Philip Morris International Inc. (NYSE:PM) 2022 Deutsche Bank Global Consumer Conference June 14, 2022 2:30 AM ET
Company Participants
Emmanuel Babeau – CFO
Conference Call Participants
Gerry Gallagher – Deutsche Bank
Gerry Gallagher
Good morning, everybody. My name is Gerry Gallagher. I’m a member of Deutsche Bank’s European Consumer Staples team; and by function of that, a member of Deutsche Bank’s Global Consumer Staples team. It’s my very great pleasure to introduce you today to our 19th Global Annual Consumer Conference.
It’s the first-time we’ll be back in Paris for three years and it’s very great to be back here to give you some context around the event. We have got close to 100 corporates attending either presenting and/or giving one-on-one meetings with investors. And in total, we have over 750 attendees at the conference over the next three days. So as you can see from those numbers, it continues to be one of, if not the preeminent investor conference in terms of consumer staples.
With that introduction, it’s my very great pleasure to introduce you to Emmanuel Babeau, Chief Financial Officer of Philip Morris International. The format of our session this morning will be, Emmanuel is going to introduce Philip Morris International with some opening remarks over five minutes or so, we’ll then bring it back to me for some Q&A and a fireside chat format, and at some point through the presentation I will open up to you guys in the audience for some questions. Please don’t be shy and ask any questions you may have. And we are scheduled to finish around 9:10 local time.
So, with that, over to Emmanuel.
Emmanuel Babeau
Thank you, Gerry. Good morning, everybody. First of all, thank you for starting the day with Philip Morris International. It’s great to be back in Paris, of course, and it’s not just because having friends that I’m saying that, but it’s really great to be together again and be able to meet face-to-face. I’m going to start with a few introductory comments, but I, first of all, bring your attention on the cautionary and forward-looking statement. Please read them carefully.
So just a few thoughts I wanted to share with you. We started the year on a strong note. You’ve seen our Q1 were on a pro forma basis, you know that we define pro forma as the Group excluding Russia and Ukraine, where for this reason, it’s more difficult in the current circumstances to give a guidance and visibility.
So we started Q1 with a strong growth in term of volume, almost 5% up in term of shipment, quite an impressive growth when you compare to the performance of the industry as a whole. We managed to generate revenue growth on an organic basis of 10%. So, here again very dynamic growth in Q1. And we had an adjusted EPS growing organically again on the pro forma basis at 16%. So super-dynamic business at the beginning of the year.
And what is driving the strength of the company on this first months of 2022 is, first of all, of course a continuation of the success of IQOS. IQOS is growing and progressing extremely well here in Europe. We see the brand doing very well in a number of country; you have this accumulation of a big European capital now where the brand has a double-digit market share, sometime we are even north of 20%. So we continue with IQOS to be very successful in Europe.
And of course, on top of that, we have been launching IQOS ILUMA that in Japan has been a great success. We’ve seen the market share growth accelerating in Japan. We’ve seen an improvement of the net promoter score, so the customer being more satisfied with the new version of IQOS, which bodes very well for the overall potential of IQOS ILUMA across the geographies. We’ve seen the user acquisition for smokers improving. We’ve seen the retention improving as well. So we see really we can assess the potential of ILUMA, and that bodes, as I said, extremely well for the future.
What we’ve seen with ILUMA in Japan has been seen in the two other markets in Europe, where we have been launching. First of all, in Switzerland, where we’ve seen a dramatic acceleration of the market share for IQOS since the launch of ILUMA. We are getting close to doubling the market share, so quite impressive. And even in Spain, which has been a market where we have had some more difficulty to increase the market share of IQOS, we’ve seen another big major influence and some very nice movement upward. So that’s the success of IQOS and of course that remain the big driver of the company.
It was good to see as well in the first months of the year that our combustible business has been performing well and in line with our target, which is to maintain the share of the category for us, which is not that easy, because of course there is a cannibalization coming from IQOS. When we grow IQOS, we are growing premium brand and therefore there is more impact on the premium combustible brand, where Marlboro is of course the leader, but we were — and even a bit better than that maintaining our share of segment in the first months of 2022.
