菲利普莫里斯國際 (PM) 2015 Q1 法說會逐字稿

Good day and welcome to the Philip Morris International first-quarter 2015 earnings conference call.

Today's call is scheduled to last about one hour including remarks by Philip Morris International management and a question-and-answer session.

(Operator Instructions)

I will now turn the call over to Mr. Nick Rolli, Vice President of Investor Relations and Financial Communications.

Please go ahead, sir.

Welcome and thank you for joining us.

Earlier today we issued a press release containing detailed information on our 2015 first-quarter results.

You may access the release on our website at www.pmi.com.

During our call today we will be talking about results for the first quarter of 2015 and comparing to them to the same period in 2014 unless otherwise stated.

A glossary of terms, data tables showing adjustments to net revenues and OCI for currency and acquisitions, asset impairment exit and other costs and adjustments to earnings per share or EPS as well as reconciliations to US GAAP measures are at the end of today's webcast slides which are posted on our website.

Reduced-Risk Products or RRPs is the term we use to refer to products with the potential to reduce individual risk and population harm in comparison to smoking combustible cigarettes.

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 variety of the various factors that could cause actual results to differ materially from projections or forward-looking statements.

Now my pleasure to introduce Jacek Olczak, our Chief Financial Officer.

Thank you, Nick, and welcome ladies and gentlemen.

I am pleased to report that PMI is off to an excellent start in 2015 with robust fundamentals driving a strong business performance that is benefiting from our investments last year.

As announced in our earnings release this morning, we are raising our 2015 reported diluted EPS guidance at prevailing exchange rates by $0.05 to a range of $4.32 to $4.42.

This increase reflects a better-than-expected volume and share performance in the first quarter and an improved outlook for the balance of the year.

Our guidance continues to include approximately $1.15 per share of unfavorable currency at prevailing exchange rates.

Excluding the impact of currency our 2015 guidance represents a growth rate of 9% to 11% compared to our adjusted diluted EPS of $5.02 and 2014.

Although the total estimated unfavorable currency impact on our revised guidance remains unchanged versus our February guidance there has been a shift since then in its composition.

The positive impact of the appreciation of the Russian ruble and the depreciation of the Swiss franc has been offset by the unfavorable impact of a further strengthening of the US dollar versus most other currencies particularly the euro.

As exchange rates remain volatile we do not foresee any share repurchases in 2015 and this is reflected in today's guidance.

Let me now take you through our first-quarter results.

Organic cigarette volume grew by 1.4% driven by marketshare gains across all four regions and favorable inventory movements notably in Italy, Spain and other markets supplied by manufacturing facilities in the EU region.

This growth was partly offset by lower cigarette industry volume principally in Japan, Korea and Russia.

Excluding inventory movements organic cigarette volume declined by an estimated 0.5%.

Net revenues and adjusted OCI excluding currency and acquisitions were up by 9.1% and 16.3% respectively driven by strong pricing across all regions and favorable volume/mix in the EU and EEMA regions.

Adjusted diluted EPS of $1.16 in the quarter grew by 23.5% excluding currency.

Our performance in the quarter was flattered by a favorable comparison versus the challenging first quarter of 2014.

As we have mentioned previously the second half of the year will include incremental spending primarily behind the deployment of iQOS.

Strong pricing was the key driver of our financial performance.

Our quarterly pricing variance reached $552 million and included a gain from inventories that were able to build in Korea prior to the recent tax change.

Importantly our first-quarter pricing was strong across all four regions.

We are well-positioned to achieve a full-year pricing variance broadly in line with our historical annual average of approximately $1.8 billion.

Our results were supported by solid marketshare gains.

We performed very well in our top 30 OCI markets increasing share by 1.2 percentage points to 38.1%.

Share grew or was flat in 22 of these markets.

Our share gains were geographically broad-based and driven by a range of brands including Marlboro.

The brand share grew by 0.1 point in the EU, 0.4 points in EEMA and 0.5 points in Latin America and Canada.

Turning now to our regions, we continue to perform extremely well in EEMA which was the largest contributor to our strong currency neutral results in the quarter.

