The paragraph is an introduction to the Philip Morris International fourth quarter 2024 and full year results conference call. The operator provides instructions for participating in the Q&A session and mentions that the conference is being recorded. James Bushnell, Vice President of Investor Relations and Financial Communications, thanks attendees and states that a press release with detailed information is available on their website. He notes that the presentation includes forward-looking statements and advises caution. Jacek Olczak, CEO, is introduced and highlights the company's strong performance in 2024, attributing it to contributions from all key business areas.

The paragraph discusses the company's financial and operational performance, highlighting significant growth in adjusted diluted earnings per share despite currency challenges. The business outperformed the industry with growth across all categories, achieving positive volume growth for the fourth consecutive year. The IQOS product showed strong momentum globally, particularly in Japan and Europe, despite regulatory challenges. Profitability of IQOS improved due to economies of scale and strategic pricing, even as investments in brand building and innovation continued. In the US, demand surged in 2023 and continued into 2024, causing supply challenges that the company addressed. Internationally, shipments increased by 75%, expanding the global presence in 37 markets. The Vyper VIV contributed positively, strengthening its market position. The combustible business also performed well, delivering double-digit gross profit growth in the last quarter and 7% organic growth for the year, driven by strong pricing and cost management.

The company's strong performance across all categories, particularly in its smoke-free business, has resulted in significant operating leverage and exceeded expectations for operating cash flow and adjusted diluted EPS despite currency and cost challenges. The transformation towards smoke-free products is progressing well, with the smoke-free segment reaching almost $15 billion in net revenues by 2024 and contributing 40% of PMI's total net revenues in the fourth quarter. Smoke-free products account for around 60% of net revenues in the company's top five markets. The ZYN brand is a leading smoke-free brand in the US and is expanding internationally. The FDA has recognized ZYN's science and marketing with recent authorization. The company aims for continued sustainable growth beyond 2025.

The paragraph discusses the success and future prospects of ZYN, emphasizing its status as the only authorized nicotine pouch brand in the U.S. and its role in promoting smoke-free products and tobacco harm reduction. It mentions the favorable regulatory developments in various markets, despite some resistance due to ideological differences. The paragraph notes the company's strong financial performance, with significant growth in revenue and shipments, and highlights the potential for future opportunities. Emmanuel Babeau will now discuss the company's results and outlook in more detail.

The paragraph outlines the company's financial performance, highlighting a 14.9% organic operating income growth and a 15.6% currency neutral adjusted diluted EPS growth. It achieved a record $12.2 billion in operating cash flow, surpassing forecasts due to strong profits and working capital. Despite challenges like the Red Sea disruption and EU regulation impacts, Q4 saw 7.3% organic net revenue growth, aided by volume increases, a smoke-free mix, and robust pricing. This drove nearly 12% organic operating income growth and 10% currency neutral adjusted EPS growth. The company experienced positive currency impacts but faced some negative effects from hyperinflationary accounting changes in Egypt. A noncash impairment of its RBH equity investment didn't affect adjusted financials, and potential Airbnb dividend income isn't factored into future forecasts. The paragraph then contextualizes 2024 performance in relation to previous years.

The paragraph highlights the strong financial performance of the company's smoke-free and combustible products. The smoke-free business experienced significant growth in net revenue and gross profit, driven by the scaling of IQOS, favorable economics, and the success of ZYN in the US. This growth led to a substantial increase in organic gross margins. The combustible business also showed positive results, with net revenue and gross profit growth surpassing cost challenges, and is expected to further improve by 2025. The smoke-free products had a higher adjusted gross margin compared to combustibles, a gap anticipated to widen as further investments are made in market expansion, brand building, and innovation.

In 2024, the company experienced its fourth consecutive year of shipment growth, with increases of 2.3% in the fourth quarter and nearly 3% for the full year. Including the Viiv vapor business, these figures were slightly higher. Smoke-free volume growth, including Viiv, reached 13.5%, equating to a 19 billion unit equivalent growth from 2023. IQOS achieved a market sales growth of around 13% with shipment volumes of 139.7 billion. The oral smoke-free sector, particularly ZYN in the US, saw a 24.6% growth in shipment volume, and cigarette shipments had a minor increase, driven mostly by markets excluding smoke-free products like Turkey, Brazil, and India. Overall, the company's revenue growth of nearly 10% stemmed from volume increases, pricing, and product shifts towards smoke-free options, with pricing contributing notably, especially within combustible and smoke-free product categories.

