Philip Morris International's (PM) Management Presents at Consumer Analyst Group of Europe (CAGE) Conference (Transcript)

| About: Philip Morris (PM)

Philip Morris International, Inc. (NYSE:PM)

Company Conference Presentation

March 21, 2016 06:15 ET


Nicholas Rolli - VP IR & Financial Communications

Jacek Olczak – CFO


Unidentified Company Representative

Philip Morris International at CAGE. 2015 was a great year for PMI with underlying organic growth at the high end of the Consumer Staples Group. And here to talk about that and to represent the firm today is Jacek Olczak, Chief Financial Officer. Also on stage we have Nick Rolli, the VP of Investor Relations and Financial Communications. Jacek joined the group in Poland in 1993, and served in various senior capacities across Europe, including President of the EU region. In 2012, he was appointed CFO. This is the firm's fifth appearance at CAGE and it's Jacek's third, so welcome back, it's a pleasure to have you here again this year.

Now the presentation this year is going to take the form which like it did last year. Jacek will make a brief presentation to start with and then we'll revert to a higher slide chart format. I will post some questions to take us up to the halfway point, and then we'll open it upto questions from the audience. So if you'd like to ask a question, you have two options; one, raise your hand, we do have a mike and micro reach you or alternatively, particularly if you want to ask a question anonymously, send in an email to the email address that I think is kind of here on the screen at the moment, it's Nick will receive the question and relay it to Jacek.

Worth mentioning a couple of things, this is unscripted, Jacek doesn't know what questions I'm going to ask; and two, there is no breakout sessions, so if you would like to ask a question, do it in the auditorium, now is your chance. So with that, I'll turn it over to Jacek.

Jacek Olczak

Good morning. I think I guess it's my third appearance at the CAGE in London. I'm glad to be here for the third time. As you know, I mean we have very good, pretty heavy and a big presentation a few weeks ago at Cagney, so we thought instead of going for some sort of repetition, we just go in quick on our key points and we can go straight to the Q&A sections.

We have the key points I think on the slide behind me, just the short recap, we had pretty strong, very strong actually last year, growing by the fact that we see the sequential year-on-year improvement in a proper industry, declined trends 2.4 last year, it's better than a year before and significantly better than two years. And two years ago, we did report quite a stronger topline growth, rather new growth with some pricing, we had in access of the $2 billion of net pricing realized in 2015, did higher than average which we had or which reminded we have one-off event in Korea when we realized some extra pricing in the first quarter of last year. So one could have sealed that obviously that hurdle will be difficult to exceed in first quarter of this year, this will have an impact on our first quarter results. But still, I mean the price increase coming very strong, this is from the one hand as I said, I mean the industry volume trends in a number of geographies, time probing that were important, they improving in the geographies which is better or higher margins. Our pricing is strong, tax for that since Korea event when we had as a substantial tax increase, on tax environment is becoming hyperbole as tax increases moderate in nature, so we don't really see the demands of the shots going for the market.

From the market wise, I mean, clearly the effort which we have taken over the last two/three years was the Marlboro Architecture, now Marlboro 2.0 and we essentially revamped in almost more than 100 market; Marlboro Red, Marlboro Full Flavor Variant, I mean this was received by the consumers very well, I mean we have improved a number of qualitative assessments by the consumers of the brand that obviously has translated in a strong share, so we can grow Marlboro share worldwide in essentially more softer geographies. Marlboro in the portfolio is supported by the very well performing Chesterfield. And these two brands have posted significant gains in a number of countries, plus always remind that in additions to Marlboro we have the wonderful brand, Parliament, which is still bit lower in terms of the size in total contribution but out in a market at the Marlboro price, actually it's even more accretive to our bottom line result than Marlboro and that brand, response to the consumer needs pretty well.