Regional marketshare increased by 0.7 points driven by the success of Parliament, Marlboro and L&M.

We gained share in the key geographies of north Africa, Russia and Saudi Arabia.

Excluding currency and acquisitions, net revenues and adjusted OCI grew by 13.9% and 24.2% respectively.

This growth was driven by higher pricing notably in Russia, Egypt and the Middle East and favorable volume/mix in nearly all of our markets outside Eastern Europe.

In Russia, our performance was outstanding.

We achieved double-digit OCI growth excluding currency despite and 9.3% decline in cigarette industry volume.

Our strong brand portfolio helped drive marketshare gains and higher local currency unit margins through net pricing.

February quarter-to-date marketshare reached 27.7%, an increase of 0.9 share points versus the same period last year.

Parliament grew by 0.5 points which drove an increase in our premium segment share of 3.5%.

Low-price Bond Street grew by 0.9 points.

Despite significant excise tax-driven price increases and the weakening of consumer purchasing power we have not observed any material shift in price segment trends.

However, as I mentioned at the CAGNY conference in February, the macroeconomic environment in Russia continues to be fragile.

We recently announced a further increase in retail selling prices of RUB4 per pack across the majority of our portfolio although this will not be reflected in the market until later this quarter.

In the EU region first-quarter cigarette industry volume declined by 1.6% or an estimated 2.7% after adjusting for favorable trade inventory movements.

For the year, we forecast a cigarette industry decline of approximately 4% as we expect recently implemented price increases to impact adult smoker demand over the balance of the year.

We maintained our regional cigarette share momentum in the first quarter with a gain of 0.4 points to 39.6%.

This increase reflected share growth in the five largest markets by cigarette industry volume as well as the positive performance of our three largest brands in the region, Marlboro, L&M and Chesterfield which all gained share.

We achieved adjusted OCI growth in the EU region of 12.9% excluding currency and acquisitions driven by higher pricing across most markets as well as favorable volume/mix notably in Southern Europe.

On the same basis, we expect the region to be a positive contributor to PMI's adjusted OCI growth this year.

I will now cover our Asia region beginning with Japan.

Cigarette industry volume declined by 13.9% in the first quarter due mainly to the impact of retail trade and consumer purchases last year in anticipation of the consumption tax-driven retail price increases effective April 1, 2014.

After adjusting for these distortions, the decline was an estimated 3.5%.

We forecast an industry decline for the year in the range of 2.5% to 3% as the trend should improve now that we have lapped the April 2014 price increases.

Our marketshare increased by 0.1 point in the quarter; however, after adjusting for the aforementioned distortions it declined moderately due mainly to the timing of competitive brand launches.

We expect our full-year share to benefit from the recent rollout of the Marlboro 2.0 architecture across all three pillars and strong pipeline of innovations.

In the Philippines we witnessed further retail price increases at the low end of the market in the first quarter.

These have restored positive unit margins in the superlow price segment while price gaps have narrowed and driven Marlboro's share growth.

We believe that the competitive environment is being improved by the recent introduction of tax stamps.

Despite significant price increases in this important market, smoking prevalence has remained stable.

The reduction in average daily consumption has been due mainly to adult smokers of brands at the low end of the market.

We attribute the decrease in large part to sticker shock following price increases for superlow price brands of approximately 27% on average since October of last year.

We expect average daily consumption to largely recover as the year unfolds and adult smokers adjust to new price levels.

We are pleased by our positive momentum in the first quarter and are optimistic about the improving OCI outlook in the Philippines.

In Indonesia first-quarter cigarette industry volume grew by 5.9%.

Quarterly volume results in the market can be volatile and thus may not be representative of the annual trend.

For the year, we forecast growth of approximately 2%.

Our marketshare grew by 0.8 points to 35.4% mainly due to strong performances in the growing machine-made kretek segment by Dji Sam Soe Magnum and Magnum Blue as well as our flagship brand in the segment Sampoerna A.

However, our hand-rolled kretek brands remained under pressure as adult smokers continue to switch to machine-made products.

