Philip Morris International Inc.
Q1 2021 Earnings Call Transcript

Published: 20 Apr 2021

[Operator:]

Good day, and welcome to the Philip Morris International First Quarter 2021 Year-End 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. Media representatives on the call will also be invited to ask questions at the conclusion of questions from the investment community. I will now turn the call over to Mr. Nick Rolli, Vice President of Investor Relations and Financial Communications. Please go ahead, sir.

[Nicholas Rolli:]

Welcome, and thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2021 first quarter results. You may access the release on www.pmi.com or the PMI IR app. A glossary of terms, including the definition for Reduced Risk Products or RRPs, as well as adjustments other calculations and reconciliations to the most directly comparable US GAAP measures, and additional heated tobacco unit market share data are at the end of today's webcast slides, which are posted to the website. Unless otherwise stated, all references to IQOS are to our IQOS heat-not-burn products. All references to smoke-free products are to our RRPs. Please also note that growth rates presented on an organic basis reflect currency-neutral underlying results. Today's remarks contain forward-looking statements and projections of future results. I direct your attention to the forward-looking and cautionary statements disclosure in today's presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements. Please also note the additional forward-looking and cautionary statements related to COVID-19. It's now my pleasure to introduce Emmanuel Babeau, our Chief Financial Officer. Emmanuel?

[Emmanuel Babeau:]

Thank you, Nick, and welcome, ladies and gentlemen. I hope everyone listening to the call is safe and well. Our business delivered a strong performance in the first quarter of 2021 well ahead of expectations, reaching a record high quarterly adjusted diluted EPS of $1.57, despite the continued challenges of the global pandemic. Most impressive was the continued strong growth of IQOS, which made up 13% of our volumes and 28% of our net revenues compared to 21.7% in the prior year quarter. We continued converting adult smokers at a very good pace and reached an estimated total of 19.1 million users, of which 14 million have switched to IQOS and stopped smoking. HTU shipment volumes grew plus 30% compared to the prior year quarter with record market shares in key IQOS geographies, 12 markets with double-digit national share and the share of 7.6% overall in IQOS markets excluding the U.S. Our operating margins were also significantly above the prior year quarter, and while somewhat flattered by timing factors, the bulk of this improvement reflect strong underlying performance. The resulting combination of strong organic net revenue and adjusted diluted EPS growth leads us to raise our outlook for the year.

[Operator:]

Thank you. We will now conduct the question-and-answer portion of the conference. Our first question comes from Vivien Azer of Cowen.

[Vivien Azer:]

Good morning.

[Emmanuel Babeau:]

Good morning, Vivien.

[Vivien Azer:]

So given some of the headlines coming out of the U.S. yesterday, it might be helpful, please, for my first question, if you could just level-set on IQOS' designation in your international markets in terms of the type of tobacco product from the tax perspective? Thanks.

[Emmanuel Babeau:]

So, I guess, Vivien, if I understand, well, your question is, how is our heat-not-burn offer and product classified versus combustible cigarette in our non-U.S. geographies. Correct?

[Vivien Azer:]

That's correct. Yes, please.

[Emmanuel Babeau:]

Right. So I'm not sure that I'm going to be able to give one general answer because the classification can be different from one country to the other. I would say, today, probably the fact that the excise duty applied to our IQOS product is differentiated in the vast majority of the markets show that the treatment is differentiated, so the product is addressed already in a distinct manner on that particular element recognizing that it's a different product with a different feature than the combustible cigarettes. So we are, of course, going to see some situation that can be different from one market to the other. We are certainly welcoming a regulation that will further clarify the fact that these heat-not-burn products are clearly different and a better alternative to combustible in the future. And as I think I mentioned, we see the regulation progressing nicely country after country to take that into account, have been taking a few example during my previous speech and we expect that to continue. So, we expect more and more government regulated to further clarify distinction between heat-not-burn and other reduced risk products and combustible cigarettes and come as well with different regulation. And as you know, we are calling for a differentiated approach on two items. Certainly, on the way, we can communicate on these better alternatives and better product than the combustible cigarette. And also, of course, on taxation to make sure that we have an incentive to push the smokers to this better alternative for their health.

