

Jacek Olczak (CEO)

Good morning.

Pamela Kaufman (Executive Director and Equity Analyst)

I have a question about ZYN as well. It's seen phenomenal growth in the U.S. Can you talk about what's driving the acceleration and growth in ZYN in the U.S., and are there any particular regions where you're seeing stronger growth? And just on the ZYN guidance, it implies about 35% growth in U.S. shipments, but that seems conservative given the strength that we've seen. So is there anything that would temper ZYN's growth outlook relative to what we're observing?

Jacek Olczak (CEO)

Yeah, so the ZYN as you to, to remind, might remember from our Investors Day, the profile of the ZYN when it comes to where the smokers or where the adults are coming from, the ZYN is sourcing very nicely from a combustible cigarette. Obviously, sourced from the oral categories, including the tobacco-containing pouches, the Swedish snus or similar products, but also in sourcing from the e-vapor category. So it is, being recognized by the growing number of adults, the convenience of usage of ZYN. It is another way of looking at ZYN. It is a natural innovation or extension of the Swedish snus product, the tobacco-containing pouches. Obviously, as we know them, some people were not maybe comfortable of having a tobacco in the pouch. There are some optical, hygienic type of maybe constraints, et cetera.

ZYN is something which is, you know, looks cleaner, is white, doesn't contain tobacco, which might have been for or might be for some consumer create some resistance. So this is what I can say: I think the product has a good trajectory. The market is a large market in the U.S. with the well-developed e-vape category, obviously, but still a very sizable combustible cigarettes category, and also many other oral tobacco forms. So it's a nice sourcing for ZYN, which is appealing to these audiences. With regards to your comments about the number of accounts forecasted and which we put into our guidance for next year, look, we're very well familiar with the growing trends in the U.S. Can ZYN surprise us to the positive? Yes.

Look, I can, but, you know, guidance is built on the number of the assumptions, right? I mean, it's a global business, multi-category, and see there are some headwinds which we are, you know, aware today. I'm not sure whether they will all materialize, but I think it's the matter of prudence is that this, part of the year, the beginning of the year, to single them out and, you know, be prudent. But there are also some upsides and a tailwinds, which we are well aware of. The year unfolds, we'll come to the Q1, and then as every year, you build the confidence as you go through the year.

Emmanuel Babeau (CFO)

Yeah, and in time to clarify the guidance year, we are coming with a growth year on year, that would be similar than the one we've been experiencing in terms of total volume growth. I'm not giving the percentage here, versus 2023 on 2022. So these are similar volume growth, which reflects a reduction in the growth rate. We'll see whether year we have things going even higher than what we are forecasting for the time being.

Pamela Kaufman (Executive Director and Equity Analyst)

Okay. Thank you. That makes sense. A question on the patent settlement with BAT. Can you elaborate on the implications of that? I know you've been investing in manufacturing capabilities in the U.S. for IQOS. How does the settlement influence your ability to import into the U.S., and does it change your manufacturing strategy?

Jacek Olczak (CEO)

Well, it actually allows us now to build or connect IQOS in the U.S. to the supply chain, which is, you know, on the international supply chain from day one, which is operating with all the benefits of economies of scale, et cetera. So obviously, you know, as the mitigating type of a strategy we have been implementing in parallel, you know, the alternative manufacturing in the U.S., but that obviously, you know, is the first factory, first volumes, will obviously result in the increased or elevated cost both on the devices and logistics. And it will take a while until U.S., on a standalone basis, would close at the same level of the benefits or the cost, if you like, as we had on international. So for us, it clears the path for IQOS, both Blade and ILUMA.

So we're bringing a lot of, or removing, actually, I should say, uncertainty from today and going forward. And IQOS, you know, because it is U.S., you know, is just another market which we added to the geographical family of IQOS presence from day one, will have an access, as I said, to the pipeline of the products and its economy cost benefits as any international market. So for us, actually, is clarity and acceleration, which we gain through this agreement. And obviously, you know, as we all know, the patent litigation territory has a high degree of uncertainty. And you know, we're running a very sizable business, and we plan to have even more sizable business with our addition now over U.S.

That clarity and the visibility going forward is very important, which I believe is also important for investors too.