So we had a very successful year with the revert to net-net 12% EPS growth net of currency. And this is despite the fact that we scale up investment behind the new favorable momentum we had on a conventional combustible cigarette but would really excite us is the progresses you have made with our first reduce risk product platform, the heat-not-burn platform. So I guess we call from our earnings release for the full year at the Cagney presentation, I consist now presenting Japan when we're about to extend the distributions to the whole country and is presenting in Switzerland, we launched in Moscow, in Russia, in Lisbon, in Portugal, in Bucharest and the two cities in Switzerland. We could see adoption rates flying, we could see the markets steadily growing.

So as I said, we increased the investment last year but we feel very excited that that innovation is responding not only to the two key needs of the consumers, I like and enjoy the product while reducing significantly the risk of the harm cause of the product to myself but also reduce the harm to our people who are around, etcetera. And the product delivers above since you know we have invested over a year's significant amount of time and money to -- for the scientific verification, it's earlier one to know more in detail how robust our science is, I encourage you to visit our site when we very openly disclosing our science which is supporting that product. We are targeting submissions to FDA in order to obtain MRTT classifications of the product before the year end of this year.

So this is the short recap of the key things which have happened last year and what is strategically the most important for us going forward. I think we can go to your questions, which I do admit, I don't know the questions but I know the answers.

Question-and-Answer Session

Q - Unidentified Analyst

I had mentioned in the introduction that you being CFO for three or four years now, and in that time you're seeing a period of substantial change in the industry, both in a combustible cigarettes business build, so really almost that suspension type change with the augment of the reduced risk portfolio. How is the change and pace of innovation, almost a culture shocked for the organization and what changes have you had to implement with that?

Jacek Olczak

Look, I mean clearly we have barking on a cultural change in Philip Morris, it's not a shock because you're confronted with shocks if you don't anticipate a change. And when we knew that the moment when we'll enter the territory of the reduced risk products and the innovation etcetera, the cycle is going to change. And you going really to the field of -- in the field of innovations and then you have to really stay alert, keep on working in a pipeline of innovations, I mean you always going to improve product. Remember that we not only focus on platform one, the another platform vapor tobacco base, just the liquid base, not the nicotine base. So yes, I mean there is a cultural change but then again, we feel very excited about the thing as I said, we knew that we don't -- we will have to accelerate the cycles in the company, it's a lot of efforts being taken in order to make the company more agile, truly more consumer centric, if you look at the number of the companies which are winning into second grade of 21st century, I mean they are really modeling when it comes to planning to executions etcetera that is becoming sort of a mantra in PMI. But really -- I'm 23 years, more than 23 years actually in Philip Morris, I never dreamt a day that we'll participate in such an exciting time, not only for the company but I think also for the industry as such as well. So it's a good place to be.

Unidentified Analyst

Traditionally the cigarette industry I think has been one that's benefited from quite strong brand loyalty, yet relatively low spending behind brand and investment. Yet the results of your Marlboro 2.0 roll out clearly showed the virtues of having a focused brand and investing behind that brand. So my question is, do you think that changing only potentially entering a period where the recurring brand equity investment is higher than perhaps it's been in the past?

Jacek Olczak

Well, I mean at Marlboro, particular, the response well to the equity investment and if you have a product, if you have a brand like Marlboro and you're asking consumer to pay a premium price, significantly premium in many places, I think you owe something back to consumer, right, in a sense of is this brand looking the language the consumer would like that brand to be -- to have a conversation with the brand, the brand somehow still symbolizing the values which gets many consumers value about the Marlboro but they want these values to be interpreted again in a modern year-to-date context, etcetera. So I think the investments which we have on Marlboro -- I mean you don't have that many consumer goods brands which will take an effort and it's successfully concluded, therefore we can revamping the worldwide franchise in a speed of two years essentially with such a positive result. And the result which adjunct only of the quality give assessment of the brand by the consumer but which keeps on translating into better markets. And generally they don't have that many market when you have enough treaty, so the premium brand grows and I mean that's really great, and obviously that's great for the margins perspective as well.