[Vivien Azer:]

Certainly. That's helpful. Thank you very much. And then my follow-up, if you could just provide your assessment of the risk of other countries potentially implementing a nicotine cap on combustible cigarettes. Thank you.

[Emmanuel Babeau:]

Well, I think that is something that as you rightly say, Vivien, is not implemented anywhere today. And I think it's an idea that certainly would have to be investigated in all its dimension. I think that could have a number of impact in term of illicit trade, in term of people smoking, actually more combustible product to get to the same kind of nicotine dose and of course, therefore with negative impact. So I think at that stage, frankly, it's too early to say whether this is something that could have the right intent. In any case, that would have to be coupled with very strong awareness, availability of better alternative and certainly, starting with heat-not-burn if we were to work, and that should be perceived as an incentive for people to quit smoking or to switch to this better alternative and certainly, heat-not-burn being the first one that could be perceived as a nice and satisfying alternative for smokers wanting to go for better product. So, I think that the idea is -- and it's not new, because I think the FDA had put the idea on the table already in 2017. I don't think that much work has been done so far on all the potential consequences. We believe that a lot of work would have to be done on the impact and the loss of scientific evidence would have to be gathered and studied on that. And in any case, for us, that would have to be coupled with a very strong awareness, availability and present that as an alternative for people who don't want to quit, but want to keep consuming nicotine.

[Vivien Azer:]

Understood. Thank you very much.

[Emmanuel Babeau:]

You're welcome.

[Operator:]

Our next question comes from the line of Owen Bennett of Jefferies.

[Owen Bennett:]

Good morning, Emmanuel. Hope you are well?

[Emmanuel Babeau:]

How are you?

[Owen Bennett:]

Yes, good. Thank you. And I just wanted to focus on the incremental commercial spend in the second-half. Could you maybe give some more specifics around what this will be behind? Will it largely be focused on the rollout of VEEV and ILUMA? And then linked to this, I was just wondering how many markets realistically are you targeting for VEEV and ILUMA to be in by the back end of the year? Thank you.

[Emmanuel Babeau:]

Yes. Sure, Owen. So on the commercial spending, of course, here it's expecting, we believe realistically, that in many markets, the situation on COVID will gradually improve. So everybody believe that in many markets with the vaccination and positive evolution starting in the summer, we're going to see a switch to a gradual improvement. So, as you know, during a significant period of time, because of COVID, we've been somewhat limited restricted in commercial action, I would say, across the portfolio, but of course, starting on our IQOS business. So as we see the market opening up, it will, in a general manner, be time to be back on communication, on making our IQOS product known, build awareness, again, around IQOS is absolutely key in building our IQOS business and obviously, that will trigger more commercial and marketing activity. On top of that, you're absolutely right, that will be a period of very important launch with ILUMA and VEEV. Although VEEV has been started to be launched, we expect a number of markets in the second part of the year. We see exactly what is the final number. We want to make sure that we do that well with the right focus. On ILUMA, you can expect key market to be first on the priority list for launch. So I'm not going to disclose at that stage the names, but you shouldn't expect key market for us on IQOS to be coming very first on the list. And of course, that will require specific investment to make sure that smokers or other already RRP user understand what is the benefit of ILUMA, why it is an even greater product than the IQOS 3 DUO and generating more conversion, more loyalty to our product, so that we require nice investment in the second part of the year. So that is really what is behind this $300 million to $400 million that we are mentioning here.

[Owen Bennett:]

Thanks very much. Very helpful.

[Operator:]

Our next question comes from the line of Bonnie Herzog of Goldman Sachs.

[Bonnie Herzog:]

Hi. I wanted to ask maybe...

[Emmanuel Babeau:]

Hi, Bonnie.