Pamela Kaufman (Executive Director and Equity Analyst)

Thank you. I'll pass it on.

Emmanuel Babeau (CFO)

Thank you.

Jacek Olczak (CEO)

Thank you, Pam.

Operator (participant)

We'll go next to Faham Baig with UBS.

Faham Baig (Executive Director of Equity Research)

Hi, guys. Good afternoon, thank you for the questions. I have a couple as well, please. Firstly, you're guiding for another impressive year of mid-teens heated tobacco in-market sales growth. You've highlighted Europe will be within that range, but historically, Europe's done slightly better. What markets make up the sort of difference to help you to still get to the mid-teens growth? If you could allude to the larger markets. And within that, are you assuming any contribution from Taiwan, Saudi Arabia, you mentioned, and what should we expect for the U.S. as well, please?

Jacek Olczak (CEO)

So maybe I start with the U.S. I mean, the U.S. will be the test market on IQOS 3.0, what we call the IQOS 3.0 Blade product, which is literally for us, the IQOS, and we're keep looking forward to get the more visibility from FDA with regards to the PMTA, MRTPA for IQOS ILUMA, which would allow us to accelerate the broader, more national type of a commercialization. So what we have assumed in 2024 in terms of the volume contribution of IQOS from a U.S. is very minimal. We're more treating this as, you know, testing the engine, commercial, consumer-facing type of a solutions rather than a go with the current version of the product at the full scale. We have assumed, we made some assumptions with regards of opening the markets in which IQOS today is not allowed.

The truth is that on the list is obviously Taiwan. Okay, that's, you know, it's our assumptions, and we might be right or wrong. But these are the assumptions which we made, which obviously hinges on the speed of some regulatory decisions and the laws being passed, and et cetera. And with regards to you, look, I mean, I, although I believe, and the history has shown with the flavor type of regulations in the different categories, in the different places, that over a period of time, they don't have much of an impact, if at all. But, you know, we're going in a period that some markets or markets will be to implementing these regulations. So I think we need to be cautious that there might be some distortions.

I mean, and we put in the guidelines, and we were very, very transparent with $2 billion potential with headwinds, which we typed in, in a volume outlet for IQOS. But we all have to see whether this materializes, because as a matter of prudence, we should talk about this. Other than that, you know, the underlying IQOS growth, if I look at the volume and share evolution in essentially all European markets, is pretty strong, despite the fact that very much in Central Europe, there is maybe more of the pricing competition from other heat-not-burn participants. But we also have a, you know, a very strong price competition, extremely strong price competition, I should say, both on the devices and the consumables in Japan.

You know, over the period of time, IQOS navigates through this highly, sometimes aggressive, competitive pricing environment very well. So that's, that's essentially where we are. Germany grows very nicely. Italy continues with a very strong growth momentum. These are the major driver. In Spain, we make the... We start making a significant progress. So that's it from, from me.

Faham Baig (Executive Director of Equity Research)

Yep. Thank you. And then just one other question, please. So you're expecting a smoke-free acceleration in 2024, but that's not translating into group net revenue growth acceleration in 2024. Are you expecting a softer performance in combustibles in 2024? Is that the discrepancy?

Jacek Olczak (CEO)

Yeah, I mean, look, this is the blended, this, moment in time at the beginning of the year, the, the blended outlook for the group revenues, combustibles, oral, and obviously heat-not-burn, the few other, smaller things. Look, we have managed, last year, to deliver a very strong pricing variance. I think again, it's fair to assume that that level of a pricing variance may not be repeatable this year, but there is obviously a pricing potential which we baked in, or included in the guidance. Look, for some of these things, we need—we need a little bit more visibility to start increasing our confidence.

I said lately that, you know, if I compare what Philip Morris is delivering now, you know, in a number of the years when we deliver the revenue top line about 7%, and I remember very well the times when we started transformations when we were at the 55%. Now, I think the quality what counts for us, and this is what we pay a lot of attention to—that we not only want to deliver, in a sustainable manner, the revenue growth, but then obviously important is the quality of the revenue growth. So now, having three years with the total group volumes to start with, with no decline, not even flat, but growing, then you start overlaying this by pricing and managing to or focusing to avoid the risk of some down trading, et cetera.