Q – Unidentified Analyst

Okay. If you look at the affordability of cigarettes relatively price against any affordability metric really, you get a wide range of our concern 10-Q portfolio particularly excused provider, either more or less affordable market but I think current rate of pricing is at about 6%, I would think most consumer product firms would take that but is there a risk that, that uptight rate of pricing that we're approaching a tipping point and affordability, how would we identify that which markets are of concern if any at all?

Jacek Olczak

Well, 6% -- just for clarity, the 6% of the pricing variance I know we're -- does not necessary translate trading to 6% of the retail price increases to the consumer, there was a tax component trade margin etcetera in between. But looking at most of the countries, we observe to -- we're also very careful to price elasticity and the price elasticity in most countries were somehow locked in the range of -- between minus 0.3% to minus 0.5%. There were periods I have to admit that few years ago, especially in Southern Europe, Italy, where the elasticity really went up higher as you know the pricing then would be a little bit more open headed, they think a bit more to increase the prices there to bring cool down like a little EBITDA market. The reason was that number of the countries again very much into Southern Europe have been making -- have been implementing on the austerity measures which at the end of the day were doing nothing but just eroding the consumer purchasing power but quite importantly, also consumer sentiment that we had developed the strength over the last two years and hence the volumes in Southern Europe, you take Spain, you take Italy, you take some other places that really to improve the territory to the extent that you have actually the volume guidance of the industry and obviously for us.

So we watch carefully, I think if you have -- if you are operating in an environment that you have sort of regular, moderate type of price -- of tax increases which obviously you can overlay with your price increases, you're not triggering any adverse effect, you have this -- obviously, the elasticity kicks in but nothing can happen. What we don't really like as I don't really favor is, when you know the countries are holding -- any country is holding over tax increases for the prolonged period of time. I give that example of what has happened in Korea last year. Did you know we had extremely high tax increase but Korea has not changed the taxation over the last 10 years, so it's not really doing a favor to anybody, I guess to the government, nor to the industry, that you hold this excise increase for the long period of time and then you look few years later and you said, well, I mean I have lost that much revenue due to this increases, right, then I catch up and want to go. And that shot which is going for the market, I mean usually all this will might trigger acceleration of unintended consequences, I mean my own lease of trade and so on.

So this short therapy is not good for anybody, not necessary impacts that much of the smoking incident, we rather shifting the product from a legal site to the illegal site. So our thinking is that discussions which we have or advice as much as we can be heard to the government, assuming you have to maintain your excise rates in a real growth territory if you want to go for the short therapies because it never pays back. And as I said, I mean we see the moderation in this approach, the excise rates going forward will have a pretty good predictability in a number of the countries in which we operate. And since Korea two years ago, I mean nothing is really happening. So I think that's the factor when we see this moderations in the decline rates of illegal industry, and very much which is of gets important from a government perspective that moderations in the decline rate of a tax paid industry is coming from illusive trade [ph]. So actually we have double win in that equation.

Unidentified Analyst

Okay. If plain packs would have spread into more market, as the business with the portfolio probably positioned most of the premium end, would you consider changing that or any other strategic options open to you?

Jacek Olczak

Well, the other place that we can really look and analyze was the outcome or impact of implementations of the plain packaging is Australia, this is the real market case, it's not that research is not the intentions, these are the fact. And you get to start with smoking prevalence; I mean daily function of the smoking incidence along the adult population, not much really is changing, okay. And obviously, those from declining smoking incidence but let's remember that Australia at the same time has a number -- or for a number of years and continue to have a quite significant tax increases.

But if you take this with the elasticity by the consumption, and you would like to attribute plain packaging intervention into the smoking incidence of daily consumption, and serious statisticians or econometricians will tell you that there is essentially no importance, okay. So this is what happens in a double consumption. Yes, obviously if they are all in contrabands that we knew that somehow facilitating the access to the elicit product, and that obviously has an impact on the industry but not much on the consumption. You haven't done trading in Australia and know that many investors go for follow-up and making that link between a down trading and off-late park and down trading. Now down trading and the growth of the discount segment in Australia was the phenomenon present in the market well before the plain packaging was implemented. The price that flew pretty widely opened in the market and you need profitability of the Australian market per price segment was really attractive. The margins that the low price segment was generating were at the level of the premium price segment with many of our geographies.

