Business Transformation Metrics: Measuring progress as we transform for good

We recognize that business transformation is a company-specific journey, which sustainability reporting standards and frameworks fail to adequately capture.

To make our progress toward achieving our purpose of becoming a smoke-free business both measurable and verifiable, we developed our Business Transformation Metrics, a bespoke set of financial and nonfinancial key performance indicators (KPIs). These metrics showcase how we are allocating resources away from our legacy business as we advance toward a future in which we will no longer base our success on making or selling cigarettes.

By transparently reporting periodically on these KPIs—sharing both year-on-year and cumulative progress—we enable external scrutiny and allow our stakeholders to assess the pace and scale of our transformation.

For all our Business Transformation Metrics, we aim to report our historical performance, ensuring a consistent scope and calculation methodology, and we strive for external assurance. In 2023, 14 out of 15 Business Transformation Metrics were subject to external assurance by our independent auditor, PwC, confirming that our transformation is both measurable and verifiable (read PwC’s limited assurance report on pages 203-205 of PMI’s Integrated Report 2023).

Business transformation aspirations

Aspirations linked to our Business Transformation Metrics give us a clear roadmap. Early in our transformation journey, we set ambitious 2025 aspirations that grounded our purpose and gave direction to both our organization and external stakeholders as we ventured into what was then uncharted territory. Our commitment to champion a smoke-free future remains unwavering. However, nearly eight years since announcing our smoke-free vision, and with more data and a better understanding of the business environment, it was prudent to pause and revisit our aspirations as we look toward the next horizon: 2030.

We have undertaken significant business development activities in recent years. Most notably, we acquired Swedish Match in 2022. As the undisputed leader of the nicotine pouch category, Swedish Match fits squarely into our smoke-free strategy and is accretive to our growth. This means we are now fueling our transformation with two powerful engines: ZYN and IQOS. One key rationale for the combination was to enter the world’s largest smoke-free market of the U.S. ZYN is already well-established in the market, and we plan to start commercializing IQOS in 2024 with select pilot city tests.

Since we started our journey with IQOS in 2014 with one device and two consumables, our portfolio has evolved and expanded. Our smoke-free portfolio now consists of three categories of tobacco and non-tobacco containing products, 13 different smoke-free (heat-not-burn and e-vapor) devices, and multiple consumables (notably 86 taste variants for PMI heated tobacco units).

As we fine-tune our strategy, our aspirations must also be able to account for challenges linked to uncontrollable factors—especially those related to the operating environment born primarily from policy and regulation (or lack thereof) in certain countries that directly influence our ability to communicate about or, in extreme cases, even commercialize our smoke-free products. Such challenges have directly contributed to a stronger-than-anticipated resilience of the combustible tobacco product business and thus influenced the pace of our transformation. Other, unforeseen challenges relate to the continued repercussions of the COVID-19 pandemic, the ever-evolving geopolitical situation, and related global supply chain disruptions.

Against this backdrop, our priority in the short to medium term is to capitalize on our smoke-free products’ growth potential, including in the U.S. Accordingly, while we still believe in the natural fit and considerable potential that wellness and healthcare can bring to our business in the longer run, we recognize that more investment, research, and development are required before we generate meaningful incremental net revenues. Consequently, our strategic re-prioritization—particularly following our acquisition of Swedish Match—results in us no longer maintaining our aspiration of deriving USD 1 billion net revenues from this business by the end of 2025.

Our refreshed business transformation-related aspirations are as follows:

By 2030, we aim to be a substantially smoke-free business, with smoke-free products representing over two-thirds of our annual net revenues globally.

By 2030, we aspire for around 60 of our markets to have smoke-free products making up over 50 percent of our net revenues. Of these markets, we aim for 40 to derive more than 75 percent of their net revenues from smoke-free products and around 20 to derive between 50 and 75 percent of their net revenues from smoke-free products and around.

By the end of 2025, we remain committed to expanding the geographic availability of PMI’s smoke-free products to 100 markets, of which at least half are targeted to be low- and middle-income markets.

Moreover, in markets where our smoke-free products were available for sale[1] as of the end of 2023, our combustible tobacco product shipment volume decreased by more than 33 percent versus 2015, when our transformation had just started (and by 27.9 percent in all markets). If we continue on this trajectory, we expect that the growth of smoke-free products and consequent replacement of cigarettes will translate into a more than 50 percent decline of our combustible tobacco product shipment volume in these markets by 2030.