Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 1 of 15 PageID# 36959
`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 1 of 15 PagelD# 36959
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`EXHIBIT 61
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`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 2 of 15 PageID# 36960
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`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 3 of 15 PageID# 36961
`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 3 of 15 PagelD# 36961
`JACEK OLCZAK
`
`(SLIDE 5.)
`
`Thank you, Nick, and welcome everyone. | hope youareall safe and well.
`
`Our business delivered an excellent performance in 2021, reaching record net
`revenues, adjusted diluted EPS and cash flow — with growth in overall
`volumes, high single-digit organic net revenue growth and strong double-digit
`adjusted EPS growth.
`
`This illustrates the sustainable nature of our growth based on new products
`and innovation, as demonstrated by the continued strength of /QOS, which
`delivered 31% full year organic growth in RRP net revenues. Smoke-free
`products surpassed 30% of total net revenues in Q4, as we progress towards
`our ambition of becoming a predominantly smoke-free company by 2025.
`
`We were especially pleased by the reacceleration of our business in Q4 to
`deliver a better-than-expected result. This
`reacceleration was visible in
`organic net
`revenues,
`/QOS user growth, HTU market shares across
`developed and emerging markets,
`innovation in devices and consumables,
`commercial investments and combustible share.
`
`The growth outlook for /QOS remains very positive, with outstanding initial
`results from {QOS /LUMA in Japan and Switzerland, the only two launches so
`far, and growing traction for /QOS VEEVin early launch markets.
`
`In combustibles, we essentially reached our goal of stable category sharein
`the fourth quarter despite the impact of /QOS cannibalization.
`
`During the year, we laid the foundations for our long-term growth ambitions
`beyond nicotine in Wellness and Healthcare,
`including the milestone
`acquisitions of Fertin and Vectura, which provide essential capabilities for
`future product development.
`
`Last, bolstered by strong operating cash flow, we continued to prioritize
`returns to shareholders through a 4.2% increase in the dividend and ongoing
`share repurchases.
`
`!QOS user growth recovered in Q4 to reach an estimated 21.2 million total
`users, despite ongoing tightness in device supplies in the second half of the
`year. Full year HTU shipment volumes grew 25% to reach 95billion units, with
`broad-based growth for both our volumes and the category across key
`geographies, with an especially positive reboundin the EU.
`
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`(SLIDE 6.)
`
`Turning to the headline numbers, our full year adjusted net revenues grew
`organically by 7.6%, or 10.3% in dollar terms including positive currency. This
`reflects the continued underlying strength of (QOS, and the ongoing recovery
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 4 of 15 PageID# 36962
`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 4 of 15 PagelD# 36962
`of the combustible business in many markets compared to the pandemic-
`affected prior year.
`
`Our net revenue per unit grew 5.3% organically, driven by the increasing
`proportion of /QOS in our sales mix, and pricing. Combustible pricing wasin
`line with our expectations at 2.7%, or around 4% excluding Indonesia.
`
`Our adjusted operating income margin increased by 200 basis points on an
`organic basis - in line with our expectations - with continued positive effects
`from the increasing size and profitability of /QOS, pricing, and productivity
`savings. Strong H1 expansion was tempered in the second half by the
`expected initial higher unit costs of (QOS ILUMA, geographic and category
`expansion investments, and the Q4 resumption of consumer programsin a
`number of markets.
`
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`
`Our resulting adjusted diluted EPS of $6.08 represents 17.6% growth in dollar
`terms and 15.3% currency-neutral growth, well above our prior guidance as
`!QOSusergrowth, the launch of /LUMA andtotal industry volumes exceeded
`our expectations. Finally, we generated operating cash flow of $12 billion,
`reflecting excellent underlying cash conversion in addition to strong Q4
`business results and certain timing factors.
`
`(SLIDE 7.)
`
`Looking at our Q4 performance, net revenues grew by 8.4% organically. This
`reflects the sequential
`improvement
`in /QOS user acquisition,
`the initial
`success of /LUMA in Japan, and strong overall volumes including a further
`recovery in combustibles.
`
`We delivered robust organic net revenue per unit growth of 4.1%, again
`reflecting our shifting business mix. We achievedthis despite softer pricing on
`combustibles of 1.4%, due to the factors flagged previously of continued
`pandemic-related challengesin certain markets, as well as comparison effects
`in Germany and Australia.
`
`Our Q4 adjusted operating income margin declined by 10 basis points on an
`organic basis, primarily due to the samefactors mentioned for the second half
`as accelerating business performance opened more opportunities
`for
`investments in future growth. Nonetheless, our currency-neutral adjusted
`diluted EPS again grewstrongly by 11.9%, also reflecting a lowerinterest cost
`and effective tax rate.
`
`(SLIDE 8.)