This marked our fourth consecutive quarter of sequential share growth and we are well-positioned for further gains.

We recently launched U Bold in the rapidly growing full-flavor machine-made kretek segment where we are currently underrepresented but are gaining share.

The Indonesian market offers exceptional long-term prospects thanks to its growing adult population and a favorable economic environment.

We believe that we are best positioned within our industry to benefit from these trends.

In the Latin America and Canada region adjusted OCI grew by 35.1% excluding currency and acquisitions driven by pricing in Argentina, Canada and Mexico.

This impressive OCI growth enabled the region to be an important contributor to PMI's results despite its small relative base.

Our share in the region grew by 0.9 points to 38.3% driven mainly by Marlboro.

Argentina and Brazil recorded strong share performances with growth of 1.4 and 2.4 points respectively.

Turning now to our RRP portfolio, the performance of our iQOS pilot launches is in line with or exceeds our expectations.

In both Nagoya and Milan sales of HeatSticks are growing sequentially.

More importantly the launches have provided valuable earnings that are being incorporated into our plans for future rollouts and cover areas such as the flagship store concept, the logistics chain, after-sales support, channel strategy as well as consumer communication and engagement.

We remain on track to commence national expansion in Japan and Italy as well as pilot or national launches in additional markets later this year.

Let me also quickly highlight that we launched the e-vapor product Solaris last month in Spain.

We remain steadfast in our determination to offer an attractive dividend to our shareholders.

At the close last Friday our dividend yield was 5.1%.

This was significantly above that of our proxy peer group and 10-year U.S. Treasury note.

It was also well above the dividend yield of our main international tobacco competitors.

In conclusion, we achieved strong currency-neutral results in the first quarter driven by robust business fundamentals that are underpinned by our investments last year.

Our superior brand portfolio supported by a superb commercial organization is driving positive marketshare momentum and strong pricing.

We continue to focus vigorously on our costs and for 2015 anticipate a total Company cost base increase excluding RRPs and currency of approximately 1%.

The iQOS pilot launches are performing well and we are on track with our plans for national expansion and additional launches later this year.

We are managing our cash flow prudently in order to provide a generous dividend and an attractive yield.

Despite our free cash flow decline in the first quarter due mainly to currency and temporary working capital movements we forecast 2015 free cash flow to be broadly in line with last year's level.

Overall we are off to an excellent start in 2015 and are optimistic about our business outlook.

We are raising our 2015 reported diluted EPS guidance which on a currency neutral basis reflects a growth rate of 9% to 11% versus 2014 adjusted diluted EPS of $5.02.

Thank you.

I will now be happy to answer your questions.

(Operator Instructions) Chris Growe, Stifel.

Hi, good morning.

Just I have two questions for you if I could ask the first one, as you saw these better volume performance here in the first quarter even excluding the inventory movements it was much better than I expected do you think this is going to hold for the year?

Do you have an updated perhaps the forecast for the industry overall, are there areas of certain regions where you're seeing this improvement maybe more than others and just curious how much that can hold through the year?

Well we said in the remarks that we expect the EU to be in about the 4%.

There were very strong volumes in the EU in the first quarter.

Obviously as you noticed also in our remarks we said there is some movements held by some inventory movements associated with the last-quarter closure of the [BoZ] factory in Holland which is the main supplier but still excluding for this movement I think you had a strong start.

I think in view of the pricing which we're taking in the EU I think it is prudent at this stage to hold it for cost of 4% but we see a good volume momentum in a number of markets.

It's not very important in Southern Europe but also other markets.

And the rest of the world I think general for the full-year the outlook is that the industry volume should be better than last year.

It's difficult very precisely to quantify now but we could feel it that volumes in the EEMA region of Asia, Latin America there is more of the structural improvement going forward.

So I think we remain optimistic about the volume outlook for the full-year for the industry and obviously for us.

Okay and if I could just add a follow-on question in relation to your earnings guidance for the year, you had a much stronger first-quarter performance than I think what a lot of us had modeled and I'm sure what you had modeled as well.