Now, we signal that Q2 would be impacted by a number of one-offs. First of all, of course, all the negative impact coming from the dramatic event and war in Ukraine, a lot of disruption in the supply chain. And that is leading us to reorganize and rearrange a number of flows, with translation, with some shipment notably for heated tobacco unit being moved to the H2 for Japan and with a significant impact on the mix as well, because they are profitable, of course, volumes and a number of reorganization that was having a material negative impact on the revenue.
We also have been signaling that Q2 would be impacting by some impact on the margins. The mix is going to be negative with a lot of sale for devices. We continue to catch up after the low point of the H2 sale of device. There is also all the investment that we are making on the supply chain to try to adjust to the new situation. There is all the commercial investment that we are making in order to cope with the growth that we are facing and to maximize the growth potential.
And there is, of course, all the impact coming from inflation, which is impacting us, of course. But in addition to that, in order to face the disruption in the supply chain, there is significant spending in air freight that is going to impact Q2. Having said that, we expect Q2 to be probably better than what we thought with a very robust strong underlying business continuing, core business doing well and probably some shipment of combustible cigarette that are going to be eventually happening in Q2 when maybe we are thinking that some of them could happen in Q3. So that’s going to have some positive impact on the performance of Q2 versus initial expectation.
Of course, the big element of this Q2 has been our announced offer with a recommendation from the Board on Swedish Match at SEK106. And so Gerry, we’re going to talk about that, so I’m going to keep that for the Q&A, because there is so many interesting things to say about that. So let’s keep that for the Q&A. But we continue to develop our smoke-free product. And in the last hours, we announced an agreement with a company called Kaival, which is known with their BIDI brand in the U.S.
And this company is going to license a great technology for vaping disposable device and we’re going to be license the technology for outside the U.S. So we’re going to be able in a number of market to start selling great disposable vaping device in the coming quarters. So we just show that we continue as we have already VEEV, as you know now, now that we’re going to have this brand VEEBA for disposable device, we continue to complement our portfolio and to broaden our offer.
We’ve been providing even more data on our ESG KPI Protocol; so how do we assess our impact and what are the key data that we are looking on. We strongly believe that when you report about sustainability and to avoid any kind of wrong or, I would say, inaccurate view, a lot of transparency and clarity on what is being reported, how is it measure, how is it being audited is important, and that’s what we are doing. We are not providing today any update on the guidance, and we will wait for the communication of full Q2 number to come with an update on the guidance.
So that’s it, Gerry, with my preliminary comment, but I’m sure we’re going to elaborate on many of that.
Question-and-Answer Session
Q – Gerry Gallagher
Thank you, Emmanuel. Thank you very much. So I’m going to start with, again, it’s trend for me anyway, at least, with the very, very short-term. So given the comments you’ve made this morning ahead of today’s event, could you just give us a little bit of clarity around the — what’s driving the slightly better second quarter? To what extent is it the shipments, to what extent is it the underlying business, could you just give us a little bit more color around the second quarter?
Emmanuel Babeau
Well, I’m going to try, but of course I won’t enter into the detail. We need to finish the Q2 to see exactly how it ends up. I think, the first message that we see, the business continuing to perform well, okay? And that’s, of course, very good news. We see confirmation of the strength of IQOS and all the good thing that we’ve been saying. We see the continuation of a robust performance in combustible business, which is good news, because success in combustible is helping us to be successful in our smoke-free journey. So this is really, what is, in an underlying manner, I would say strengthening. On top of that and we see exactly, but I don’t have the final visibility what is the kind of additional, I would say, favorable impact coming from favorable timing on shipment versus expectation. But I think the first news is that the underlying business is doing well.
Gerry Gallagher
Okay. Great. And then, just touching on VEEBA, could you talk about, is that going to be branded VEEBA, what’s the branding going to be, confirm it outside the U.S.? And is that you guys suggesting that the vaping market and a closed environment going down the disposable route or the — can you talk about that a little bit?