`
`Turning now to 2022 guidance. After the temporary slowdown in /QOS user
`growth in H2, 2021 the device supply situation is improving. While the
`situation remains fluid we now expect a more limited impact, allowing us to
`gradually return to prior rates of user progression over the coming quarters.
`With the remarkable success of /LUMAin its first markets, a numberof other
`innovations planned, and promising growth for /QOS in low and middle-
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 5 of 15 PageID# 36963
`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 5 of 15 PagelD# 36963
`income markets our 2022 growth fundamentals are strong and we look
`forward to an exciting year.
`
`Wenotethat the slower user growth in the second half of 2021, particularly in
`the third quarter, will have an estimated carry-over effect on our growth this
`year of around 4-5 billion HTUs. This is reflected in our 2022 expectation of
`113-118 billion HTU shipment volumes. Given this continued growth, we
`expect our full year HTU shipments to again be ahead of IMS volumes.
`
`We expect to deliver between 4% and 6% organic net revenue growth,
`keeping us well on track to deliver our 2021-23 CAGR target of more than 5%.
`This range prudently incorporates the continuing uncertainty on full device
`availability, and the pace of the ongoing pandemic recovery. For Duty Free,
`we assume no meaningful pick-up in Asian travel but a continued gradual
`recovery elsewhere.
`
`We expect our adjusted Ol margin to expand between 50 and 150 basis
`points, as the positive effects of our product transformation continue; despite
`the expectation of a moderately lower gross margin. This is essentially
`attributable to temporary /LUMA-related factors such as the higherinitial
`weight and cost of TEREA consumables and the cost of devices, which we
`expect to decrease over the 18-24 monthspost-launch as with previous major
`innovations. We also account for higherlogistic costs, where the tremendous
`uptake of /LUMA in Japan hasled to increased useofair freight; investments
`to grow capacity across our smoke-free platforms; and inflation in certain
`supply chain elements.
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`Ol margin expansion and continued reinvestmentin attractive smoke-free
`growth opportunities, and in wellness and healthcare R&D, will again be
`supported by our ongoing efficiency programs. We remain on track to deliver
`around $2billion in gross savings by 2023.
`
`Accordingly, we forecast currency-neutral adjusted diluted EPS growth of 8%
`to 11%. This translates into an adjusted diluted EPS range of $6.12-$6.30,
`including an estimated unfavorable currency impact of around 45 cents at
`prevailing rates, primarily due to translation effects. This currency impact
`notably reflects the depreciation of the Euro, Japanese Yen and Turkish Lira
`versus the dollar.
`
`This guidance includes the impact of the $785m of share repurchases made
`in 2021, which were somewhat restricted by blackout periods.
`It does not
`reflect
`the impact of repurchases in 2022, as we continue to take an
`opportunistic approach within our target of between $5 to $7 billion over 3
`years. Our guidancealso reflects the impact of acquired businesses which we
`expect to generate underlying operating incomein line with our business plan,
`but with an operating loss of around $150 million, or approximately 1% of
`adjusted diluted EPS, which we will come backto explain later.
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 6 of 15 PageID# 36964
`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 6 of 15 PagelD# 36964
`(SLIDE 9.)
`
`there are a number of other assumptions
`As outlined in today's release,
`underpinning our outlook. We expect the total industry volume of cigarettes
`and heated tobacco units, excluding the U.S. and China, to decline between
`-1% and -2%. Given our leadership in smoke-free products, the structural
`growth of the category and its growing proportion in our business, we expect
`to gain share and target broadly stable total PMI shipment volumes, within a
`range of -1% and +1%.
`
`We assumefull year combustible pricing of 3% to 4%, with a softer H1 and
`stronger H2, clearly above 2021 levels. The pricing environmentis improving,
`but still challenged in certain markets due to ongoing pandemic-related
`impacts.
`
`Our balance sheetis strong. We delivered excellent operating cash flow of
`$12 billion in 2021, reflecting robust underlying cash conversion, in addition to
`favorable timing and one-off impacts of around $0.5 billion. With further strong
`organic profit growth expected in 2022, we expect to generate around $11
`billion
`of operating cash flow subject
`to year-end working
`capital
`requirements, after accounting for the reversal of timing benefits and using
`prevailing exchange rates. As a result we raise our 2021-23 operating cash
`flow target, communicated at
`the February 2021 investor day at
`then-
`prevailing rates, from around $35billion to $36-37 billion. We also expect full-
`year capital expenditures of around $1 billion, reflecting increased capacity
`investments behind our
`smoke-free platforms,
`including
`/LUMA,
`and
`enhancing our digital commercial engine; in addition to certain projects which
`were delayed due to the pandemic.
