Purposefully phase out cigarettes

Even though selling off our cigarette business would make our Company achieve its smoke-free ambition faster, it would not resolve the cigarette problem—and indeed would risk exacerbating the issue as a new owner would more likely be focused on maximizing cigarette consumption.

Our aim is not only to make our Company smoke-free, but also to make cigarettes obsolete. To achieve this, we will continue to responsibly sell cigarettes, taking a consistent, disciplined, and steadfast approach to one day completely leaving them behind.

While perhaps contradictory in the eyes of some stakeholders, this is a necessary trade-off that is vital to driving a successful industry transition for the benefit of public health.

We are convinced that impactful and systemic change can best be achieved by transforming from the inside out, engaging constructively with different parts of society, and ultimately influencing our entire industry to follow our lead and adopt business models that also seek to completely replace cigarettes with smoke-free products for those who continue to use nicotine.

Despite being well on our way to delivering a smoke-free future, we still have some distance to travel, as our combustible tobacco product business still represents the majority of our revenues. The operating cash flows generated by cigarettes serve an essential role, supporting ongoing investments to drive the growth of smoke-free products and in building new capabilities in wellness and healthcare.

Staying competitive in the cigarette category during this interim period provides the infrastructure needed to support our smoke-free growth, allowing us to create a future where cigarettes no longer exist. Notably, where permitted, it remains the primary way we can engage and connect with adult smokers and trade partners to raise awareness of smoke-free products and explain why they are a better option than continued smoking. Exiting the cigarette category and therefore ceding market share to competitors is unlikely to provide them with strong motivation to follow our smoke-free lead.

Our legitimate ambition to maintain market share in the declining combustible tobacco product category does not mean that we aim to continue selling cigarettes in the long term. Our purpose is clear: our smoke-free business is our focus area of growth, as these are the products needed to enable our transformation and, most importantly, to help make cigarettes obsolete.

Smoke-free products offer the prospect of higher and more sustainable returns than cigarettes over the long term, as reflected in the premium observed in our equity valuation multiples relative to the majority of our cigarette-focused peers. The business case is clear, with compelling financial incentives for us to transform as fast as possible.