So obviously it created an environment that some of the -- one of the competitors wanted to have more light [ph] of the penetration strategy, I mean there is room obviously to get the volumes and still get some attractive margins. If I want to confer the pricing situation in terms of the price gap and the margins available at the bottom of the market to few other countries which are considering about to implement the plain packaging, if you take U.K. or you take France etcetera, what you will see is that usually the market, U.K. market, the margins at the bottom of the market are not really even close to as attractive as the margins in a low price segment in Australia. You have a number of products in the U.K. market which essentially are trading at the zero or close to zero manufacturer's margin so you can't really go further down. The price gaps are obviously also narrower than the price gaps which we had in Australia. And, I mean in France the price gaps are even more compact as the government is very closely watching not necessarily like the growth of the low price propositions and so on sight I don't think the risk even if there were some co-relations between the down trading and the plain fight in Australia that the risk can really matter in a significant way in the countries, in the markets which I just mentioned.

So as I said, we confirmed with the regulations which on one hand takes your property, and trademark issue, IP issue etcetera and it doesn't do much to adult consumption and it doesn't really change in the short term, the major dynamics or economics of the market. Obviously, the question is how the plain part going forward in a longer term has an impact on our brand equity. Okay and brand equity is nothing else when it is translated to a position to a product in a market of how much price gap the brand can afford in between each other? If that is the value of the brand equity, how much can I price it into the market? I think you can refer to assume that over the longer term you might have the impact of the plain pack on the brand equity but I think the way to accommodate this is essentially to continue working the price gaps and as you know many governments are trying to structure the tobacco tax or excise tax in a way that it puts more pressure at the bottom of the market and therefore somehow, keeps the price up under a some sort of control.

If you have followed the recent budget announcement in the U.K., it seems that the U.K. government is willing to introduce some sort of minimum tax, minimum price whichever way they are going to decide. So you can see that their thinking is also into this direction. I think it is a manageable situation, it's not that you like it but I think it is manageable from our perspective.

Unidentified Analyst

Okay great, if I can switch gears now and talk about the reduced risk platform, like an interesting point here in the commercialization of iQOS and from what you have told us so far, every trial markets are achieving different results so, I was wondering if you could just run for us the factors that drive difference in the test markets so far.

Jacek Olczak

I know we have a number of learnings and we have closed writing the book of learnings of how, what is the best way of commercializing iQOS because the learnings essentially come from Japan and other places we continue in small doses adjusting our programs and practices. First of all, obviously there is the factor of the communication. I mean Japan is offering to be the broader access to the consumer in terms of communication channels open to us. Awareness that a product exist in the market is very critical because how consumers should think that there might be a product which other assesses so far needs without knowing that the product exists. So that's the basic role of awareness that is different ways obviously how to build awareness. I think it's relatively easier for us to do it in Japan because we have access to the communication channel. Very important is because it is a new product, behaviorally using a combustible cigarette versus using the iQOS, there are some differences and it's not 100% intuitive how to use the product, how to take the shorted heat sticks, put it into the holder, start up the device, heat the blade etcetera, it requires some sort of communication, some sort of training introduction of that product to the consumer. But we have obviously find out that most of the cigarettes in most of the places are sold by essentially a convenience channel.