The paragraph discusses the positive financial impact of the smoke-free product line, particularly the IQOS, which contributed significantly to the group's top-line growth and operating margin expansion. Geographic performance was negatively affected by combustible products, but overall networking growth helped mitigate this. The company achieved substantial cost efficiencies, saving over $750 million and progressing towards their target of $2 billion in savings by 2026. The smoke-free user base grew by over five million people in 2024, reaching approximately 38.6 million users. The paragraph highlights strong IQOS growth and consistent performance despite limited new market opportunities.

The paragraph discusses the strong growth and momentum of IQOS, a smoke-free product for nicotine consumers, particularly in the US and Europe. Despite challenges, IQOS saw a significant increase in users and profitability, with a 2024 growth projection of over 16 billion units, consistent with previous years. In Europe, IQOS experienced robust double-digit growth in several markets, such as Bulgaria, Greece, Germany, Romania, and Spain, although growth was slower in Poland and the Czech Republic. There was ongoing recovery in Italy. Overall, the region saw an increase in market share and adjusted IMS volume in the fourth quarter.

The paragraph discusses the shipment volume, growth patterns, and market performance of certain products. Inflow shipment volume increased by six percent, showing a pattern of short-term disruption with a return to growth. There is an expected impact on goods shipment and IMS for 2025. New consumer variants, like Vydia, are being introduced to more markets, achieving significant market shares in various European cities and Japan. Notably, Budapest, Rome, and London have reached high market shares, while Japan achieved a 13% IMS growth. Other markets, such as Saudi Arabia, Indonesia, and Mexico, also show promising growth.

The paragraph discusses the company's continuous innovation efforts, focusing on various product offerings and market strategies, particularly in Indonesia and the U.S. It mentions strong performance and initial positive results from different trials, including the IQOS device. The company intends to expand its product categories and sales, planning for new launches and pilot programs. In the U.S., they are preparing to launch IQOS, emphasizing consumer engagement and education. Although significant U.S. sales volumes are not expected before the launch of IQOS Illumina, there is high consumer interest. It also highlights remarkable growth in ZYN category demand despite production limitations, achieving a significant increase in shipment volumes from the previous year.

The paragraph discusses the growth and expansion of the ZYN nicotine pouch category, highlighting improvements in production and increased demand despite supply constraints. The company aims for full normalization by the second half of 2025 and plans to grow beyond its existing consumer base. The opening of a new facility in early 20XX (year not specified) is expected to support this expansion. The FDA's recent authorization of nicotine pouches marks a significant step towards ensuring public health and sustainability in the industry, as these pouches are considered a safer alternative to traditional tobacco products. The company is committed to maintaining industry standards and preventing underage use.

The paragraph discusses a company's initiatives and performance in the nicotine and vapor market. It highlights efforts to prevent unauthorized access and enhance trade initiatives, especially with the ZYN product being explored beyond video applications. The company reports significant growth in international nicotine pulp shipments, with strong momentum in markets like Pakistan, South Africa, Mexico, the UK, and others. Nicotine voucher launches have expanded to six new markets, totaling thirty-seven globally. The Vibone brand is gaining traction in Europe, holding top positions in several markets. The company's multi-category strategy includes focusing on maximizing value in the combustible business while growing smoothivity, with pricing and cost efficiency driving performance. There is a robust growth in volume and net revenue, with a notable increase in gross profit. The company expects pricing to stabilize in the future, with mixed regional performance, experiencing growth in some areas but declines in others.

The paragraph discusses the company's growth outlook for 2025, expecting continued strong growth across all categories, particularly smoke-free products, with anticipated volume growth of up to 2%. It highlights positive projections for the fifth consecutive year, with expected shipments in the US pouch category ranging from 780 to 820 million tons due to capacity expansion. This growth supports a forecasted organic net revenue increase of 6% to 8%, despite challenges like inflation and changes in Indonesia's financial model. The company also expects double-digit adjusted operating growth efficiency gains, projecting operating growth between 10.5% and 12.5%.

The paragraph discusses financial forecasts for a company's performance, including expectations for SG&A costs to rise in line with organic net revenue growth and a forecasted currency-neutral adjusted diluted EPS growth of 10.5% to 12.5%. The corporate tax rate is expected to be approximately 22.5% due to global tax changes. The company anticipates a 7% to 9% growth in dollar terms, despite a negative currency impact of 22 cents. For the first quarter of 2025, strong net revenue and operating income growth are expected, with HTU adjusted INR growth of around 10%. Shipment volumes are projected to be 35-36 billion for HPUs and 170-180 million for USU, and the adjusted diluted EPS is expected to be $1.58, considering a 4-cent negative currency impact and a higher tax rate.