Emmanuel Babeau
Yeah. Sure. No, I think, so it’s going to be VEEBA. So, remember, our brand for closed system is VEEV. And of course, we’re playing on names, so the disposable device will be called VEEBA. We’re really trying to offer to smoke-free nicotine consumer a wide variety of options. That’s really what we want to do. So we have, obviously, with IQOS, the best product for heat-not-burn. And we’re going to talk about Swedish Match and the possibility that it would give us to become a leading player in oral nicotine. We want be of course a strong player as well in vaping. And we see the test developing and there is clearly a trend behind disposable device.
And I think we understand that it’s convenient. We understand that it’s easy to use, but certainly a category on which a lot of carefulness should be put in term of marketing and everything should be done to avoid unintended usage and of course underage usage. So I think it’s a category that has a potential that should be carefully handled. And we believe we want to do that in a very responsible manner. And I think we share the same kind of culture and vision on the responsibility that this category should be receiving. So it’s not the category is going to switch fully to disposable, but certainly disposable will have their fair share of the category.
Gerry Gallagher
Okay. Great. Thank you, Emmanuel. Well, I’m now going to move on to Swedish Match. I’m going to ask some pretty simple questions straight off. Why now and what is really driving the acquisition? I think, majority of people in this room, if not everybody, would agree that Swedish Match is a very, very strong business run by good people. Is it about the growth it provides? Is it about diluting the combustible side of the business? Is it about the U.S. dollar? Could you talk about what is going to…
Emmanuel Babeau
Yeah. So, I mean, fundamentally, it’s a strategic deal. And if strategic means something, I’m going to try to elaborate, but with one stone, we are killing many, many strategic birds with this acquisition, if we finalize it. First of all, Gerry, you were asking why now. Well, M&A is about alignment of planet. And so that was just the right moment probably where we were on our side at a point where we thought it was the right timing, and probably the Swedish Match people also thought, well, that’s probably the right moment to combine forces and accelerate the movement of the industry towards smoke-free products. So that was the momentum and that was existing and we took benefit of it.
As I said, first and foremost, this is a story of two companies that are committed to a smoke-free world. And I believe that, together, they’re going to be stronger. We are obviously a leader in heat-not-burn, they are a leader in oral nicotine, and together, we’re going to be stronger. Back to my earlier comment on offering a broad portfolio of smoke-free product to nicotine consumer, that’s going to be giving, I hope, an amazing acceleration and capacity to do that. So that’s really about getting stronger, sharing the same vision, the same culture, and therefore it makes sense to be together.
Then, of course, for us, it’s also to be back in the U.S., and not in a kind of de minimis manner, because this is seen in the U.S., this is the fastest growing brand in the nicotine space in the U.S.; amazing growth. They are the leader, of course, of the nicotine pouch category; they have about 65% market share. They managed to defend it very well. I think, it shows the superiority of the product. So it’s a very successful organization and we are going very fast and nicely profitable business there. And obviously that is a platform for us as well for the rest of the smoke-free portfolio.
So if we have this platform in the future, we can think of bringing more product to Swedish Match organization in the U.S. and to develop a very nice smoke-free portfolio in the country. There is also the opportunity outside the U.S., because we believe that nicotine pouches is going to be a very attractive category for a number of reasons, if you give me two minutes to elaborate. The first reason is that one could define nicotine pouches as a kind of ultimate level in term of tobacco harm reduction, because you know that IQOS heat-not-burn or vaping, when they are good product, you reduce by about 95 product the exposure to toxic and that — this product present versus combustible cigarettes. Here you will use by 100%, okay?
So that is really the ultimate level in term of tobacco harm reduction and you enjoy nicotine and we know that nicotine is not the reason for the diseases caused by smoking. This is the smoke and in addition of smoke, that is the reason for the disease generated by smoking. Then, on top of it, these are very special product, because today, you are very restricted in the moment when you can use whether IQOS or any vaping device. Here in this room, you could not; in a restaurant, in a plane, in the office. With nicotine pouches, you can enjoy your nicotine whatever you’re doing in any kind of situation and moment.