Okay, a convenience channel in Italy is a tobacco monopoly. The essence of the transactions taking place there is very similar to the convenience channel. People come to the shop, they already know what they want to buy, they want the product, they want the brand, and they know the brand and the transactional times is counted in seconds' right? Twenty seconds transaction time. You can't really switch a consumer to iQOS in twenty seconds. Okay, this requires a bit of different setup, hence the result which we have in Italy obviously much lower than the results which we have in Japan. But when we started Nagoya, we also had few different trade channels and we are practicing the testing in which channels respond really better. And obviously it all came, in the flagship stores when the consumer comes and has dedicated twenty or thirty minutes of his time when they can spend with our shop, our shop assistants etcetera, they can explain the product and so on, it leads to a much higher conversion, adoption and conversion that when they just, because when they were aware of the product they went to the convenience store. They went to the 7/11 or whatever purchase and bought the product and that's it. Then they have some problems with the usage or so on.

So we have rest incurred these things and therefore conversion rate essentially week-on-week, month-on-month both in Japan and other places. When we started we had the conversion rates in a range of up to 30%, around 30% and now I think we can run now the implementation of iQOS, launch of iQOS at a 50% conversion rate so we are very nicely improving. So, these things will sort itself out. Italy is doable but we need to change the marketing. There is also the reasons why we kept, selected such a different places in which we were launching the product because you know we try to develop one, two or three toolboxes usually for the Fallopian [ph] which later on with a very comfortability clause.

Unidentified Analyst

Okay, well let's open the floor to questions. Please raise your hand if you would like to ask questions. I see Judy. You have to wait for the mic as well. Thank you.

Unidentified Analyst

I had two questions both in Japan, so you are taking you give us an indication of whether you applied the price increase in Japan. And secondly, on iCloud, just -- I think how you talked about how it's important to train consumers and really have people learn how to use the product and obviously, there is investment involved in making that happen so, as you go into other markets in Japan, can you actually make it scalable so that investments actually step down as you go forward?

Jacek Olczak

That was very difficult to hear that Judy, I apologize. Could you just -- a little bit?

Unidentified Analyst

So the first question is on Japan, well, both questions on Japan. One is, have you applied for the price increase in Japan yet and two, how do you make the investment scalable and really get more people in the context of educating consumer and not just Japan but other markets around the world?

Jacek Olczak

I don't think I should comment on the pricing in Japan at this stage in the sense that we are in middle of price changes in the market, so I think we will have wait until you will see what we do with the pricing in Japan. When it comes to the scalability of the iQOS, on one hand, we opened a number of iQOS stores not only in Tokyo but also outside Tokyo, so we are trying to generate more traffic going through that and obviously for the last presence if you like, numerically in the shops, we actually for the traffic for the shop we can achieve the better conversions but we are also increasing the size at least on a temporary basis of the promotional force which is well trained in order to go and talk to the potential iQOS users, but we also taking some of the resources from a combustible business and moving them at least temporary to support fully and exclusively iQOS.

So you have a mix of 3-4 things how we can make the, and we are making actually the investment scalable. Some of this doesn't have necessary the impact on our total cost because this is just the re-allocation instead of launching a given product in the combustible categories we can just devote this kind to go in and support iQOS. Some of this investment is increment, you remember we have said for the full year we assume our total cost including iQOS on ex-currency basis shouldn't be higher than 1% than the total cost base last year. I think we have it under control while ensuring that we have a proper power-- market power to go and continue switching consumers to iQOS.

Unidentified Analyst

We have a question at the back there.

Unidentified Analyst

Good morning, I am thinking given the operating income range for iQOS in 2020, have you given a sales range, have we got some sense of margin that you are expecting this product reach five years ahead?

Jacek Olczak

We have said that around 2020 we should be able to deliver about 3% to 5% market share net of cannibalization on the markets which we are having scope is about $1 trillion underlying industry volume, down to the bottom line this should give us somewhere in the range $700,000+ to $1.2 billion bottom line. The margins, most of the places we launching, when we launch the product, the consumer pulled the heat stake, the pack of 20 heat stake is sold at the price of Marlboro. Some places above Marlboro like when we used a brand of parliament in Russia, actually that was even above the parliament price. And there was a one place, Switzerland, when we have slightly lower price than the Marlboro in the market.