The paragraph outlines the company's strong financial performance and future outlook for 2024-2026. It highlights their achievement of operating income growth and ECS delivery, projecting high single-digit growth in adjusted diluted EPS over the specified period. The text also discusses their operating cash flow goal of around $11 billion for 2024, accounting for certain costs and payments, including a $0.8 billion payment and a final US tax transition payment. Capital expenditures are expected to be around $1.5 billion. The company's efforts have allowed them to reduce their net debt to adjusted EBITDA ratio, with further improvement anticipated by 2025. The paragraph concludes with a note about 2020 being a remarkable year for PMI, and an acknowledgment from Jacek Olczak.

The paragraph outlines the company's financial strategy, highlighting its transformation efforts, strategic priorities, and confidence in achieving growth targets for 2024-2026. Emmanuel Babeau expresses optimism about the company's position and ongoing momentum, stating that the company's cost-efficient business model allows reinvestment and returning capital to shareholders. The company's annual dividend increased for the seventeenth year, reflecting long-term growth. The discussion then shifts to a Q&A session, where Matt Smith from Stifel asks about the 2025 outlook, focusing on HTU shipments and the composition of growth across different geographies and new market contributions towards the company's 2026 goals.

Jacek Olczak discusses the financial growth of his company, highlighting strong performance in Japan and parts of Europe but noting challenges in Italy and the Czech Republic due to a flavored ban. He anticipates recovery in these areas in the second half of the year and mentions that their growth is organic without relying on new market entries. Olczak criticizes governments opposing smoke-free products while allowing cigarettes. Owen Bennett then passes the conversation to Monica from Goldman Sachs, who asks about the company's margins and operating leverage, questioning if their guidance includes potential new market entries or continued investments without sales.

Jacek Olczak discusses the anticipated margin contribution from ILUM in the US, expecting robust margin expansion this year, though not as high as the previous year. Key factors include pricing contributions, a positive mix between categories, and strategies targeting specific geographies. He notes that past challenges from cost of goods sold (COGS) are largely resolved, and the tariff situation should not pose surprises due to organized supply chains. Additionally, ongoing support is expected from the scale and quality of IQOS devices.

The paragraph discusses the stabilization of device sales margins for 2024 and expectations for similar trends in 2025. There's optimism about receiving FDA authorization for I CONSULUMA by mid-year, noting the lengthy review process likely reflects thoroughness. The speaker anticipates initial negative financial impact from supporting Lumen but expects it to contribute positively to the bottom line in two to three years, without cannibalization concerns. Confidence is expressed in the international success of ICONZYLUM over the past three years, supporting user growth and acquisition.

In the paragraph, Emmanuel Babeau discusses the company's strong ambition for margin improvement by 2025, driven by several factors. He highlights the favorable mix evolution towards smoke-free products, which have higher margins, and mentions U.S. growth of ZYN as a positive contributor. The company also plans to increase prices, particularly focusing on their smoke-free portfolio. Additionally, productivity improvements and scale effects are expected to benefit costs, especially as cost pressures in the combustible business ease. Overall, the company is optimistic about organic and dollar-term margin improvements by 2025. Bonnie Herzog follows up with a question about gross margin expansion in combustibles and how it compares to the smoke-free product gross margin.

The paragraph features a financial discussion about the expansion of gross margins for smokefree and combustible products within a company. Emmanuel Babeau mentions that there's been a ten percentage point gap in margins, which has been increasing. The company aims to continue improving margins on combustible products while also advancing in smokefree products like ZYN and IQOS, potentially widening the gap. Gaurav Jain then asks about future growth expectations, particularly regarding Zendesk, noting that while current volume growth has decelerated, the company still predicts significant growth. Jacek Olczak addresses this question, indicating confidence in returning to a higher growth rate.

The paragraph discusses the evolving sales trends, particularly highlighting the brand ZEN, which has shown growth in sales velocities, unlike other major brands. It mentions the challenges of measuring demand accurately due to supply constraints and variability across retail locations. The increased capacity in Owensboro has led to significant sequential growth in the last quarter. The expectation is to meet demand by mid-year, but understanding actual demand is complex due to current out-of-stock situations affecting consumer purchases. Additionally, FDA authorizations provide visibility and stability in the market.

In the paragraph, the discussion revolves around the impact of supply shortages on retail pricing and future expectations. The participants acknowledge that supply issues have led retailers to increase markups significantly, beyond the manufacturer's modest price hikes. As supply normalizes, there is optimism that retail prices will also stabilize and potentially decrease, which could positively affect sales volumes. The company appreciates the support from retailers who face challenges due to high demand and limited product availability. There is an expectation of improved supply and pricing conditions by the second half of 2025. The conversation briefly shifts to a question about Zendesk at the end.