So we see — and people are likely to discover that they take a plane, they want to enjoy their nicotine sit in our plane, they’re going to try and they’re going to say, whether permanently or for some moment that is a product that makes sense for me when I want to enjoy my nicotine. So we see for what is a relatively nascent category, but in term of ritual, in term of quality, look and feel of the product, we see great potential for the category.
And of course, now that it’s going to be supported if we close the deal by the strength of PMI internationally, we think we can further accelerate and therefore for all this reason, two leaders getting together on smoke-free, the U.S., for us, a great platform and the international potential, that is a great deal. I just want to conclude by saying that on top of that, they are improving our growth profile, because they were growing faster than us and they are also a bit more profitable than we are. We are very profitable already, but they are even a bit more profitable than we are. So we are not deteriorating the profitability profile of PMI through this deal.
Gerry Gallagher
Thank you. Just picking up on one point, just wanted to clarify or make one thing clear. There’s clearly an issue with brand ownership, but is the possibility notwithstanding that pretty major issue of you launching combustible products in the U.S.?
Emmanuel Babeau
Sure. Combustible, you mean, necessarily on other smoke-free?
Gerry Gallagher
Yeah.
Emmanuel Babeau
No. To be very clear, we want to play the U.S. in the smoke-free opportunists.
Gerry Gallagher
Okay.
Emmanuel Babeau
Okay. So I want to be very clear. And of course, we’re going to inherit from the cigar business and it is there. But we’re not going to the U.S. to play on the combustible, we’re going on the U.S. to play the smoke-free opportunity. The U.S. are already the first market in the world when it come to the smoke-free category. Just the U.S. represents 60% in value of all the other market, where we have access today internationally for smoke-free. So, this is in one go we have an amazing acceleration of the reachable market for smoke-free product. And that is going to be a nicely growing business. And versus other markets in the world, there will be one specificity for us in the U.S. when we grow the smoke-free, and that will be the absence of cannibalization, because we don’t have any combustible business. So we’re going to grow our smoke-free business without any negative impact in term of numbers for an existing combustible business.
Gerry Gallagher
Understood. Okay. If my memory serves me correctly, in the release around the acquisition, you mentioned the lights business, but you didn’t mention the cigar business, if my memory serves me correctly. Could you just clarify where you see the cigar business sitting in the new combined Philip Morris Swedish Match?
Emmanuel Babeau
Look, we have a very high regard for the management of Swedish Match. They are amazing people. What they have been achieving is absolutely tremendous. And they did a lot of work on it, and they decided eventually for a number of reason to keep the cigar business. So we’re going to talk about that, of course, with them, but we have no reason to believe that eventually they did not take the right decision. So we will start on the assumption and basis that this is the right decision and that this cigar business should stay for the time being in the portfolio.
Gerry Gallagher
Okay. That’s very clear. I’ve got two more questions. And I’m conscious we’ve done half of our time on the very short term and on one transaction. But I just want to land a couple of things. Could you just clarify for us or make it as clear as you can where the distribution of IQOS sits post the acquisition completing, assuming it does?
Emmanuel Babeau
In the U.S.?
Gerry Gallagher
In the U.S.
Emmanuel Babeau
These are two separate things. So if we complete the acquisition, we’ll have this great distribution platform in the U.S., but IQOS, we have an agreement with Altria, and of course, the agreement as we said, is presenting a number of issues, because of the ITC decision, the fact that we had to stop, we’re going to restart on a different basis and we flagged the fact that we are working on domestic production, but we have an agreement with Altria. So for the time being, we are discussing on how the agreement should be renegotiated, re-discussed, reorganized, rearranged. This is of course confidential, so I’m not going to elaborate on the content of the discussion, but for the time being, IQOS is with Altria.
Gerry Gallagher
Okay. Thank you. And then just one final one. You talked about meeting the cost of capital on this transaction within five years. Can you tell me what the cost of capital is?
Emmanuel Babeau
Yeah. So, I think we signaled the fact that it was around 7%. One could argue whether for the U.S. and the Nordic country, which is most of where the business is today, this could have been even a bit lower, but I think we are comfortable at the Group level with 7% today. So that’s what we are taking as a reference.
