Philip Morris International, Inc. (NYSE:PM) Barclays Consumer Staples Conference September 6, 2022 1:30 PM ET
Company Participants
Emmanuel Babeau – CFO
Conference Call Participants
Gaurav Jain – Barclays Bank
Gaurav Jain
Good afternoon, everyone. Thank you for being here. I’m Gaurav Jain, Barclay’s Global Tobacco and Cannabis analyst. With me here is Emmanuel Babeau, CFO of Philip Morris International. Good afternoon, everybody. Thank you for giving us the opportunity to host you.
Emmanuel Babeau
Great pleasure to be here.
Gaurav Jain
Sure. So we have about 35 minutes, a lot of questions to go on.
Question-and-Answer Session
Q – Gaurav Jain
So let’s just talk about, I guess, the key question on everyone’s mind, which is the current macro scenario, especially in Europe. And what has been amazing is how strong European cigarette volumes have been this year as well as the last few years? And I think they are running at actually the same levels as what [indiscernible] FY ’17. So are you seeing any macro pressures emerging everywhere?
Emmanuel Babeau
So I’m going to take your questions, and I don’t want to give [indiscernible], but I need to go through a few preliminary comments very rapidly on the [indiscernible] your question. So if you can move the slide, I draw your attention on the forward-looking and cautionary statement. Well, just a simple message to confirm that we believe that we are on track to deliver a very strong performance in 2022. We expect Q3 to come as expected with the continuation of strong performance on IQOS. We expect nice growth of in-market sales across all the key markets. We expect Europe to continue to do well.
We expect to see the continuation of a good success and acceleration in a number of emerging countries where IQOS start to get traction. We are pleased to see the continuation of the success of ILUMA. If you remember, it started in Japan, and we continue to see the positive impact in Japan of ILUMA with a positive trajectory that is absolutely still going on. We’ve been launching them in Switzerland, in Spain, in Greece. Greece is the most recent launch. It started during the summer, and we already see the benefit of launching ILUMA at the level. So in terms of capacity to acquire new users and switch convert smokers to [indiscernible] with a [indiscernible] the abandonment rate. So ILUMA is delivering what we think it would deliver. It’s a very good news because that very powerful drive in the future.
We continue to believe that we’re going to generate around 22 billion stick of shipment in the third quarter. Although we are doing that, of course, in an environment that is still extremely volatile and disrupted in its supply chain. So I’m not saying that we cannot have anticipated delays in this very, very shaky environment. But we are still targeting to deliver around 22 billion. And we expect to see, as I said, a good Q3 for IQOS, of course, always taking into account the usual seasonality effect.
We also continue to believe that in Q3, we’re going to continue to do well on combustible business on our CC business. Remember our objective is to maintain our share of segment despite the cannibalization that is coming from IQOS that has been clearly very nicely the case in the first half of the year, and our objective is to continue to deliver that in the second part of the year.
Of course, innovation hasn’t stopped within [indiscernible] is an amazing and very exciting innovation. There are a lot of things in the pipe. We’ve already told you that — for the fourth quarter of this year, we’re going to come with a new device [indiscernible]. So I’m going to keep you on the surprise and the secret for the time being, but it’s a new technology. And clearly, the objective is to come with something that would be targeting the emerging country with a lower purchasing power.
So it will be simpler design to cost, but still providing a great experience and we believe that it’s going to be in ’23 and beyond a very nice further boost and further acceleration to our growth for IQOS.
We also have been launching our first disposable vaping system, in Canada. So we are at the beginning, but there is more launches that are planned for the remaining of the year.
On Swedish Match, we [indiscernible] whether, Gaurav — some questions, but the process continues as expected. From the beginning, we said that we are expecting a closing at around Q4 of 2022. We haven’t shared that. I think that the commission has made public this morning that we have filed the case with the commission that is going now to review the project of the merger of Swedish Match and PMI. And tentatively, but it’s a day that can move. I think that they signaled that they would come with their view on the 11th of October, okay? So that’s the most recent things when it comes to Swedish Match.