[Bonnie Herzog:]

…a follow-up – hi, a follow-up on ILUMA. Just trying to understand as you roll this out, what's the expectation of how incremental this can be? I mean, I guess I'm wondering from your expectations internally, are you expecting to see a lot of current or dedicated IQOS users upgrade to this device? Are you expecting for a lot of new users coming into IQOS? And then since you're introducing this broad range of consumables with ILUMA, how -- should we assume that there is some level of incremental costs view related to that and therefore a margin drag or not necessarily just trying to think about how accretive this could be for you?

[Emmanuel Babeau:]

Yes, sure, Bonnie, happy to answer on these two points. So on the impact of ILUMA, we broadly expect ILUMA to be positive. Well, first of all, of course, on acquiring new smokers, and converting new smokers, because you're going to find more intuitive, easier to use products and we make on convince with ILUMA smokers that we did not manage to convince so far. So that's the first element. Second, of course, we're going to also have a number of IQOS user or other heat-not-burn tobacco product user switching to ILUMA because it's really a severe product with a lot of benefit for the consumer. And lastly, because we believe that in term of loyalty and people fully adopting the heat-not-burn practices and not moving back to cigarettes, the fact that it's a better product is also going to play a very nice role. So we expect to have people abandoning and switching back to cigarette to be nicely lower once again because it's much easier to use, it's an overall better experience and we think it's going to be really having a nice impact on that one. So as you can see, we expect several drivers behind this ILUMA innovation to further boost our performance on the IQOS globally. Regarding consumable and globally as a launch, I would say you should expect like always when you launch a new product, you are coming with a product , not fully optimized in term of manufacturing productivity. It's a new product; at the beginning, the volume are low; you've made some investment; it takes some time to be fully optimized. So there will be beyond the cost of launching the product for marketing and commercial reason. There will be some impact at the gross margin level at the beginning because it's a new product and there will be a ramp up on the profitability of this new product and on the consumable margin on this new product. And that is of course taken into account in our guidance.

[Bonnie Herzog:]

Okay, that's very helpful. Thank you. And then, I wanted to circle back to some of the news that came out yesterday regarding a potential cap on nicotine levels on cigarettes in the US. So I guess my question is wondering if there is anything you can do to accelerate the rollout of IQOS in the US, since I imagine if a nicotine cap would ever be implemented, as I see it, IQOS would have a distinct advantage. So I'd love it if you could touch on that. And then, maybe your latest thoughts on potentially entering the US market with VEEV. Wondering if that might now become more of a possibility. And if so, will you or have you submitted a PMTA? Thanks.

[Emmanuel Babeau:]

So just on the second one, on VEEV, It is certainly our intention at a certain point in time to submit PMTA. We have not done it yet, and I don't have the timeline yet when we do that, but yes, it is certainly our intention to do that at a certain point in time. Now on growing the IQOS business, of course, we will work with our partner, Altria there. Remember, we are not commercializing IQOS in the US. We have licensed the IQOS commercialization to Altria. Let's not overreact to what is even not the news, I think it's a press article yesterday and therefore we should not run too fast to a conclusion or believe that the world is going to change overnight. I think it's just a press article. But now, we are convinced that the FDA has one clear objective, which is to promote a policy for harm reduction that will go through innovation and based on scientific evidence and they want to supervise that, the MRTP that we received on IQOS 2.4 signal that they see IQOS as a positive contribution and according to their own world, that it's appropriate to promote public health. So that means that we have with IQOS a role to play that we believe that this vision of the FDA is something that we can accompany and that we can foster and help to develop with our innovation and with IQOS, and of course, we'll make sure that with Altria, we try to maximize what we can do there

[Bonnie Herzog:]

All right. Thank you, again.

[Emmanuel Babeau:]

Thank you.

[Operator:]

Our next question comes from the line of Adam Spielman of Citi.