I think that's the 7% is there, over about 7% revenue growth is the pretty, from a qualitative perspective, not just from the nominal growth perspective, I, I would think, very positive about.

Emmanuel Babeau (CFO)

Just to add to what Jacek has just been saying, I mean, indeed, please take into account that 2023 was exceptional when it comes to price increase, with close to 9% on the combustibles portfolio. And we don't intend to repeat that. We are guiding to mid-single digit price increase for 2024. So of course, that will have an impact and make a difference on the growth of our revenue on the combustibles business.

Faham Baig (Executive Director of Equity Research)

Thank you very much.

Jacek Olczak (CEO)

Thank you.

Operator (participant)

We'll go next to Callum Elliott with Bernstein.

Callum Elliott (Senior Analyst)

Hi, good morning. Thank you for the questions, guys. I just wanted to start with disposable vaping products. We've obviously seen these products have huge success in the U.S. in 2023, and the U.K. also, driving a steeper volume decline for combustible cigarettes in those markets. Obviously, your combustible cigarette business in those two markets is not huge, if non-existent, obviously, in the U.S. So not a huge impact on your business so far. But my question is, why do you think we haven't seen equivalent success for these products in the markets that are big markets for your business and the EU in particular? And do you think this could be a threat to your business in 2024?

Jacek Olczak (CEO)

You mean the threat to our business coming from the e-vape products? Because, look, there are a number of, of factors, right? So one is that I think that the category of e-vape product is being, disposable, it's not disposable. It's very much focused in terms of the offering and innovation, frankly speaking, into the flavors, right? And we very often forget that the core of the smokers, market by market, with literally few exceptions, are very much on the, what I would characterize as a rational-traditional tobacco type of experience, flavor, et cetera. So this creates, you know, a sort of a more dual consumption or occasional consumption.

But I think for some smokers, and we know it from our experience of IQOS, it actually, you know, triggers curiosity to try, but at the same time triggers the bottleneck in terms of full-time type of a switching adoption. So that's one of the factors, okay? But there are obviously other factors that are at play.

Callum Elliott (Senior Analyst)

I guess I understand that, Jacek, but why hasn't that, you know, it seems like in the U.S. and the U.K., that hasn't been a, an impediment to these products' success over the past 12-18 months.

Jacek Olczak (CEO)

That is also, you know, the focus, right? Because, you know, U.K. was on the forefront, as was U.S., which I remember historically, of the forefront of this category. Partially, I guess, also attracted by the underlying margins in the CC category. So, you know, obviously people are going with alternatives to the places which create some sort of the, of the, you know, underlying margins opportunity, with the relative freedoms also to talk about this product. As you know, Europe very much, but also in international, some countries, these products are not very, let me put it, very warmly welcome. So let's leave aside the harm reduction principles, but there are some other, you know, opinions and reviews at, at play.

Look, we, we know that, you know, when we enter the e-vape category, that we're trying to be very disciplined, the focus, I should say, and it's very easy to enter into this category without the too much of the path to sustainable profitability. And we don't want to defocus the company from some other opportunities which we're pursuing, which in our views, are more sustainable and are for the good path for the margins and the underlying profitability. But when we enter with this product, we probably check a few other markets. I mean, our products, despite the fact that we're relatively late into the, from a category history perspective, I mean, we have gained a double-digit shares in this market, in the speed or span of less than 12 months or so.

So it also tells you there is a lot of lack of loyalties in this. There's a lot of, yes, I know that we see the volumes, there is a lot of trial. I should not very category and the parties judge it by performance in the U.S., and by definition, the consumer is more loyal, more focused, more disciplined in how they navigate there, so.

Callum Elliott (Senior Analyst)

Okay, thank you. And I have a follow-up that is related, but maybe a slightly more philosophical question. In a number of markets, and especially the U.S., related to some of these disposable vaping products, we've been seeing this formation of. I would describe it as like a dual-tiered market that's been forming with big legacy players, such as yourselves, who are sort of forced to play by the rules and hold themselves to a certain set of standards, you know, marketing only to existing nicotine users. And you know, all of us will have seen your video on ZYN last week, I would imagine.