I’m not coming with any update on the guidance, but I’m certainly happy to confirm that after the very good 2021 and the very strong 2022 that we expect, we believe that we are comfortably on track to beat our ’21-’23 organic growth target, both for the revenue growth we said more than and for the adjusted EPS growth and we said more than of that of course in organic growth.
That were, Gaurav, my few [indiscernible] for introduction, but I’m not going to [indiscernible] out to rebound on your question, which I think was about Europe and combustible in Europe, correct?
Gaurav Jain
Overall Europe and if you are seeing any pressure from the macro pressures, you have started seeing and how long will European strength, which I think was plus 3% volumes in 1H ’22, where how long do you think that can sustain?
Emmanuel Babeau
So Europe is obviously a place where we’re doing very well, and we are extremely pleased with our performance in Europe that is first and foremost, driven by the performance on IQOS and is [indiscernible]. But it is true that we’ve been doing quite well on CC as well with this objective to maintain our share of segment. Let’s be very clear for that business, notably for combustible, we were facing some easy comps after the year of COVID. And I believe we’re going to move in a more normal comps, and therefore, the performance should be at a lower level in terms of progression year-on-year in the second part of the year. But we certainly expect to continue to grow very nicely, IQOS, as I said, in the second part of the year.
When it comes to the macro economic pressure, I mean, not specific to Europe, but 1 has to assume that at a certain point in time, the degradation of the economic environment will have some impact on the consumption or on down-trading. I’m not sure that we see it for the time being. I think we need to close the Q3 to report on any element that we could have been identifying. And we need to see in the coming months whether something is happening in that regard.
Gaurav Jain
Sure. And Philip Morris historically a premium priced company in the market. Now IQOS has generally priced around a 15% discount to Marlboro But you have clearly a portfolio. So you sell mid-price cigarettes, cheaper cigarettes depending on which country you are operating in. So my question is that do you think IQOS benefits in a recessionary scenario, if down-trading is happening, from people down-trading from Marlboro to IQOS. The upfront device cost is so high that it is a barrier for consumers?
Emmanuel Babeau
So I think the idea that some consumers could decide at the time where their purchasing power is under pressure to switch to IQOS because at the end of the day, it’s going to be cheaper overall, even taking into account the price of the device is a nice one. I’m not sure in real life that is really having a big impact. I think that people switch to IQOS because they understand that it’s a great product that it’s limiting in a very close manner, the feeling, the experience, the ritual that they were having with their combustible cigarettes, and they have a great experience. And feeling why they consume IQOS. I’m not sure at the end of the day that the cheaper price is very often a reason for the switch.
Gaurav Jain
Sure. Again, now coming to FX, and it has been a constant pressure on your business this year. And every time I have updated FX, it is like another move down. And now we have yen at . And so is there any way to absorb all these FX pressures? And is there — like would you be able to dimensionalize, also what’s the impact on FY ’23 EPS at spot?
Emmanuel Babeau
So a few thoughts on the FX matter. And of course, we are a global company with limited today revenue in dollars. And when the dollar appreciates versus most of the currency we are being impacted. First of all, just to try to frame a little bit what we are facing. When we look at our global negative ForEx impact, about 70% is due to translation and the rest is transaction, okay? And the mismatch between currency of invoicing and currency of cost.
We do a number of things already to try to mitigate the ForEx impact. So we are hedging to some extent, the yen versus the dollar. And without the hedge, the impact this year would have been even higher. But let’s be clear, I mean, you can hedge eventually when the hedge disappear, you face the reality of the parity of the 2 currencies. So it’s only to try to mitigate — limit the volatility, I would say, on your P&L that you hedge part of the currency. And we do that, as I said on the Japanese yen.