The reason for it also being they take into considerations what the tax rate and the tax rate classifications for Marlboro and in Switzerland we have obtained pretty-- much lower pretty favorable tax rate for iQOS that resulted in slightly lower price. Now, if you can take an impact of the lower taxation in most of the countries out of any equation, as you are selling the product at Marlboro slightly above Marlboro price and you know that once the factory is fully operational, the cost of the product should be pretty comparable to combustible cigarettes. Essentially adding the product in your portfolio in a premium segment so by definition you have accretion of the margins and obviously this is amplified if you have a better i.e.; lower tax treaty. So that's essentially the economics I hope by answered your question.

Unidentified Analyst

I have one more from May then, is there an opportunity, geographically with iQOS, is there an opportunity with iQOS that you can increase penetration in some markets where you may be under investible business or even perhaps into new markets which is kind of what this platform?

Jacek Olczak

The answer is yes. Clearly, we tend to go into the markets when our presence is much stronger at the beginning, this is when we have, I mean we have infrastructure etcetera but the markets -- there are some markets where our presence is relatively small and yes obviously, iQOS gives us a further opportunity to put a foot into this market. China, I guess, we have a pretty god collaboration with corporations of the Chinese monopoly. I think there might be one day that iQOS will, in one way or another, make its way into China, this we will have to see. But it's relatively obvious in the sense that we have Marlboro which is being produced in the Southern China so obviously iQOS might find, there might be something attractive for the monopoly as well but this we will have to see.

The U.S. we don't after the subpoena from Altria, I mean we aren't present in the U.S. and iQOS gives us an opportunity of going back to the U.S. and also have some access to the revenue and the profitability pull of the market. As you know we signed an agreement with Altria that Altria will be commercializing the product on the U.S. territory and obviously we will have a participation in terms of the financials and the royalty agreement. So yes, we essentially, not only, we can the gain the share in the market in which we present, it gives us opportunity to go to the territories where we were not present or have a very insignificant presence today.

But just for the clarity, when we talk about 3% to 5% of the market in scope and market in scope re-quantifies as in date $1 trillion of industry volume this does not obviously include China, neither U.S. nor any other places in which we are really under represented so this $1 trillion is composed of the market in which we rather have a significant presence today.

Unidentified Analyst

Okay, you are becoming more advanced in the initialization of iQOS. Heat not Burn looks like a category that really allows you to transfer the competitive advantages of the combustible business across, so can you talk to us about what platforms three and four bring to the table and how they fit in the portfolio?

Jacek Olczak

I think, the history of e-cigarettes presence in Americas over the last 3, 4 or 5 years demonstrating that, I mean there is a need for the consumer to go to the alternative, the combustible product and is very much sort of a self-driven. I mean science is very important that really direct the consumers to the product which are proven by scientific evidence etcetera but they do carry much less risk than a conventional product. I think there will be consumers who will like to have still some experience with the product which contains tobacco and it's the platform one and two which are tobacco based. But based on the concept of the heat not burn and therefore it reduce exposure and therefore hopefully reduce risk. And there will be consumers who will just want for a change. I mean would just like to go and use the nicotine in a liquid form and the [indiscernible] is different, etcetera. So I think we have reasons why we have all this in investing behind all these four platforms because there will be a consumer need and actually need to have the portfolio approach rather than focus on one category as existing. We don't know for yet today but question is, we still have, what would be the interactions between our platforms. Is it just one way the consumer is switching from a combustible product and going to platform one or the other consumer to platform two or you might see that the consumers might actually like this journey between the offerings you have across all platforms.

As long as the lever on satisfaction, which is very important, satisfactions which leads to adoptions and on that you can reap the benefit, reduce exposure, reduce risk but depends on the day and the circumstances etcetera, consumer might be more comfortable using the tobacco based platform while he keeps things like iQOS or he might like to enjoy the platform, you know the cigarette looking like product which is purely electronic cigarette so I think once he opens this discovery story into single little bit of had that this mono product type of industry that you have all products who link the same obviously, differentiating to some extent by the different taste characteristics and the branding might be slowly going into past or you think you need to have portfolio of this product which are operate to the different moment of a consumer's life, and what is the best to address.