In the conversation, Jacek Olczak discusses the challenges in bringing the ELTA product to the market, highlighting the lengthy authorization process that took place under the previous administration. He hopes for a faster approval process from the new administration, emphasizing the need for a legal vaping market in the U.S. due to existing demand among adult nicotine users. Olczak mentions that while the FDA is addressing illegal imports, a legal market needs to be established to avoid wastage of time and resources. He is optimistic that pending authorizations, particularly for products like ICOS and ZYN, will be processed more swiftly.

In this paragraph from a conference call, Eric Serrano from Morgan Stanley asks about the impact of certain events on business operations. He inquires about the softer-than-expected performance in Italy's fourth quarter following a recovery from the flavor ban's impact. He also asks for details about the expected disruptions in Poland due to another ban and its effects on the European combustibles business. Additionally, Serrano questions the seemingly lower-than-expected foreign exchange (FX) headwinds based on spot rates and the company’s yen hedging practices. Jacek Olczak responds by indicating that the main FX impact is from the Russian ruble, which significantly contributes to the negative variance. He also notes that a non-recurring issue in Egypt affected the currency situation, with an expectation of a positive currency impact by 2025.

In the paragraph, Emmanuel Babeau discusses the impact of currency market volatility on their financials, highlighting the benefits of their hedging strategies. A significant portion of their debt is in euros, so when the euro weakens against the dollar, they experience reduced debt levels and lower interest costs in euro terms, which helps their financial trajectory. They have hedges in place for their yen exposure for 2025 and some euro exposure, which mitigates the negative effects of currency fluctuations on their profit and loss statements. This explanation provides insight into the forex impact on their financials.

The paragraph discusses the impact of a flavor ban in the EU on smoking and vaping trends. It mentions that some users have returned to cigarettes due to the ban, which has affected the sales of vape products. In Italy, a particular smoke-free proposition has become popular quickly. The text highlights the importance of monitoring overall smoke-free categories over time, considering potential mixed usage of products. It also mentions that Poland has not finalized its timeline for implementing similar regulations, suggesting that changes might occur in the future. The conversation then transitions to a new question from Hamed of UBS.

In the paragraph, Hamed asks about the dynamics between moist and dry nicotine products in the US, noting the growth of synthetic moist nicotine products by competitors, and inquires about the potential impact of the growing vapor category on the tobacco industry, particularly considering regulatory challenges. Jacek Olczak responds by acknowledging the growth of the overall market despite shifts within smoke-free categories, such as heat-not-burn and e-vapes. He highlights the complexity and difficulty in tracking the e-vape market due to diverse products like disposables, pods, and open tank systems, along with regulatory challenges. He notes regulatory bodies in the US, Europe, and the UK are increasingly focusing on better regulating the market.

The paragraph discusses the progress towards regulating a product category, expected to normalize by 2025 or 2026. The speaker highlights challenges in market discipline due to illegal products entering the market. They note a minimal year-on-year growth in the U.S. market, mentioning various new product forms, such as SKUs and moist flowers. Consumer insights suggest that moist pouch products attract moist snuff users, while dry products appeal more to smokers and vapers. Hamed expresses gratitude, and the operator concludes the session.

Phillip Stein from JPMorgan asked about the company's confidence in achieving reacceleration in growth by 2026, particularly concerning shipment volume guidance for that year. Jacek Olczak explained that for 2025, the company is focusing on organic growth in existing markets, while also acknowledging potential new market openings in the future. Olczak mentioned that around 20% of their heat-not-burn volumes are affected by the situation in Russia and Ukraine, which limits their full growth potential. He noted that if these markets were under normal conditions, they could expect more growth, implying that overcoming these limitations could contribute to growth reacceleration in 2026.

The paragraph discusses the growth prospects and strategies for "Zillooma," focusing on organic growth in current geographies and exploring the potential of multi-category products, with a particular emphasis on smoke-free products. It highlights the profitability of these products compared to traditional combustibles and the economic advantages of leveraging investments for user acquisition. The speaker indicates a shift in focus towards the total smoke-free category rather than individual products, aligning with consumer trends. Phillip Stein and Hamed conclude the discussion, and James Bushnell reminds listeners of an upcoming presentation at the CAGNY conference on February 19th.

The paragraph marks the conclusion of a conference call, extending gratitude to participants and inviting follow-up questions through the Investor Relations team, with Hamed and Jacek Olczak offering closing remarks.

This summary was generated with AI and may contain some inaccuracies.