[Adam Spielman:]

Hi, good afternoon. I have two questions. First one is on IQOS market share. Now in the first couple of years, you've seen very good growth in 4Q versus 3Q and 1Q versus 4Q. And then market share has storms, and you can see that for example in Slide 19 and Slide 21, that sort of 2Q and 3Q, there's been no growth in Japan or a little growth and in the EU and in Russia. And I guess the question is should we expect the same sort of pattern in 2021? In other words, great growth in 4Q, you just have a great growth in Q1. But then the market share will be pretty stable for the next couple of quarters in your key markets.

[Emmanuel Babeau:]

Hi, Adam. Well, I think certainly the element, but I'm sure you have that in mind that you need to take into account is, first of all, that there is an underlying seasonality in many markets that is impacting the volume on CC and therefore the denominator being impacted that is even if IQOS continue to grow and globally heat-not-burn continue to grow very nicely that is impacting the overall market share. And in addition to that, the COVID impact on border closure impacts, impact on illicit and some market that was not tracked that emerge and that was mainly CC business, of course, there again, changing the denominator has been impacting the market share. So it's going to be a mix we believe in 2021 still with impact from the COVID of this normal seasonality plus the specific impact linked to the COVID. Now, we target a progressive growth overall, but it's true that on certain markets, we may have after a very strong acceleration in one quarter, for all this reason, the following quarter that could be with the lower growth and even stable -- of course year-on-year, it's still very strong growth. But you appreciate that. It's sequentially that the market share is potentially not growing at the same pace. It doesn't mean of course that the volume even sequentially are not growing either you can have volume growing as well with the market share stable. So I think market share has to be taken with a pinch of salt and should be appreciated over a longer period of time to be meaningful in what they say .

[Adam Spielman:]

Thank you. That's very helpful. And my second question is around your quarterly EPS guidance. And really the question is whether you're worried that people are beginning to disregard it and sort of consensus is just sort of, well, not consensus, but the way the market thinks about you is no longer under your control. Now, let me try to explain that question a bit more. In the past two or three years, every time you've given guidance on a quarter massively. Are you currently no longer take Massimo's office or at least if you give a guidance for certain out of EPS, I think it's probably going to come in 10% or 12% more, but it started again this quarter and yet the shares are fundamentally flat. Now, there might be other reasons for that, but it looks to me as if the market is sort of disregarding your EPS guidance on the quarter. And to me, that seems quite a dangerous situation for you. As I was wondering if you think that's right, if you're worried about it, why you didn't actually -- you're going to bet for new ships more at the end of the quarter and you didn't tell the market, and how you think this dynamic is going to play out going forward?

[Emmanuel Babeau:]

Yes, Adam. So taking your challenge on guidance and what we deliver, I would identify two sources for -- and two reasons, two driver for beating often the guidance. The first one and I think it's a good one, is the fact that we are often surprised by the strength of the IQOS business. So we expect something and it's coming even stronger, which is a case in this Q1 for some of the beat. So we are trying to make a fair assessment of what we can expect, and then when things are coming better, we take that as a good news, but it's true, we've been too cautious in the way we've been forecasting. The other one, which I hope everybody understand, is that in today's environment, it's more difficult to anticipate, predict things because you have a lot of volatility, and we've been -- it's true, surprised by things that we did not necessarily anticipated well and that can be a spending that we thought we would do even in March and that we eventually did not do, and in term of investment and we are going to do that later in the year or some movement in market that were not well anticipated. Again, with the COVID impact creating a lot of nervousness, volatility, and frankly, somewhat a roller coaster in some of the attitude of the trade and then -- and even pantry-loading from customers. So that would be really the true driver explaining why we've been beating on the few occasion, our guidance. And when we know early in the quarter that we're going to beat, I mean we share with that when it really happened at the end of the quarter, I think we believe that it's -- it becomes clear at the stage where we say we're going to -- we see that very close to the communication if you want. Now, on your challenge of -- or your question of, does it mean that the market is no longer following you. Well, I don't think this is a case. I think everybody understand the specificity of this COVID situation and accept that there can be volatility and things that we don't anticipated -- anticipate well. And then you know on the strength of IQOS, I think everybody can have a view on what we can deliver. I think we are today revising towards the guidance on the number of HeatSticks for the year to 95 billion to 100 billion. I think based on the Q1 that's really sharing with all investors, shareholder analysts, the best possible assumption that we can make and really reflecting our vision at that stage.