Gerry Gallagher
Okay. Thank you. I’m going to move on now from Swedish Match to possibly even bigger picture questions. There’s always been an underlying conversation at least with people I’ve been talking to, and that’s probably been amplified by the acquisition of Swedish Match. At some point in the future, can you see a situation where Philip Morris International splits into two businesses, combustible and non-combustible? I appreciate things like distribution and legal structures and all that stuff that analyst-investors watch over and think it’s all pretty easy, and it isn’t. But is that something that you guys discuss, think about, what does the Board say? Could you just talk about that big picture thoughts?
Emmanuel Babeau
Well, I’m going to stay at very general comment, Gerry, on that topic. We said it and we mean it, we are going to become a smoke-free company. So it’s not a question of if, it’s a question of when; and one could say and how then probably. So, one day PMI will be a smoke-free company. I’m not able to give you timeline, I’m not able to tell you whether it’s going to happen, because we would have managed to actually put an end to the combustible cigarette at least in all the key market or whether at a certain point in time the combustible business, being much smaller, it will maybe leave the company. But the direction is clear, we are going to be at one point in time a smoke-free company, it’s just too early today to say when and how we’ll get there.
Gerry Gallagher
That raises a number of other questions, but I’ll let them go for the sake of time and I’m sure they may come up through the course of today’s meetings you have with people. Staying on the big picture point, you talk about being a wellness and health — you talked about investing in wellness and healthcare for further growth on in many years post today. Can you talk or just clarify what wellness and healthcare means to you guys?
Emmanuel Babeau
No, sure. In fact, everything started through all the R&D scientific work, innovation that we’ve been developing when we were creating IQOS. And we really have been building unique capacities with $1 billion of investment around inhalation, dealing with a number of component, bethanechol. And that is giving us a lot of capacity and legitimacy to work on two direction. One is to come with other product that’s true whether inhalation and now with oral, now that we’ve been acquiring Fertin and we have the capacity on formulation for great oral intake.
How do we bring maybe other product, it could be bethanechol, CBD, vitamin, caffeine, melatonin through inhalation, through oral intake to the consumer in a kind of wellness experience. You know that nicotine user use nicotine, because they feel better and they feel good with nicotine; they feel less anxious, less stressed, they feel more focused. We know that people with CBD can feel a number of benefit. I think everything around better sleep, more energy, more focus, less stress. There are a number of product without nicotine on which we could develop and use the technology that we’ve been developing. So that is what the wellness ambition is about.
Then, on top of that, because we are mastering how do you create an aerosol, how do you generate the perfect inhalation in term of dosage, how do you create the product in term of drug-device combination, we’ve been creating a unique expertise. And here, it’s not about becoming pharmaceutical company. So we’re not going to invest billion in new molecule, but it’s taking existing molecule and say, how can I through inhalation here and welcome my inhalation science, how can I bring this molecule that normally is taken through oral, and I always take a good example, which is aspirin and bring into inhalation.
There is one benefit, is that, if you managed to get to the right inhalation aspirin product for heart attack in 30 seconds, you can give the appropriate answer for heart attack when it’s 20 minutes for oral intake and that can make a big difference. And today, I mean, you don’t have this product. So this is one product on which we are working. So it’s just administration of how do we use, we capitalize on the technology on the science, on the know-how that we have acquired through our IQOS journey.
Gerry Gallagher
So, in the context of that long-term shift movement, whatever you want to call it, at the center, you will remain an FMCG focused business, you’ll be consumer-facing, not B2B, it will be a consumer-focused business, just to clarify that point?
Emmanuel Babeau
Absolutely. So we are a consumer business. We are here to bring great experience to the consumer, call it lifestyle and wellness, that’s what we want to do. Nicotine is going to stay a big pillar, of course, certainly in the future. And I think, we’re going to do all the work necessary for people to better understand what nicotine is about. I said it, which is the capacity to enrich around nicotine, but that’s what the company will be about in the future.