So I'm just curious with the increase in guidance for the year being less than the first-quarter earnings beat I'm just wondering if there is an incremental level of reinvestment, if there's just conservatism built in, just how you look at the rest of the year and some of the areas you could use this flexibility to reinvest?

I think the investment plan in terms of the cost which we plan to spend for this year I mean the pacing, etc.

is as per the plan.

So I don't think at this stage that we need to go back and reinvest.

The brands in the commercial organization is well invested and the proper resources allocated behind an iQOS that's obviously going to be a second part of the year, end of the Q3 more Q4 type of a spend so this will impact obviously our results in the quarters.

As I said I guess the first quarter was somehow helped by the inventory and as I mentioned Korea pricing.

So this boosted a bit of performance but even if I would exclude this inventory movement and the Korea one-off pricing we would have a very strong double-digit growth in the quarter.

So we don't see at this stage that we need to go and to change our investment plan.

As you noticed we reconfirmed that we expect the total cost base ex-RRP to stay in the range of 1% ex-currency obviously but we are pretty confident that we are well-funded.

Okay, thank you for that color.

Bonnie Herzog, Wells Fargo.

Yes, I just had my first question is your Q1.

It was clearly very strong but I guess I was hoping you could maybe summarize what are the key items that give you the confidence to raise your full-year guidance so early in the year?

I think the confidence is coming I mean the one-offs which took place in Q1 they were all well estimated by us so they were in the original guidance.

I think this underlying momentum continuing from the last year which gives you more confidence that you can raise the guidance.

So even as I said before even excluding Korea and some inventory distortion the underlying business in the EU but also in EEMA very much I mean they give you that support in your thinking in your estimate for the full-year which prompted us to increase the guidance by $0.05.

Nothing what we have been working on very hard last year seems that this was a temporary type of a solution as a permanent improvement in the Philippines, we called the share in Japan despite, some blips in the quarter the EU is continuously delivering.

So things we spend our time and the whole efforts in the organization last year properly, so I think we built a solid base for this year.

This is what it is.

Okay, that's helpful.

Then in terms of Marlboro your volume has rebounded and was strong in the quarter, so I was hoping you could drill down a little more on this especially in light of your Marlboro 2.0 rollout.

And then I'd like to hear from you how sustainable you think this is.

Well Marlboro as I said it on a number of occasions I think at CAGNY, at CAGE most recently I mean Marlboro is in good shape.

I think the way we improved the equity of the brand of the last two or so years are helped by the commercial, are helped further as far the revamp of Marlboro Gold, now going to Marlboro 2.0 architecture.

I mean all these components are saying they start adding together and Marlboro is responding in a number of geographies.

It's not just one or two places where we see the Marlboro uptick.

The Marlboro 2.0 is just at this stage rolled out in about 48 markets and we foresee that by the year-end we should be an about 100, a little bit more than 100 markets.

So that's an effort which we are continuing.

So I think Marlboro is receiving a continued support terms of the Marlboro 2.0, plus market by market there is a pipeline of innovations which is going to hit also later in the year the market.

So I think I'm confident about the Marlboro performance this year.

That sounds really good.

Thank you.

And then just my final question is on your RRP portfolio.

First on iQOS I was hoping you could talk further about some of the learnings you mentioned.

And then second on Solaris given the vapor slow down, why was the timing right to rollout Solaris?

Maybe I start with Solaris.

I think I mentioned this before, the reason we went with Solaris into the market first I think the Altria product is compared to what you have of available in the market, a very good product.

And more importantly for us is also to go and to test and to learn how you're selling e-cigarettes, how your commercial organization should be adjusted, how you handle the trade, the supply chain, the communications with consumers, etc.

I think before you start engaging larger geographies it's just simply smart to go and test the waters in more contained geographies, in this case Spain and apply these learnings which should grossly help us with the results management going forward.

Now coming back to the iQOS look, as I said whatever we see obviously there are differences between a Milan and a Nagoya and the differences are driven by the distribution spread, there's much less outlets handling iQOS in Milan than in Nagoya.

