PMI Reports Strong 2022 Results and 2023 Goals

PMI Reports Strong 2022 Results and 2023 Goals
Philip Morris International discusses Q4 & full-year 2022 results and 2023 goals with a focus on NGP and HTU products.

Philip Morris International Inc. (NYSE:PM) held a webcast on the morning of February 9, 2023 Eastern Time (February 9, 2023 at 10:00 PM Beijing Time) to present its financial results for the fourth quarter and full year 2022.

In a recent PMI radio broadcast, CEO Jacek Olczak and CFO Emmanuel Babeau discussed PMI's performance in 2022 and outlook for 2023, while also addressing questions from investors and journalists. 2FIRSTS provided full coverage of the meeting and summarized the key points as follows:

Annual Key Market Data | Source: PMI

The next generation product (NGP) has received a lot of attention.

In 2022, Phillip Morris International acquired major players in the oral nicotine industry, Swiss Match, and released their next generation heated tobacco product, Iluma, with over 20 million IQOS users worldwide. The next generation of products shows strong momentum. The report lasted approximately 40 minutes, with over half of the time dedicated to discussing the market revenue of PMI's NGP products. PMI expressed their main goal for 2023 is to accelerate the achievement of a smoke-free world.

Main Goals for 2023 | Source: PMI

In their report, PMI noted that they will continue to promote their NGP (Next Generation Products) business in order to gradually replace traditional cigarettes and convert smokers. This will be supplemented by their non-combustible products such as Swiss Match and ZYN, which offer nicotine orally. The ultimate goal is to create a "smoke-free world". The company also mentioned their global partnership with Korean tobacco giant KT&G on the HTU (Heat-Not-Burn Tobacco Units) technology.

Philip Morris International (PMI) has reportedly predicted that the company will face significant challenges in the first quarter of 2023 due to the combined effects of rising costs of combustible tobacco and the turnover of IQOS users. However, PMI still remains optimistic about its forecast for 2023 and believes that its HTU department profits will benefit from the increased costs of combustible tobacco. This confidence is mainly derived from PMI's productivity and pricing power in the HTU sector.

The cost of combustible tobacco is rising, while HnB is expected to contribute significantly. Source: 2FIRSTS.

Annual performance report.

PMI's total revenue for the full year 2022 reached $31.8 billion (approximately RMB 216.2 billion), a year-on-year increase of 1.1%.

The net revenues from smoke-free products account for 32.1% of the total net revenues, or 31.3% if Russia and Ukraine are excluded. Following the acquisition of Swedish Match, PMI defines "smoke-free products" as all Swedish Match products (excluding combustible tobacco products), PMI's heating non-burning products (HnB), electronic vaping products, oral nicotine products, and health and wellness products.

In the IQOS market, the market share of heated tobacco products has increased by 1.1 percentage points, reaching 8.0%, or by 1.4 percentage points, reaching 7.9%, excluding Russia and Ukraine.

Market share of heated tobacco products increasing year by year | Source: PMI - Regular quarterly dividends increased by 1.6% to reach $1.27 per share, or $5.08 per share on an annualized basis.

The net income from smokeless products accounts for 36.0% of the total net income, or 35.6% if excluding Russia and Ukraine.

HTU's market share in the IQOS market increased by 1.4 percentage points to reach 8.5%, and without including Russia and Ukraine, it increased by 1.8 percentage points to 8.5%.

As of the end of this quarter, the estimated total number of IQOS users is around 24.9 million, of which approximately 17.8 million have switched to using IQOS and have stopped smoking (excluding Russia and Ukraine, the figures are around 20.3 million and 14.2 million respectively).

The number of users has surpassed 20 million with steady conversion rates, according to PMI.

CEO speech

Jacek Olczak stated that despite the challenges posed by the Ukrainian conflict, supply chain pressures, and global inflation, the business environment in 2022 will be challenging. However, driven by the continued growth of IQOS and strong performance in the combustible tobacco category, the company achieved very strong overall adjusted performance for the year.

Jacek Olczak, CEO of PMI, stated that the company is making progress in becoming a mostly smoke-free company, with smoke-free products generating nearly one-third of total net revenue this year. PMI has achieved two important milestones in its smoke-free transformation for 2022, including the acquisition of Sweden Match and an agreement to fully control IQOS in the US by April 2024. The company is prepared to accelerate its smoke-free journey.

By 2023, we aim to become the global leader in smokeless products with our two leading brands, IQOS and ZYN, along with continued innovation in our wider range of smokeless offerings. Despite inflationary pressure and transitional effects related to the deployment of ILUMA, we forecast organic top-line growth of 7% to 8.5% and diluted earnings per share growth of 7% to 9% on a currency-neutral basis this year.

It is expected that Swedish Match, under the leadership of ZYN in the United States, will continue to experience strong business growth in 2023. PMHH (the Dutch holding company of PMI) is currently the owner of 94.81% of the company's shares.

Question and answer segment.

Financial giants including JPMorgan and Morgan Stanley, as well as media and industry professionals, participated in the Q&A session.

A spokesperson for Morgan Stanley asked about PMI's plans for the US market, to which Jacek replied that PMI intends to go public with Iluma in the US before 2024, and will promote Swiss Match's oral nicotine products nationwide. He also added that PMI currently relies heavily on cigar sales for revenue in the US market.

When asked about the EU's ban on flavored heated tobacco, Jacek stated that the ban may have some similarities to the ban on cigarette flavors and menthol a few years ago. "To be honest, the ban on cigarette flavors did not have a substantial impact on cigarette sales, so let's wait and see.

To obtain further details, please refer to the full annual report. 2FIRSTS will continue to monitor this topic, so stay tuned.

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