Gerry Gallagher
Okay. Thank you. I’m going to ask one more question, then see if there’s any questions from the floor given timing is moving on. And the question is this: For a decade or for many, many decades, but particularly recently the industry against the backdrop of low inflation, has been able to put through ongoing material value-creating price increases alongside the way the tobacco model works. And maybe that was helped by the lack of inflation elsewhere in the world. That is now not the case anymore. So the question is, to what extent do you think the industry’s pricing power relative and maybe in absolute terms is going to be compromised moving forward, given where inflation is and given where the macro backdrop looks like it’s headed?
Emmanuel Babeau
Look, I’m not sure that the tobacco industry is going to make a lot of difference versus other industry. Probably the loyalty of the consumer is even stronger for the strong brand that we are, I mean, whether IQOS, Marlboro, there is of course a very strong loyalty and attachment to the brand. But everybody will be facing consumer under some pressure in term of purchasing power. Therefore, at the same time, they will have some hopefully salary increase that’s going to come with the general inflation, but maybe some, some limitation.
Now, when we look at the year, I think we are today doing a pretty good work trying to adapt to the situation and we’ll see where we finish the year, but there are certainly a few places where we are today adapting to the high inflationary environment and where we are increasing price. I’m not sure that the industry as last year its capacity, but of course we’re going to be impacted like everybody by this pressure on purchasing power, which means that versus other, I think, we keep an advantage for the link with the brand I was describing, but we’re not going to be immune of this differential between input cost and the capacity to bring that to the consumer.
Gerry Gallagher
Okay. Thank you. Before I move on to my next series of questions, is there anyone who got a question from the audience? No? Okay. We’ll carry on with me asking a series of questions. Are we close to the point where Philip Morris International is a steady — over the medium-to-long term steady volume growth business?
Emmanuel Babeau
I think we are getting close to that. But I would say it’s almost mechanical, because as we see the weight of the smoke-free product in our portfolio growing and whether IQOS today, our vaping product and hopefully the Swedish Match brand tomorrow, I mean, they grow fast. And of course, as the combustible weight is reduced, yes the combustible are going to keep going down, because we make sure that the combustible category is going down, but we are much more in a capacity to offset and maybe even at some point in time finish dominantly on a net positive. That was the case, we’ve been growing volume in 2021.
As I said, we are growing volume by 5% in Q1. We’ll see where are in Q2. But certainly for the year, we signal the fact that we could be around flat and maybe even a bit positive. So it shows that we are getting maybe to this pivotal point where the change in the portfolio and moving to a portfolio that is growing fast on smoke-free product is probably going to be able to compensate for the decrease in CC and that is a good news, because that shows that fundamentally we are a growth company, I think that we’ve been showing it on revenue and on bottom-line, but if it starts with volume, it’s probably even clearer.
There is one thing that is sure is that when you look at the overall nicotine industry, first of all, I think it’s very close to stability in term of volume, but I would accept that it’s difficult to measure the nicotine volume from one category to the other, but it is overall an industry that is growing nicely in term of value and continue to grow nicely in term of value. And as we are gaining market share, of course, that means that we have a very nice growth profile ahead of us.
Gerry Gallagher
Okay. Thank you. My next question is a little bit U.S. centric, forgive me for that. And even though you’re acquiring Swedish Match, it’s still not directly analogous to your business moving forward. The question is this: We’ve got the mental question in the U.S., we had the age question being raised in the UK following New Zealand that the comments around minimally addictive nicotine resurfacing again in the U.S. Could you talk to us a little bit about where you see the global regulatory framework for the category?
Emmanuel Babeau
Yeah. So, it’s, of course, difficult to say, because you see countries taking very different routes. And there is still a lot of misunderstanding because a number of organizations are just creating probably willingly a kind of misunderstanding of the problem. So some anti-tobacco organizations were at the beginning clearly saying, well, combustible cigarettes are bad, because of combustion and so on. Now that we see that actually some players in the industry are going to a smoke-free vision very clearly say, yeah, but you have the nicotine.