Now there is another thing that we do that is probably very powerful and in the long term, we have half of our debt that is in euro. So that means that in front of all this cash flow that we have coming from our European business we have a European liability and for there is a match between asset and liability. And we’ll continue to do that. And the more we can put debt denominated in our key currency. I talk about euro but if 1 day, we could put Japanese yen that we would do that as well. That makes sense because then you are in asset liability management and you have a natural hedge in your balance sheet. So that’s something we’re going to continue to do.
Then there is another thing, of course, that we would love to do more is to have more exposure to the U.S. dollar on the top line. And obviously, if we conclude the Swedish Match transaction, we’ll increase the exposure to the U.S. And as you all know, we have a big ambition to grow the U.S. market on the smoke-free product. And therefore, over time, we should increase our exposure to the U.S. dollar, and that should also have an impact to mitigate our exposure to the currency.
So this is what we are doing. The last element, of course, is to try to limit the discrepancy of the lag between the currency in which we invoice and the currency in which we have our cost. And we are also working in the manufacturing supply chain in the way we are positioning our shared service center and a number of costs in order to try to have a better match between the currency with which we invoice and the currency in which we have our cost.
Gaurav Jain
Sure. Now coming to the Swedish Match acquisition. So you lowered the minimum acceptance threshold from 90% to — and I have some number like.
Emmanuel Babeau
No, we did not. So thank you, Gaurav, for giving me the opportunity to explain what has been happening, I very much appreciate. So we did not change the offer — the offer and nothing has changed. What happened is that, as always, when you have this kind of deal. You work on the financing, you sign a financing with the bank. And then you have a number of adjustments to the financing to change the number of things that on the day of the announcement, we are not whether totally finalized or you know you will have to come back to that. So what we’ve been doing is that we’ve been renegotiating with the bank, the minimum threshold of acceptance in order to get the financing for the bank. And we’ve been filing an 8-K to reflect what is a new agreement, but the offer has not changed, and the offer is clearly still with more than 90% threshold.
Gaurav Jain
So you’re still 90% acceptance from the shareholders of Swedish Match to complete the…
Emmanuel Babeau
That’s offer. That’s the offer.
Gaurav Jain
And would you be okay if let’s say, only 60% of shareholders tender to buy 60% and let the rest float on the Exchange?
Emmanuel Babeau
We are okay with the offer and for — as as it can be, the only thing I can do today in front of you is to repeat the offer, which we believe is incredibly compelling for all the stakeholders of Swedish Match, first, of course, for the shareholders. Remember, it’s a 40% premium versus where the share price was trading before the offer. And since then, let’s be very clear. The market has been rather under pressure. The economy is under tremendous pressure and doubt and volatility.
So we believe that it is a very nice offer fully reflecting the value of the company. I think it’s a great offer for the Swedish Match employees because, of course, together, we’re going to be very strong, and that’s a lot of opportunity for them. And , I think it’s also great for the Swedish Match consumer because the 2 companies together would be stronger. So that’s certainly the reason why the Board has recommended the offer. And at that stage, I think everything is on the table and it’s very clear. And the offer has no change, as I said.
Gaurav Jain
Okay, sure. And clearly, there has been a lot of concern for Altria shareholders. You know that because you are now partnering potentially with Swedish Match, then the entire route to market for IQOS will change. and there has been a dispute between Philip Morris and Altria as to what those conditions are. So can you also help us explain like who has the option in this agreement to renew the IQOS distribution agreement in the U.S. for the next 5 years?
Emmanuel Babeau
Yes. I think I should just rewind a little bit and present things with a slightly different angle. Because at the end of the day, there was an agreement with Altria indeed, and it’s confidential. So I’m not going to elaborate on what was in the agreement. But the fact is that with the ITC decision, the agreement was no longer implementable because there was a number of things in the agreements that were planned and certainly that we’re not planning that things would stop.
