Business Transformation Metrics: Verifying progress toward a world without cigarettes

30 Jun 2020 · 4 min read

How can stakeholders know if our transformation is real? Are we really doing everything we can to achieve a world without cigarettes?

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The traditional, operational, environmental, social, and governance (ESG) metrics usually do not account for the impact of a company’s products and services. 

We recognize that exemplary performance on ESG is important, but it is equally clear that the biggest positive impact PMI can have on society is to replace cigarettes with less-harmful alternatives. This is at the very core of our corporate strategy and sits atop our sustainability priorities.

In 2016, to make our progress both measurable and verifiable, as well as allowing anyone to scrutinize the pace and scale of our transformation, we introduced a set of bespoke Key Performance Indicators (KPIs) we called Business Transformation Metrics.
These metrics can help our stakeholders assess our purpose, actions, resource allocation, and outcomes achieved. We constantly review and calibrate this list of metrics based on stakeholder feedback. Through this data, we are able to demonstrate the progress we are making toward achieving our goal of eliminating cigarettes and delivering on our corporate purpose of a smoke-free future. 

This June 2020, we published our first Integrated Report, demonstrating the alignment and further integration of our business and sustainability strategies. Within, we have added 10 new indicators as part of our Business Transformation Metrics that further demonstrate the massive shift happening within our business, and the rapid pace of our transformation. Some examples of these new data points include the total stock keeping unit (SKU) count of our combustible and smoke-free products, and the availability of our smoke-free products, both worldwide and in non-OECD countries.

download PMI's business transformation metrics
2016 2017 2018 2019 2025 aspirations 4
R&D expenditure (smoke-free/total)1 72% 74% 92% 98%
R&D expenditure (in millions USD) 429 453 383 465
Number of R&D positions (FTEs)2 n/a n/a 764 942
Patents granted relating to smoke-free products (cumulative) 1,800 2,900 4,600 5,800
Patents granted in IP5 jurisdictions relating to smoke-free products (cumulative)3 170 300 480 740
Number of studies completed by PMI on smoke-free products (cumulative, since 2015)

Toxicological assessment

36 57 82 109

Clinical assessment (short-term, focused on biomarkers)

11 12 19 19

Perception and behavior

7 7 9 9
Number of factories producing smoke-free products out of total number of factories5 3 out of 48 4 out of 46 8 out of 44 8 out of 38
Total SKU count – combustible cigarettes6 4,421 4,201 3,968 3,799
Total SKU count – heated tobacco units 62 145 253 414
Number of markets where PMI smoke-free products are available for purchase 20 38 44 52
Proportion of markets where PMI smoke-free products are available, which are outside the OECD7 32% 43% 47% 47%
Number of IQOS stores 26 63 81 199
Number of retailers that sell PMI smoke-free product consumables (in thousands) 90 292 488 679
Commercial expenditure (smoke-free/total) 15% 39% 60% 71%
Net revenues (smoke-free/total)8 2.7% 12.7% 13.8% 18.7% 38-42%
Number of markets where net revenues from smoke-free products exceed 10% of total net revenues 1 5 19 31
Number of markets where net revenues from smoke-free products exceed 50% of total net revenues 0 1 3 4
Smoke-free product shipment volume (billion units) 7.7 36 42 60 >250
Combustible product shipment volume (billion units) 845 791 767 732 <550
Smoke-free product shipment ratio (smoke-free/total)9 0.9% 4.4% 5.1% 7.6% >30%
Total users of PMI smoke-free products (in millions)10 2.1 6.9 9.6 13.6
Estimated users who have stopped smoking and switched to PMI smoke-free products outside of the OECD countries (in millions)7 0.0 0.2 1.1 3.0 >20
Estimated users who have stopped smoking and switched to PMI smoke-free products (in millions)10 1.5 4.7 6.6 9.7 >40

1 Smoke-free products include heated tobacco units and e-cigarettes. Total products include smoke-free products, cigarettes, and other combustible products.

2 R&D positions: include scientists, engineers, technicians, and support staff. Comparable data for years prior to 2018 are not available, as the scope of R&D positions changed following company organizational changes.

3 Includes published international (PCT) patent applications. IP5 jurisdictions include Europe (patent applications published and patents granted by the European Patent Office), China, South Korea, Japan, and the U.S.

4 Aspirations: assuming constant PMI market share. Note: Aspirational targets do not constitute financial projections.

5 Previous years’ data were restated to account for our second manufacturing facility in Italy, Bologna, that started producing heated tobacco units in 2016.

6 “SKU” stands for stock keeping unit.

7 Excluding PMI Duty Free.

8 Excluding excise taxes. For future periods, at today’s pricing and excise tax assumptions.

9 The smoke-free product shipment ratio is compiled based on millions of units.

10 See glossary on page 188 of PMI's Integrated Report 2019.

Working together for a smoke-free future

Our metrics show how far we’ve come since announcing our smoke-free vision in 2016, but while our commitment to a sustainable smoke-free future is unwavering, we cannot complete this journey alone. 

Engaging with stakeholders from diverse sectors, such as regulators, public health bodies, enforcement agencies, e-waste recyclers, NGOs, investors, wholesalers, farmers, and civil society is part of our journey helping us to realize our vision of a smoke-free future. We believe that dialogue, participative processes, and the disclosure of company information and scientific data, is fundamental to achieving a future without cigarettes.

With the right regulatory environment, and support from civil society, cigarettes may be completely replaced in many countries within 10 to 15 years. This is a future we can all work towards.

This communication should be read in conjunction with PMI’s Integrated Report 2019, available here.

Aspirational targets and goals do not constitute financial projections, and achievement of future results is subject to risks, uncertainties, and inaccurate assumptions, as outlined in the forward-looking and cautionary statements on page 189 of the Integrated Report 2019. Key terms, definitions and explanatory notes are set forth in the Integrated Report 2019. In the 2019 Integrated Report and in related communications, the term “materiality,” “material,” and similar terms, when used in the context of economic, environmental and social topics, are defined in the referenced sustainability standards, and are not meant to correspond to the concept of materiality under the U.S. securities laws and/or disclosures required by the U.S. Securities and Exchange Commission.