Well, okay, let’s have a debate on the addictive nature of nicotine, which is not the only addictive product, by the way, I mean, caffeine is additive as well. The real debate should be, okay, that could be an addiction, but what the real impact on health. And I think there is a total misunderstanding here, because they are still creating the thing that nicotine is responsible for the disease caused by smoking, which is obviously not the case. So I think we need a clarification on, okay, what should be the debate and certainly on what the risk nicotine means for consumer and for public health.
I think they should be — once you have that clear roadmap to tobacco harm reduction and understanding of, okay, what’s the difference between combustion, heat-not-burn, vaping, oral nicotine intake, and then a policy that is in term of regulation, communication, capacity of usage, of course, taxation, making sure that they drive the right behavior and drive the consumer in the right direction to drive smoking cessation and encourage total cessation of nicotine, but at least the choice for the people to move to better alternative if they want to continue to continue this.
Gerry Gallagher
Okay. Probably got time for me to ask a couple more questions. The first one is based on your balance sheet and I’ve got PMI pointing about this and maybe I’m off-track and nobody else thinks this an issue. But given the nature of the category, given the way markets have moved pretty quickly towards ESG, to what extent do you see the world’s debt markets beginning to question by your debt or is that just not been a problem?
Emmanuel Babeau
Globally, the question has been for the tobacco industry for some stakeholders and I would say it has been limited to a few players or in a few country, do I want to work with tobacco company. I mean, I can understand the question when company were a smoking company, but when they take the direction of clearly willing to become smoke-free, invest all their efforts energy make all their investment on driving smoke-free product with a huge positive impact on public health, I think that’s — on the contrary, the time when people who were putting some exclusions on that, should come back to at least a player who are having the right behavior.
So today, I don’t see kind of tightness or risk of having difficulty to finding the group, but I’m hopeful that maybe some people were not doing that could reconsider. And that’s not true for lenders only, I would say that’s true hopefully for a number of investors. And we see a number of people coming back to us and say, okay, so you’ve already flagged 2025 you’re going to be predominantly smoke-free, asking the type of questions, Gerry, you were asking, when do you think you can be totally smoke-free, and therefore, restarting the dialog that for some of them had been disappearing.
Gerry Gallagher
Okay. I’m going to finish. We got two minutes left. It may take you two seconds to answer the question, but I’m asking it. So here we go. A topic that comes up once every 18 months and it popped into my head the other day. Canadian litigation, you took kind of they’re out of your P&L and of your balance sheet.
Emmanuel Babeau
Yes.
Gerry Gallagher
Maybe not the right phrase, but there’s inverted commas, only upside, I know it’s not — that’s not true, but you got the point I’m making. So, could you remind us how big Canada was in your business pre removing it from the P&L and let’s put Swedish Match to one side and then if you’ve got any trapped cash in Canada that should the final resolution of this whenever that is go the industry’s way, how much comes back on your P&L and your balance sheet?
Emmanuel Babeau
All right. So on Canada, I think, it’s going to take me a bit more than two seconds, because the matter is complex. Well, first of all, Gerry, you will appreciate that I am under confidentiality here. So I cannot elaborate on any discussion. I can just confirm that the discussions are still going on, and hopefully, at this point in time there will be a positive resolution, but I cannot guarantee it and I don’t know what’s going to be the outcome. I don’t know whether we were disclosing Canada before we see the number 4% or, 5%. Okay. So, I wasn’t there when we did consider. So 4%, 5% of our revenue gives an idea of what it is. It’s a very nice business.
And therefore, as you said, Gerry, that would be very positive if there is a settlement and then we managed to be consolidate it. There is cash there, but you don’t see it in the balance sheet and I’m not able to comment on the cash in pipe, because that will depend on in line of resolution, of course. But that would be of course very good news to have the Canadian business back in our P&L.
Gerry Gallagher
Great. We have ended on a very left field — well not that left field, but something that doesn’t get touched on many times. And I’ve just hit zero on the stopwatch. So with that, Emmanuel Babeau, thank you very much for your time very much.
Emmanuel Babeau
Thank you, Gerry. Thank you. Appreciate it. Thank you.
Gerry Gallagher
Thank you very much.
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