There is a difference, a big difference in the communication possibilities, the marketing possibilities, much more open and broader reach which we can get in Japan.

Obviously this is reflected with their awareness levels to start with which are about twice as high in Nagoya than in Milan.

But if I drill it down to the number of consumers who have already purchased iQOS and the acceptance levels how many have already adopted iQOS as their permanent product, as the main product, how many still are in between i.e., using about half of an iQOS, half of a combustible cigarette and obviously there is a group which using iQOS very rarely occasionally and still stays with a combustible cigarette these results are at least at par if not better which we had in the whole of our test.

So if you go by our test results which I think we shared with the investors during the Investor Day last year you're shooting well above the 30% or above 30% adoption, the full adoption of iQOS today among the adults those who have purchased it.

Okay?

And as I indicated the shipment, sorry, the offtake volume of the HeatSticks continues is in a continuous growth.

I can't remember how many weeks essentially since the launch we can observe the sequential growth in the HeatSticks.

But obviously adoption takes time.

This is a new technology.

Heat-not-burn is not something which the consumers are so broadly familiar so is a lot of work to be done but we're very enthusiastic and optimistic based on the results which we've see in these two test markets.

Okay, that was great.

Thank you so much Jacek.

Matthew Grainger, Morgan Stanley.

Hi, good morning Jacek.

First I just wanted to clarify two things you said earlier.

You mentioned that if you were to exclude the Korea pricing benefit and the inventory timing issues in the EU you still would've had double-digit constant currency growth.

That's in EPS not operating income, correct?

Yes, that's correct.

This is on EPS.

Okay.

And the volume impact should be to whatever extent there is a reversal of that that should be concentrated in the second quarter?

Well from the volumes actually as much as they related to the typical timing differences between the Q1 and the Q2 which is mainly associated with the timing of the Easter holiday in various geographies.

I think most of that volume are locked in Q1 and you will not have -- we shouldn't have an impact of those volumes going into Q2.

Okay, great.

Thanks.

And then just two market-specific questions on Asia.

First could you just give us an update on market and competitive conditions in Australia?

I know you called out positive share but what are you seeing in terms of the industry volume reaction to the latest excise tax increases and the pricing headwinds that you faced in the market there?

There was the excise tax increase the industry and we increased the prices so there was a net price increase.

Maybe it's too early to call it but I think what we can see in Australia at least for the first two months of current trading conditions is that the dynamics of the segment growth mainly the discount segment have somehow slowed down.

I wouldn't trumpet a success but if I compared sequential-quarter developments last year versus if I take the Q3 very much Q4 and the beginning of the year you could see some stabilization or signs of a stabilization in terms of the growth of the discount segment.

So that's obviously very helpful.

I think this is a result of maybe a different pricing, maybe the discounting strategies adopted by the players there, etc.

So yes I think we are growing share.

Share in the quarter was somehow flattered by the comps because we had a pretty lousy opening of the last year.

But I think that Australia for the 2015 clearly it's less of the size of the drag that we had last year if it drag at all.

So I think we slowly month by month we are moving in the right direction.

Okay thanks.

And sorry, one last question just on Japan.

Lots of areas of strength in the quarter, this is one where performance still seems a bit soft.

And I guess I was just surprised to see your volumes still down double digits since you didn't seemingly have the same inventory benefit last year that your competitors did.

How does the double-digit decline compare to how you see consumption on your brands during the quarter and is it just the rollout of 2.0 that gives you confidence that things improve through the year?

First on inventory I think that our shipments in the first quarter were just better than the total market.

I think you could see the distortions which we had in Q1 last year somehow clearing was cleared in the Q1 of this year.

Now share frankly speaking the marginal share movement in Japan knowing that the market is very sensitive on a short-term basis like quarterly basis to the pipelining of the product for the competition -- for the new product introductions I wouldn't pay that much attention.

We're watching obviously the situation closely but I think Japan has enough of the initiatives including Marlboro 2.0 but also a pipeline of our new products to the market that we should see the share coming stronger in outer part of the year.

So I personally we don't think that this quarterly reading from Japan is a red flag which we should be worried about.