And therefore, we are today in discussion with Altria to see whether we can, in an amicable manner find an agreement on what the future of IQOS is going to be in the U.S. And as we said, we are working on a plan to make IQOS available again in the U.S. We mentioned that we believe we’re going to be in a position to do that in the first half of 2023. And if we reach an agreement with Altria, of course, we’ll come back to you and let you know what it is. But that’s where we are at this stage.
Gaurav Jain
Sure. Now let’s get a bit deeper into all the NGP targets that you have laid out. And clearly, being the smoke-free company is sort of a north star for Philip Morris, and that’s why you’re also doing this Swedish Match transaction. Now the way you have guided around, has NGP changed over time. So I remember there was a time when you had launched that there was, I think, the $700 million EBIT number, which will come in 2017 or ’18, then that got changed and you put an IQOS sticks’ number and share of NGPs in revenue and now you have removed the IQOS stick number because of the Russia issue, which has happened this year. Now what is the right way to essentially analyze this NGP trajectory? And is share of revenue the right number because somebody can argue that it’s units and not only units at the global level, but at each individual country level, like is your high-cost volume in Indonesia…
Emmanuel Babeau
You’re right, Gaurav. We have an objective that is very clear. We want by 2025 to be a predominantly smoke-free company so that our revenue at that stage in 2025 will be more than 50% made on smoke-free business, away from the combustible cigarette. And that has not changed. So you’re absolutely right. We need to come back to the market once the situation on Russia and Ukraine is clarified. But I think the trajectory has not changed. We’re going to become a smoke-free company, okay? I think nobody can challenge us on how serious we are about that. Remember, 5 years ago, 0% of our revenue. This year, it’s going to be more than 30%. I don’t think that you have many examples of a company that has been in such a short period of time, generating a $9 billion business from scratch, disrupting its initial business. So we are committed, and there is no way back. We’re going to go for the [indiscernible] smoke-free future. And that’s the objective.
Now to your question on, okay, how do you get to the more than 50% globally? We are already today in 15, 1-5 country above 50%.
Gaurav Jain
In revenues?
Emmanuel Babeau
In revenues, which I think is what matters is where the money is coming from and where do we do the business. So 15 markets, some of them are very big, of course, like Japan or Italy. And that is a number that keeps growing, keeps growing very, very nicely. I’m not sure we’re going to spend — plan by share, sorry, plan by market because it doesn’t make sense. We’re not going to enter into this granular level. But certainly, we’re going to report with great detail of the progress we are making to reach this 50% threshold. And as we are getting and adding more markets, we’ll report that to you. We have a number of markets already queuing beyond that. And if you look at more than 40%, we are already nicely above 15. So it’s not as if there was a big gap with the other markets, more to come. And that’s something we’re going to share with you, as I said, we progress in the journey.
Gaurav Jain
Sure. And there have been times in the past when management has said that you would actually actively start advocating for banning cigarette sales at some level of heat-not-burn penetration. The 15 markets have greater than 50% revenues coming from IQOS. And I’m sure that in the key capital cities of those countries are, IQOS share is already 60%, 70%. So which would be the first cities in the world where you would start advocating a ban on cigarette sales?
Emmanuel Babeau
It’s a fascinating debate. Clearly, there is a threshold at which you can say to the regulator, to the government, look, given where we are, given the percentage of the smoke-free products we present, which is not just heat-not-burn, I think [indiscernible] is by far the biggest category, but you’re going to have nice market share for vaping. We think for overall nicotine as well.
Well, with that, you can have a plan in x years to be agreed to phase out what remains of cigarettes and that can be done not necessarily by a ban, but you can keep increasing the excise duties to make it, of course, an incentive to switch, if you want. You can accelerate the communication on why it is important to switch to better alternatives. And then after a period of time, you can go for a ban. So you have the example of New Zealand that is going for a ban of generation on combustible cigarettes. Well, let’s — I think it’s a very interesting example. What they are doing in order to promote a smoke-free future in New Zealand. Let’s see how it unfold. It’s one way, among others. I think it requires, as I said, already big presence, the right regulation and some kind of road map. It’s not going to happen overnight because you don’t want to create frustration with the smoker. You need to accompany them. It’s not about rebellion and imposing something and it’s really helping to drive things in the right direction. So the ban has to come after a number of preparatory steps, I would say.