`
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`
`looking specifically to the first quarter of 2022 we expect adjusted
`Lastly,
`diluted EPS of $1.50 to $1.55, including 15 cents of unfavorable currency at
`prevailing rates. We expect robust organic top-line growth; and operating
`margin comparisons which reflect both the very strong prior year quarter —
`which benefited from a high level of productivity savings and relatively low
`levels of investment — and the Q1, 2022 dynamics of increased device sales,
`commercial investments, /LUMA-related costs, and increases in someinputs,
`suchasfreight.
`
`Let me hand over now to Emmanuel, who will continue the presentation.
`Emmanuel.
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 7 of 15 PageID# 36965
`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 7 of 15 PagelD# 36965
`
`EMMANUEL BABEAU
`
`(SLIDE 10.)
`
`Thank you, Jacek. Turning back to our 2021 results, total shipment volumes
`increased by 4.2% in Q4, and by 2.2% for the year. This reflects continued
`strong broad-based growth from HTUs of 25%, or 18.9 billion units for the full
`year - comfortably exceeding the decline of 3.6 billion cigarettes.
`
`The 2.4% increase in our Q4 cigarette volumes reflects the continued
`sequential recovery of the total industry and of our category share,in addition
`to a 2.7 billion stick favorable inventory movement, which mainly reflects
`inventory reductionsin the prior year quarter.
`
`(SLIDE 11.)
`
`Due to the remarkable performance of /QOS, heated tobacco units comprised
`almost 14% of our total shipment volumein the fourth quarter and 13.2% for
`the year, as compared to 11% in full year 2020, 8% in 2019 and 5% in 2018.
`
`(SLIDE 12.)
`
`Our sales mix is evolving rapidly, putting us on track to become a majority
`smoke-free company by 2025. Smoke-free net revenues made up over 30%
`of our adjusted total in Q4 and 29% for the year, as compared to 24% in 2020.
`In 10 markets we have already surpassed 50%. /QOS devices accounted for
`over 6% of the $9.1 billion of 2021 RRP net revenues, with a step-up in H2
`reflecting the /[QOS /ILUMA launch; outweighing the effect of supply
`constraints on other /QOSversions.
`
`  ÿ
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`(SLIDE 13.)
`
`Wedelivered 7.6% organic growth in 2021 net revenues, on shipment volume
`growth of 2.2%, reflecting the twin engines driving our top line. Thefirst is
`pricing on combustibles and, in certain markets, on HTUs. The second is the
`increasing mix of HTUsin our business at higher net revenue per unit, which
`continues to deliver substantial growth; an increasingly powerful driver as our
`transformation accelerates.
`
`(SLIDE 14.)
`
`Let's now turn to the drivers of our 2021 margin expansion. Our gross margin
`increased by 190 basis points on an organic basis due to product mix, pricing
`and cost savings, while our adjusted marketing, administration and research
`costs were 10 basis points better as a percentage of adjusted net revenues.
`
`We generated over $800 million in gross cost savings in 2021, with around
`$550 million in manufacturing and supply chain productivities; and more than
`$250 million in SG&A efficiencies, before inflation. This represents strong
`progress towards our target of around $2 billion for 2021-23, and allows us to
`
`

`

`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 8 of 15 PageID# 36966
`Case 1:20-cv-00393-LMB-WEF Document 1425-5 Filed 09/09/22 Page 8 of 15 PagelD# 36966
`reinvest
`in
`top-line growth while continuing to deliver
`robust margin
`progression.
`
`this reflects the positive
`in H2,
`While Ol margin expansion was lower
`dynamics of our business and the ability to return to normalized investment
`levels compared to the pandemic-affected prior year. [LUMA device and HTU
`shipments commenced with higherinitial unit costs, and we reaccelerated
`investment in our commercial programs, digital engine and
`R&D, as well as
`a numberof growth opportunities across categories and geographies.
`
`Weintend to continue investing in such opportunities in 2022, but with the
`benefits of scale, operating leverage and accelerated efficiencies we continue
`to target organic SG&A increases belowthe rate of sales growth.
`
`(SLIDE 15.)
`
`Moving to market share, our share of the combustible category recovered and
`was essentially stable in Q4 on a year-over-year basis -- as our portfolio
`initiatives bear fruit and pandemic-linked restrictions recede in many markets.
`Our leadership in combustibles helps to maximize switching to smoke-free
`products, and we continueto target a stable category share overtime despite
`the impact of /QOS cannibalization. As [QOS user growth reaccelerates, we
`target at worst a slight decline in 2022.
`
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`the improving total market volume
`For the combustible category overall,
`backdrop includes notable Q4 recoveries in Indonesia, Mexico and Turkey;
`close to stable industry volumesin the EU Region, and a modestrecovery in
`Duty Freedriven by sales outside Asia. Daily consumption remains below pre-
`COVID levels in certain markets, such as the Philippines, where our share of
`marketis influenced by mo