[Adam Spielman:]

Okay, thank you. It was a tough question. Thanks.

[Emmanuel Babeau:]

Thank you.

[Operator:]

Our next question comes from the line of Michael Lavery of Piper Sandler.

[Michael Lavery:]

Good morning. Thank you.

[Emmanuel Babeau:]

Hi, Michael.

[Michael Lavery:]

I just wanted to come back to your comment about pricing on HeatSticks and how you've begun to differentiate a little bit more there. And I assume if I heard you right, you said you're now doing both above and below the original price points you'd had. Obviously, in Japan, we saw what's the HEETS launch lower price point introduced, but could you give a little more color on how you're doing above where you have been price point? And is there additional new brands you have or a second or a third one? And just how that's positioned and if it's not too, too early what you're seeing so far with that?

[Emmanuel Babeau:]

Sure, Mike. Happy to do that. What is happening on our IQOS business and on the consumable is typically what you would expect in a market -- consumer good market where things start to mature a little bit. And I'm using this word with a lot of cautiousness of course because it's a very young market still, but in a few markets like Japan, for instance, a few other markets where we are not double-digit market share, it's maturing a little bit. So typically, the consumer -- the customer will expect based on his purchasing power, based on his personal lifestyle and what he wants to enjoy or what he wants to say about his life or her life around him. We'll want to have different I would say positioning on what he is consuming. So when you go for innovation, what we did with the HEETS consumable, you have one single reference at the beginning. And then rapidly, you see the need for segmenting the market, there is a category of the consumer that will be very keen to have an even severe experience. So to get to an even better consumable and ready to pay more for that, so to have higher expenses that's what we have with whether the Marlboro HeatSticks in Japan or HEETS creation in Russia, you keep the premium below the hyper premium if you want. And then, at a certain point in time, there is also a need for a medium and probably later in the future for a medium minimum positioning because other consumers will be keen to have an inferior overall experience but still great rewarding versus what they used to have with the same category of combustible and of course, at a lower price point. So I think we're just doing the right commercial marketing job to make sure that we give satisfaction to all the expectation of our customers. It happens gradually, it's relevant yet in every country. But as more and more country are becoming a bit mature, that will become increasingly relevant in more and more market in the future.

[Michael Lavery:]

Okay. That's a really helpful color. And on your sort of quote mature Japan market where you grew three or four share points year-over-year, I just want to make sure I understand some of the dynamics there. You gave the adjusted share which of course excludes some trade moves but also cigarillos and then the other share. The gap between those has widened a little bit over the five quarters you show, it's like 1.3, 1.5, 1.6, 1.9, and then 2.6. Unfortunately, we don't have great visibility on cigarillos. Is it just growth in that segment, that's the key driver there or is there also a little bit of an inventory build we should have in mind as we think about modeling 2Q and beyond?

[Emmanuel Babeau:]

No, Michael, there is no concern of inventory bill whatsoever, that certainly the level of cigarillo, remember that is a specific category. The tax advantage will fully disappear next October but there is still, until now, a very dynamic category in Japan. So what we are, as I said, seeing in Japan has been following the October excise duty increase and price increase. A very, very nice reaction from our IQOS business altogether both Marlboro HeatSticks and HEETS, we've been gaining very nice market share at the end of the year 2020 in Q4. It continued in Q1 and therefore we are disclosing very positive and genuine market share growth during the last two quarters and we are very happy with it.

[Michael Lavery:]

Okay, great. Thanks so much.

[Emmanuel Babeau:]

Thank you.

[Operator:]

Our next question comes from the line of Chris Growe of Stifel.

[Chris Growe:]

Hi, good morning.