Gaurav Jain
And you [indiscernible] a New Zealand there and which is clearly doing a very interesting thing around how cigarette sales rather than tobacco sales should happen in the country and the minimum age to buy cigarettes should keep increasing by 1 year after 2027 or every [indiscernible]?
Emmanuel Babeau
Correct.
Gaurav Jain
So is that something you will support? Or is that something — because you could — some of the issues you highlighted, so it could lead to higher smuggling or it could lead to contraband cigarettes flowing in and…
Emmanuel Babeau
I think it has a merit of being an attempt. In New Zealand is 1 of the first countries saying, ‘I have a plan.’ And it’s not a plan where you would go for a kind of illusion [indiscernible] that would trigger the kind of [indiscernible]. It’s a kind of phase down very progressive because there is a generation that is going to keep using cigarette, and that will be allowed to keep using it on the long term.
Let’s see how we can help. I think we are extremely keen to help and come again. Everything starts with the right product because you will convince the smoker to switch with the right product. And the new legal age adult to use consumption with different products, if you have great product. That’s the start of everything. And then let’s work on the regulation, let’s make sure that it allows for the appropriate clarification and explanation on the difference of the product and the capacity to communicate. So I think it’s a very interesting initiative that we certainly support and we will be glad to accompany. Now maybe it will require some adjustments as we learn. And we’re not saying this is the only option, certainly that you have other way to get to a smoke-free countries, but that’s certainly 1 route to be [indiscernible].
Gaurav Jain
And if you could touch upon how the regulatory discussions are happening around the world right now. And I think when someone reads popular media than people almost feel that everybody is against the tobacco industry. But as I have looked at a lot of these discussions around the world and especially around how excise taxes are working in different countries, it seems that governments are actually supporting the NGP transition rather than opposing it?
Emmanuel Babeau
Yes. Let’s be clear. We see very encouraging flows of country that are going in the right direction. And we’ve seen — of course, we talked about New Zealand, you have the U.K., you have a number of other countries in Europe. We’ve seen very good legislation to promote smoke-free alternative in Egypt, in the Philippines. So there are a number of countries that are clearly heading in the right direction.
Now let’s be clear, it’s still a world which is polarized. So you still have a number of countries where I would say there is more [indiscernible] on the matter, no real willingness to enter into the debate. Sometimes it’s because people believe it’s too complex and they just don’t want to know about it. And sometimes it’s about dogma and posturing instead of going to science and fact.
And we’re not going to let down the 1 billion smoker and decrease our efforts. So we’re going to keep the dialogue open with all this country where they are not yet getting to the understanding of what can be done with the smoke-free product, the possibility to move away from the combustible cigarette. And there is a growing number of scientific evidence from real market.
I mean we’re happy to share all this data coming from Japan, from Korea, on the benefit that we can see already in the public health of the switch to better alternatives. So as you know, the data are being gathered. There is more evidence where we are hopeful that even the most reluctant country will start to move in the right direction.
Gaurav Jain
Sure. Now coming to IQOS’s lack of success across Americas. So I think in U.S., it hasn’t grown. And even if I look at market shares in Canada, Mexico, Brazil, Argentina, I cannot pick a single city where you have achieved the kind of success which you are seeing in Europe or Asia. So is it a product issue or is it that the opportunity was there in Europe? And so you have put your entire financial muscle behind customer acquisition in Europe?