Okay, great, thanks again Jacek.

Judy Hong, Goldman Sachs.

Thank you.

So I guess a few questions on Russia.

Number one, just in terms of clarification of the inventory movement is your expectation that that was really and I think you maybe you talked about this in the context of the total Company impact but in 2Q does the inventory movement in Q1 come out in 2Q for Russia?

No, no, I think the inventory adjustments in Russia I think they just corrected the inventories at the distributor level which is more corresponding to the outlook for the total market and more importantly for the share which we have in Russia.

So maybe there are some smaller distortions of this because of shipments but I don't think it's anything of the magnitude which we should expect there the paybacks, in other words nor was this a payback from the last year.

I think it's just the normal course of the business; however, this was more connected with the recovering of the recouping the inventories to the right level.

Okay and then just maybe underlying trend in Russia just what you are seeing in terms of the elasticity to the price increases that happened in December?

The fact that you're taking on other pricing does that imply that the impact on volume has been more favorable and in the context of just competitive environment obviously you're gaining a lot of marketshare, what do you anticipate in terms of how the competitive dynamics play out in that market?

Look, I think so far if you look at the current performance of the business and the way we look at the industry I think the market holds very well.

I mean obviously you have a high 9% sort of volume declines for the total industry but this has to be read in comparisons to the very high pricing that the industry is taking, that we're taking.

So elasticity is up so far okay.

We have this disconnect in terms of a macro reading from Russia.

But as I mentioned we looked very carefully into that price segment development over the very recent period and you essentially have to split the head into two to start concluding that you have acceleration of growth of the bottom of the market or downtrading, etc.

Not at this stage but as I said Russia is something which presumably will remain on the watchlist for the full-year.

Coming to our share growth and pricing look we grew also our share for Parliament so clearly this is not just this share in the premium and above premium segment, other brands obviously contributed as well.

We just announced another price increase, as you know Russia on ex-currency looks very good.

Obviously currency has put a dent on the result, that is very clear and inflation is high and I think that this was the reason why we decided to go now to increase the price.

But so far elasticities are working as per the expectations.

You're talking 0.3, 0.4 type of elasticities if you take the price increases versus the market decline.

Okay, that's helpful.

Then just lastly on the yen hedging can you just update on where you are today versus the last guidance you've given?

Well Judy we usually don't update what we do with regards to the hedging during the year.

I can just maybe help you that if I take a $1.15 impact on our results with the previous guidance we confirm today in the $1.15 the yen just moved in that guidance by $0.01.

So I had a $0.13 impact last guidance and I have now $0.14 impact this guidance.

So this is not the yen, clearly I think hedging plays a role in that thing but also I have to admit volatility on the yen is lower than we're used to have it at the beginning of the period.

Ruble which I listed in my remarks improved a lot because the ruble is just $0.13 now in my guidance and it used to be $0.48 so this is a big improvement.

Swiss franc was negative and a current positive in the guidance to $0.10 and there is a whole list of other currencies obviously the euro plays the role but the yen was -- yen plays just one role.

So the ruble was $0.35 in the guidance or 30% of the entire guidance is the major contributor to rebalancing and us holding the $1.15 guidance.

Got it.

Okay, thank you.

Michael Lavery, CLSA.

Good morning.

Or good afternoon I guess for you.

I just wanted to come back to Korea.

You talk about the benefit from the inventory.

I assume by that you mean you were able to pull inventory ahead of January 1 so that you could sell product in this quarter with last year's lower tax, is that correct?

That's correct.

You saw (multiple speakers) prices.

And how long does that benefit last?

Is the shelf life typically it's close to six months maybe, will that benefit continue in 2Q or have you exhausted that inventory yet?

It's very much a function of how long your inventories you manage to build.

There obviously are some limitations or restrictions in a market how much you can be so you don't have a free ride on this one.

But I think mostly that benefit is in our case is should be attributed to the Q1 mostly.

There might be some slip over going into Q2 but it's mostly the Q1 event.

Okay, that's helpful.