But at the same time, we also have a secondary set of smaller, new businesses who seem to be doing basically whatever they want and often illegally, but having great success within the marketplace and attracting lots of consumers. And so I guess my question is: Do you think that this dual tier structure that seems to be forming in a number of markets structurally impairs the attractiveness of your business and your brands, when it seems like you're just being forced to play on a playing field which is not level?

Jacek Olczak (CEO)

Well, look, obviously, you know, companies like others is not even thinking about doing something which would be against or crossing the line of regulations or even, I would say, societal expectations. So obviously, I mean, our ability to compete is, you know, this is what you're asking, grossly different than some other operators or participants in the market. Especially, people who, you know, don't have a view of 10 years or 15 years outlook, but, you know, it's essentially hit and run, almost type of operation. And I think we know what has happened or what is happening in the U.S.

As I understand, some, you know, disciplining the market is now underway, but frankly speaking, is a long overview, because there is a lot of, you know, pardon my language, but a mess created in the market by the fact that regulators, law enforcement, and others, you know, designed for this, designated for these agencies will be the slow. And I think, you know, it's frankly speaking, a replica which we have for many years and still in some places have on a cigarette market. Any forms of illicit type of participations in the market is not only marketing practices, but also products, product standards. All of these things creates completely wrong, you know, distortions in the market at the expense of the legitimate, you know, tobacco category manufacturers.

It also, you know, diverts the conversation from, you know, how further we can progress and have reductions, and it diverts them into the things which relatively easy should be fixed.

Callum Elliott (Senior Analyst)

Okay. Thanks, Jacek.

Jacek Olczak (CEO)

Thank you.

Operator (participant)

Our final question will come from Matt Smith with Stifel.

Matt Smith, CFA (Director)

Hi, thank you, Jacek and Emmanuel. Wanted to ask.

Jacek Olczak (CEO)

Hi, Matt

Matt Smith, CFA (Director)

A follow-up question about investment levels embedded in the 2024 outlook. If we, if we consider the expectation for growth and operating profit margin expansion on an organic basis, can you talk about the areas where you're seeing a step up meaningfully in incremental investment? Last year, you called out $150 million of explicit investments, including $75 million or so in the U.S. It would seem like the growth in ZYN would allow you to step that investment level up while still being able to achieve your double-digit profit expectations in the market.

Jacek Olczak (CEO)

Yeah, so on the one hand, obviously, you know, we target adjusted EPS growth above our revenue growth. So obviously, assuming some improvement in the margins. But on the other hand, you know, I think we will have enough of the resources to support that revenue growth. So it is, if we would completely stop investing, obviously the expansions on EPS growth would be much more significant. Margin expansions would be much more significant, but it is not what is in our strategy. So I think, you know, once you operate at scale, and we do, because ZYN has the scale in the U.S., so the revenue is very substantial over there. It is, by the U.S. market standards.

And the revenue which we generate from a smoke-free, but also combustibles only internationally with that sort of a revenue growth rates, I think we have a room to provide for the investments to support today's and tomorrow's growth, while also allowing for the or driving the margin expansion. We also have provided here some inflationary pressure, and I think especially on the combustible, we assume that 2024 is a sort of the last year of this extraordinary type of inflationary pressure. And as of 2025 and onwards, we should start to seeing easing on the cost pressures. I think it's about the leaf and some other materials. And I think, you know, every incremental IQOS and every incremental ZYN is obviously requires proportionally less of the investment with the first IQOS and the first ZYN.

I mean, the scale offers, going forward, this opportunity for supporting the margin.

Matt Smith, CFA (Director)

Thank you, Jacek. I can leave it there and pass it on.

Jacek Olczak (CEO)

Thank you.

Emmanuel Babeau (CFO)

Thank you, Matt.

Operator (participant)

That concludes today's session.

James Bushnell (VP of Investor Relations and Financial Communications)

Before closing our call, I'd like to remind you that we'll be presenting at the CAGNY Conference on February 21st, and we hope you'll be able to join 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 hope you have a great day.

Jacek Olczak (CEO)

Thank you all.

Callum Elliott (Senior Analyst)

Thank you.

Jacek Olczak (CEO)

See you soon.

James Bushnell (VP of Investor Relations and Financial Communications)

Thank you.