[Emmanuel Babeau:]

Hi, Chris.

[Chris Growe:]

Questions were asked. I have just two quick ones for you. I was just curious in relation to IQOS, you've had really strong development of market share in Russia and the EU. Those were also markets where you continue to build your availability of the product. Do you have a rough approximation of how widely available IQOS is, say in the EU and Russia? Is there still more distribution potential in those markets to get it in front of more consumers?

[Emmanuel Babeau:]

Well, clearly, we said it in Russia, we have not a full coverage of the country yet. In the EU, we have a number of countries where we are in the big cities, but not yet with an important full coverage, I would say with a lot of capillarity I think Yatsik , at the time of the Investor Day, highlighted the market share that we have in key cities and signal that if we look backwards, the market share a few years upstream are good -- in big cities are a good indication of where you can get the whole market, a few years down the road. So, I think that's a pretty good indicator of the fact that we manage, of course, to get an even higher market share in key cities and the overall country and the fact that we have done that in key cities mean that we are very likely if we continue to do a good job to reach the same kind of market share globally for the country. But of course, it's not the end of the road because at the same time, we kept increasing share in the big cities, so it's an ongoing improvement if you want. But that's I think the way you should be looking at things.

[Chris Growe:]

Okay, that's helpful. Thank you. And just one other question in relation to combustibles in an area where you've had a little bit of share pressure again this quarter, and there's some reasons for that. But I just was curious when I think about commercial investments in the second-half of the year, I was thinking that in relation to IQOS and reduced risk products, do you need to apply more money, more attention, whatever the right word is towards combustible cigarettes to try to shore up some of that market share decline? I know some of this is being generated by the success of IQOS but just curious how you're looking at that and is there any kind of change in the competitive dynamic you're seeing in combustibles.

[Emmanuel Babeau:]

I mean we are certainly seeing competition quite active on combustible because for many of them, they have only little presence in RRP. So they are trying to protect and build their business there and especially sometimes they are under pressure because of the growth in the heat-not-burn category. Chris, we are just reminding everybody that maintaining our leadership in CC is an absolute priority. We need this leadership in order to make sure that we keep the link with the smoker that we want to convert in order to keep the impact with the trade to bring our RRP offering to customers and of course, for the financial resources that it provide in order to invest behind RRP, so you should expect us to continue to invest on CC to maintain this market share. It is clear that, although it's not going to be the majority but there will be some investment in the second-half on the CC business as we defend our business. And as we see some of the markets where we've been sometimes hit hard by the COVID and we talk about the social consumption that has been hitting Marlboro. Well, as we think the world is back to more social life in the second-half that will probably be a time to be back on making sure that we maintain and further strengthen the leadership on Marlboro as an example.

[Chris Growe:]

Okay. That's very helpful. Thank you for the color.

[Emmanuel Babeau:]

Thank you.

[Operator:]

Our next question comes from the line of Pamela Kaufman of Morgan Stanley.

[Pamela Kaufman:]

So I just wanted to come back to understanding your guidance and the cadence for this year given the strength in the first quarter and outlook for Q2, your guidance for EPS implies a moderation from about mid 20% growth in the first-half to high-single-digit growth in the second-half, and obviously, you pointed to added incremental investments, but are there any other factors impacting the second-half outlook? Because even when adjusting for the added incremental spend, it implies a notable moderation in growth. So just trying to understand what's considering the fact ...

[Emmanuel Babeau:]

So, Pamela...

[Pamela Kaufman:]

how conservative it might be?