Emmanuel Babeau
No — naturally, first of all, it’s not just about Europe. Gaurav, as you know, we have been very successful in a number of Asian countries and now in the Gulf. And so I think that the potential of IQOS is across the geographies. So there is no reason why IQOS is not going to be successful in Americas globally. Canada is a little bit . It’s true that it’s a specific situation given the process that is going on and it’s a big vaping market. So you have a big smoke-free category there that is vaping. But I think we see things creeping up a little bit in Canada, so we’re not giving up. With the U.S. let’s be clear, I think that the U.S. has a fantastic opportunity. But so far, we probably do not see the kind of effort drive an impact that is needed to be successful in the U.S.
For the rest, we have some promising start in Mexico, but it has been a little bit stop-and-go because there are some restrictions, as you know, some limitation on the device. So it’s very difficult to develop IQOS in Mexico because of that. But otherwise, I think it’s going to be a very successful market for IQOS once we can really sell the device really without any issue. There is a ban in Brazil. Obviously, it’s not going to stay, but it’s difficult. So we need to have a number of big markets in Latin America that are unlocked probably to accelerate. And we may also need to have a product that is more targeting the purchasing power of this country and the excitement that we have when we look at the innovation that we’re going to launch in Q4, which is going to be a much cheaper device, cheaper consumable and certainly, with very nice potential in Latin America.
Gaurav Jain
Sure. One last question and then open it up to the floor. So the beyond nicotine target is $1 billion in revenues by FY ’25. And you have done a couple of deals, Fertin and Vectura, which add $400 million in revenues. So now you’re also doing the Swedish Match transaction, which, if it completes, then the leverage will be 3x. So is that $1 billion target — is that right now off or you [indiscernible]?
Emmanuel Babeau
No, it’s not, Gaurav. The $1 billion target with what we have today is an organic target. So with what we have been building within PMI with the construction of IQOS and our journey to become a smoke-free company, plus the potential that we have acquired with Fertin on overall product and everything around wellness and of course, with Vectura on inhaled therapeutics. We have a very nice platform to develop great products with great potential in the — what we call the Wellness and Healthcare space.
Now it requires investments — we are working on the product. We know that when you are in the pharma world, there is a time to build the product. There is a time to get approval. Today, we believe that we can, with a nice acceleration, get to the $1 billion. I’m not saying that at a point in time, if a bolt-on acquisition makes sense, we could not make it. But really, it’s an organic road map that we have now for Wellness and Healthcare.
Gaurav Jain
Sure. Thank you. I will open it up to the floor now if there are any questions. Please raise you hands.
Okay. I’ll continue and just raise your hand if you have any questions. So now just coming to some specific markets. So first, Japan, your largest market. So there is no excise tax hike this year on cigarettes, and there was a bit on heated tobacco [indiscernible] prices that raise prices. Japan Tobacco raised prices and bottom down. So they’re not raising prices. And again, in the last 3 years, there was always a excise tax hike happening in Japan. So there was a positive price mix component. So when I model it out now for the next 2 years, 3 years. Is pricing in Japan — core organic pricing, is it 0 now because you will just — you’ll get a mix benefit because IQOS becomes a bigger part of the mix. But is it that core organic pricing is now 0?
Emmanuel Babeau
I don’t think you should work to that conclusion. I mean, I don’t know what’s going to happen in Japan. But Japan is going to be like all markets in the world, significantly impacted by a surge in inflation. And therefore, I think that could drive new behaviors even in Japan that has been used to very low inflation. I’m not sure that with the weakness of the yen and the general increase of prices, Japan can stay without some inflation, and therefore, the possibility also for us to increase price. So I don’t know what’s going to happen. But I’m just saying everybody is facing a new situation and I don’t think that we should draw conclusion maybe on the past on what’s going to happen in the coming years.
Gaurav Jain
Sure. And on the pricing and inflation dynamic that you just highlighted, so clearly, historically, cigarettes or tobacco industry used to price ahead of inflation, and now it is pricing behind inflation. So do you think there is an opportunity to step up on pricing in Europe or some other markets?