And then just looking at your guidance obviously you're much more confident and it is early, how much volumes are far less predictable but how much of the pricing that you're expecting that's reflected in your guidance have you already realized or been able to take?

Well, because we're a bit deeper in the year we usually at this year don't give a number how much pricing we have realized.

But you might remember the initial guidance in February when we were announcing full-year results we have said that for the current 2015 year we had a 70% pricing realization and there were a number of markets which we have taken the pricing since then.

So clearly we are higher than 70%.

So you can't say by how much?

No, for competitive reasons, etc.

I can't.

Okay, that's fine.

Then just on Egypt you called out higher manufacturing costs that came from the new business structure but you also talk about favorable impacts from the new business structure as well.

Can you just give a little summary of the puts and takes there and how that nets out?

That's the impact which we are carrying from our Q2 last year, sorry actually from the middle of Q1 last year.

So this is a quarter when we're lapping that thing so it's very marginal but still had an impact in Q1 comps.

It doesn't impact your bottom line that much other than organic growth in the business.

It just impacts that your revenues are slightly up and your costs are slightly up versus how we were reporting reflecting our business structure in Egypt in 2013.

So we are comparing 100% apples to apples.

Okay, that's helpful.

Thank you very much.

Vivien Azer, Cowen and Company.

Hi, thank you very much.

My first question has to do with EU profitability.

You guys have previously indicated that you expect to generate local currency profit growth in the EU given the strong start to the year and I recognize you have the offset later on on the national launch of iQOS, but can you give us a better sense of how strongly profits might inflect in the EU?

Well clearly you had a good start of the year so that obviously the different pace going to continue for the Q2, Q3 because there is an underlying strength coming from the top line.

I think initially for the year I think we said that we expect the EU to contribute in the low single digits.

I think well I'm definitely confident that they can achieve this one.

So let me maybe stay with this statement at this stage.

That's helpful.

Thank you.

In terms of the rollout of iQOS later on in the year you noted the potential for other pilots and/or national launches.

Can you give us a little bit more color on what you're looking for in order to make a determination around that?

Is it an accommodative regulatory landscape from a tax perspective, is it supply chain, just any other color around that would be helpful?

Clearly we are looking into the market which gives us both of volume and margin opportunities.

So for obvious reasons I can't share with you today the details but as I said it's a consumer base, it's our positions in the market, it's the margin structure, it's there's other key components which we are looking into.

We have said from the very beginning that initially we will go to the markets where the margins will be rather accretive to the rest of our business.

That's terrific.

And my last question, any comment or update on Platform 2, please?

Platform 2 is start stocking up the trade in Spain, sorry Platform 2 I (inaudible) with Solaris.

Platform 2 goes on plan so it's nothing really to update versus what we have said before.

Terrific.

Thank you.

Bill Marshall, Barclays.

Thank you.

Good morning Jacek.

I just had one quick question for you.

So I believe on earlier calls you guys have kind of left the door open for share repurchases this year.

It sounds like from your comments earlier that's probably off the table for 2015.

So I was just wondering in the context of your very strong quarter what kind of milestones could you point to that would make you feel more comfortable about buying back stock as we look forward maybe past 2015 into 2016?

Look, we have not updated, unfortunately we're not in a position to update the currency guidance.

And this is the component element which impacts our reported numbers and cash flow very much okay.

So buyback, suspension of the buyback for this year is the outcome of that.

I would have to see -- we'll have to see the improvement in the currency outlook.

It's very much the dollar strength versus all others to be able to go back to the share buyback.

So yes obviously the guidance increase, the outlook for the year increase helps but this is still I have to admit overshadowed by the strong negative currency which we are confronted this year.

So we need to wait what's going to happen with the currencies in order to take back the discussion -- to come back to the discussion on a buyback.

Okay, thank you.

At this time there are no further questions.

I will now return the call to management for any additional or closing remarks.

Thank you very much.

That concludes our call for today.

If you do have follow-up questions the Investor Relations team will be here in Switzerland and available.

Thank you again and have a nice day.

Thank you for participating in the Philip Morris International first-quarter 2015 earnings conference call.

You may now disconnect.