[Emmanuel Babeau:]

Happy to take that one. So I'm sure we've highlighted the fact that the Q1 margin has been helped of course by some deferral of investment on SG&A and we signaled the fact that we'll be much more active in H2, and the $300 million to $400 million extra investment versus the first-half but we also signaled that gross margin has been -- I mean, the performance on the gross margin is absolutely impressive in Q1, and we're going to deliver a very strong performance on gross margin rate improvements through the year. But we flagged the fact that Q1 has been boosted as well by non-recurring element on manufacturing productivity and therefore we think that as it's not going to be reproduced, we're going to have here a moderation. We also are going to face -- and that was Bonnie's question previously, some impact coming from the launch of ILUMA and the consumable of ILUMA where there will be some pressure on gross margin because of it is -- of the launch and the time for the ramp up on manufacturing productivity and we will have also a number of investments that will be in the gross margin on distribution in the second-half. So, if you combine the fact that Q1 was exceptional for a few reasons and the fact that there is boost at the gross margin level in Q2, some element that will be impacting negatively plus increase investment that is driving the outlook for the margin in the second-half. Although, as I said, we're going to keep with a very nice margin improvement but I'm sure you've noted that already.

[Pamela Kaufman:]

Thank you. Also, I just wanted to ask about IQOS VEEV learnings and performance in your initial launch market. I understand you're leveraging your existing IQOS platform to commercialize VEEV. So how are you steering consumers across the various products?

[Emmanuel Babeau:]

Yes. So as at stage, Pamela, it's very early stage, few market very preliminary. We have very good feedback from customers reflecting the fact that it's a superior experience versus most traditional vaping experience. So we are collecting the data we are reviewing the first information coming from these markets and when we have a bit more element to share, we'll do that. I would say for the time being on the limited number of markets and with very small volume, we are happy with the qualitative feedback that we are getting from these markets.

[Pamela Kaufman:]

Great. Thank you.

[Operator:]

And ladies and gentlemen, we have time for one more question. Our final question will come from the line of Gaurav Jain of Barclays.

[Gaurav Jain:]

Hi, thank you. Good morning, Emmanuel.

[Emmanuel Babeau:]

Hi, Gaurav.

[Gaurav Jain:]

Coming back to the questions which have been asked on repeated earnings beat and earnings coming ahead of guidance, how does this impact your thought process around the magnitude and timing of share repurchases?

[Emmanuel Babeau:]

I don't think that this is having a meaningful impact, Gaurav. I think we've signaled previously that we are absolutely on track, provided of course that we receive board approval to start share buyback in the second-half of the year as announced at the time of the Investor Day. I'm not sure that at that stage, we are building a strategy based on that. As I said, I am hopeful that with the COVID headwind abating, we're going to be a better forecaster in the future for our quarterly guidance. So I don't take that as a kind of element that would be here to stay.

[Gaurav Jain:]

Sure. Thank you. And my second question is on -- and maybe I'm incorrect in what I'm saying, but as I understand, a part of IQOS is about 6 grams of tobacco, while a pack of cigarettes has 16-gram of tobacco. So does it imply that a pack of IQOS has lower nicotine versus a pack of cigarettes, which could therefore be something which helps you in this debate around nicotine caps?

[Emmanuel Babeau:]

No, Gaurav, not necessarily. It has an impact on some time in some country, not everywhere on the excise duty because excise duty is on the weight of tobacco in several countries in the world, but the weight of tobacco is not directly going to guide the nicotine content that you're going to inhale through IQOS consumption versus combustible consumption.

[Gaurav Jain:]

Okay. Brilliant. And thanks a lot.

[Emmanuel Babeau:]

Thank you. Thank you very much.

[Operator:]

That was our final question. I'd like to turn the floor back over to management for any additional or closing remarks.

[Nicholas Rolli:]

Well, thank you very much.

[Emmanuel Babeau:]

Thank you.

[Nicholas Rolli:]

That concludes our call today. Sorry, Emmanuel, unless you had a comment.

[Emmanuel Babeau:]

No, no, I was just to thank everybody for attending the call today, and we look forward to talk to you soon.

[Nicholas Rolli:]

Thank you. If you have any follow-up questions, please contact the Investor Relations team. Thank you, again, and have a great day.

[Emmanuel Babeau:]

Bye-bye. Bye, everybody.

[Operator:]

Thank you, ladies and gentlemen. This does conclude today's conference call. You may now disconnect.