Unidentified Analyst

Okay, let me ask a question on M&A than suppose the American deal involving Laden and knows what M&A opportunities you see at the tobacco, are there any confirmative deals left or are we thinking about M&A at the moment?

Jacek Olczak

I guess I am getting this question every time I came to page. The answer is the same. I can't really make up a new answer to this question and look, what is more exciting in most of the market is the composition of the industry, I mean we very much focus on improving our presence in the market when you know, direct acquisitions or restructuring of our operations along with the partners etcetera, we can increase the presence in this market. I can always give the example of North Africa over the last few years when it's not maybe per se acquisitions, but you know there is a way when we still go and get access to the larger side of the given market.

But nothing that could classify it transformational of a business development opportunity.

Unidentified Analyst

The word that you have mentioned is the bono-type cigarette probably involved as people move between platforms. Would it still be possible for something like iQOS to be settled technology to be one type of platform for true licensing to other competitors is the first question? The second question is at the sea sweep at Philip Morris, have any of the people converted, retreated back to old -- traditional cigarettes?

Jacek Olczak

First question, iQOS could be seen as a broader platform than just the heat stick. I think important component in the whole thing is the science because we do believe it's easy to put on a chart, I have reviewed this product with the product that has the potential of being reviewed with. A critical component for us is go and produce the science which is so strong and so good in its fundamental that any party that would like to verify will come to the same conclusion. I don't think us at the times when we are just making the claims when we have to make a claim about the product which are not substantiated. There's obviously investment behind the thing but I think there is also a payback behind the thing. Payback in the sense that you might be, and we observe this change over the last year or so. In the approach of many health advocates, it is changing their approach to us once they know our science. They know that we serious about the thing, this is not just the marketing type of gimmick, in the absence of a better word but we are serious about proving that there is a way of producing a product which has a potential to significantly reduce the harm to the individual and to the public as such.

Now, second that product and the observations, none of the Philip Morris executives actually, the group of executives in Philip Morris is now longer executive, the people who are using iQOS. Essentially [indiscernible] and then I most loved the people of course smoking -- who are using combustible product, they switch to iQOS and I have not heard about a single person who would go back to combustible cigarettes. The same thing which we observed in the market, I mean adults who have adopted iQOS, so you go into the exclusive use of the product for about two weeks or so and they have no desire and they are not reverting to the previous product which is a very critical component of the success of a product vis-à-vis obtaining the staples of, you know review the risk papers. Once the profile one day will be granted by FDA or other regulators because it is very critical. You are bringing to market a product which yes, has reduced risk potential, but people don't really -- consumers don't really switch to this product to use this very occasionally and then you can't really say the device which you know half of my daily consumption into iQOS and half day remains as a combustible whether you really reduce those risk effects.

You will not be able to conclude on this. It has to be short of the 01 guide I switch, I quit smoking and I move to iQOS. And then remember we say that at that time there was more than a hundred thousand Japanese consumers who quit smoking and move to iQOS. You never have any product of that nature who would have such a success in a marketplace even if you take NRTs etcetera that would take so many people in a short period of time out of combustible smoking and go into the product which has a much better profile versus combustible cigarettes when it comes to health.

Unidentified Analyst

Thank you. And you have an update on that hundred thousand switched numbers that we know, what has happened then? Have you updated that number?

Jacek Olczak

We have not -- we have earnings call in a few weeks' time, April and there will be an update in the markets in which we start to commercialize iQOS. Like I said, the momentum is dark, we just don't want to go over every week and keep on producing a chart on how iQOS is growing.

Unidentified Analyst

Okay. I am afraid that's all we have got time for so please join me and Kevin at Philip Morris International a very warm thank you.

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