Emmanuel Babeau
Yes. I believe that there will be opportunity to price because inflation is extremely significant in all markets. We are ourselves facing a very significant increase of our cost. And quite naturally, like I think all companies will have to reflect that in our price. But I also believe that this will be acceptable and understandable by the consumer because the consumer will see quite broadly, I would say, some significant inflation in the product that he or she is buying. And with probably salary increase as well, which is going to give a bit more purchasing power. So I would expect that ’23 and maybe beyond, we’ll see some nice opportunity for price increase and for us to reflect the cost inflation that we are facing.
Gaurav Jain
Sure. Now coming to Russia where you are still operating, and you have given guidance ex-Russia and including Russia. And I think if I look at consensus, some analysts have put in Russia and have put out Russia. So it’s a mix of what’s happening. So how should investors think of Russia right now? Because 1 argument is that there is clearly a push to exit Russia. But then who buys Russia or how to exit Russia is very complicated. But is this a sustainable business going forward is also not very clear given what’s happening? So how should we think about it Russia?
Emmanuel Babeau
Look, Russia, obviously, is a very complex situation. So I think we make no exception in facing what is an environment full of uncertainty and difficulties and volatilities. And to be very clear, we are not exiting Russia to please any kind of stakeholder or to give the feeling that we are a good company. We have a fiduciary duty. And our Russian business is a good business and it’s worth a significant amount of money.
The reason why we are considering moving Russia is that with growing sanctions and they keep being [indiscernible], there is a risk that at a certain point in time, we may be, as a shareholder, no longer in a position to operate in Russia. And then if we haven’t been organizing the transaction, there is a risk that there is massive value destruction because of that situation.
So we are working on a scenario where we would be happy to find a better investors and owner for the Russian business. But of course, provided that we get the value for it. We’re not going to give it away. It’s a nice business. So we are in this situation. I don’t know how it’s going to end up, and I’m not going to make any kind of speculation. And for the time being, we continue, of course, to consolidate the Russian business. It is just that because we have a very high level of uncertainty on whether we’re going to find an exit for the business or not, we prefer to give a guidance that is not excluding — including sorry, Russia because otherwise, we will be gaining on something that we’re not too sure to deliver. That is a situation around Russia today.
Gaurav Jain
Sure. And just like — I would ask if there are any questions on the floor.
Unidentified Analyst
Emmanuel, I was wondering if you could just philosophically speak to us about how you think about credit ratings and maintaining single A credit ratings in the context of M&A, future M&A opportunities and what might prompt the company to consider going to BBB?
Emmanuel Babeau
[indiscernible] credit rating is 1 more [indiscernible]. So more than happy to do it. Look, we are highly cash flow generative company. We are growing fast. We have great outlook for growth. And with all these positive elements, we want to maintain a very strong balance sheet with the capacity as we are today doing, I think, with Swedish Match to make a great strategic move, which is, I think, further strengthening and accelerating our journey to become smoke-free.
Indeed, have some impact on the leverage of the company during a bit of time. But as we accelerate by all parameters, the quality of the company, Swedish Match is bringing higher growth profile for the revenue, is bringing higher profitability. It’s increasing our cash flow generation capacity. We believe we’re going to be able to rapidly be back to where we were before and of course, being even stronger at that moment.
So that’s a little bit the philosophy that we have. Whatever we do, we’re going to retain a very strong balance sheet, strong capacity to refund the debt. And if at a certain point in time for a strategic reason, we accept, and I think it really makes sense for Swedish Match to have some negative evolution on the ratio, it’s certainly with the view that we want to be back very rapidly to the previous situation and of course, be back then in a stronger position.
Gaurav Jain
Well, I think we have run out of time. Thanks a lot.
Emmanuel Babeau
Thank you very much. Thank you for your time.
Gaurav Jain
Thank you.
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