Accelerating the pace of change at PMI requires continued dialogue with multiple stakeholders, including governments and investors, to unlock financing capacity, increase innovation and technology development, encourage public support, and incentivize an industry shift away from combustible products.
Despite being well on our way to delivering a smoke-free future, we still have some distance to travel, as our combustibles business still represents the majority of our revenues. Although this is shifting rapidly—in 2021 almost 30 percent of our annual adjusted net revenues derived from smoke-free products, with the aim to derive at least 50 percent by 2025—the operating cash flows generated by cigarettes serve an essential role, supporting ongoing investments in 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 provides the primary way we 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.
We are convinced that impactful and systemic change can be best achieved by transforming from the inside out, engaging constructively with different parts of society, and ultimately replacing cigarettes with smoke-free products.
Even though selling off our cigarette business would make our company achieve its smoke-free ambition faster, it would not resolve the cigarette problem—it would just become somebody else’s problem to solve. Our aim is not only to make our company smoke-free, but to make cigarettes obsolete. To achieve this, we will continue to responsibly and coherently sell cigarettes, taking a consistent, disciplined, and steady approach to one day completely leaving them behind. While contradictory on the surface, this is a necessary trade-off that is vital to expanding our leadership in smoke-free products and driving a successful industry transition. We are convinced that impactful and systemic change can be best achieved by transforming from the inside out, engaging constructively with different parts of society, and ultimately replacing cigarettes with smoke-free products.
The relationship between the sources of tension will disappear over time, as our legitimate ambition to maintain market share in the declining combustible product category does not mean 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. We intend to continue expanding our leadership, portfolio, volumes, and markets for our smoke-free portfolio to ensure we broaden adult smokers’ access to these products, maximize the benefits and minimize unintended consequences—with the intention of being present in 100 markets by 2025.
PMI’s Statement of Purposeread more
Strategy, Finance, and Sustainability—the three teams I lead—play a critical role within today’s PMI and have the capacity to establish a roadmap for success that not only responds to short-term needs but also accounts for medium- and long-term impacts. To achieve our ambitions, it has been of paramount importance for our entire organization to recognize that sustainability and financial performance are mutually reinforcing and part of the same strategy. That is why integrated reporting is a top priority: It allows all our employees, including management, as well as the company’s Board, our shareholders, and other stakeholders to understand how our financial and nonfinancial performance are interrelated.
A great example of the synergies from integrating sustainability into strategy, and making ESG issues a core part of our business priorities, was the publication of our first business transformation-linked financing framework in 2021, which integrates the company’s smoke-free transformation into its financing strategy. Linking our most material sustainability priorities to part of our financing strategy strengthens our commitment and underscores to all our stakeholders the seriousness of our ambitions. I believe this not only reinforces our promise to reinvent our company but also invites investors and lenders to engage with and support our relentless work to accelerate the end of smoking, continue to grow our smoke-free business, and use our strong capabilities to develop products in wellness and healthcare that can have a net positive impact on society.
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, make cigarettes obsolete.
The subsequent announcement of our company entering into an agreement for its first business transformation-linked financing instrument—a new revolving credit facility for an aggregate amount of USD 2.5 billion—was testament to the success of our integrated approach. I was pleased with the broad engagement and support of investors, lenders, and bankers. This approach is critical to helping us continue to drive change within our company. Further, I believe this kind of engagement can encourage industry transformation by demonstrating the benefits of our company’s unique value proposition.
Industry disruption only looks easy in hindsight. At present, we are in mid-stride: with one foot in our past, operating in a fiercely competitive legacy cigarette business, and one foot in our bold future, building an entirely novel and improved category of products. We recognize the magnitude of the challenge and remain committed to continuing to lead, tracking progress, and reporting on it transparently to ensure cigarettes become obsolete as soon as possible.
This letter is an excerpt from PMI’s Integrated Report 2021
Integrated Report 2021
This online content about our Integrated Report should be read in conjunction with PMI’s 2021 Integrated Report. The information and data presented here cover the 2021 calendar year or reflect status at December 31, 2021, worldwide, unless otherwise indicated. Where not specified, data come from PMI estimates. Please also refer to 'This report at a glance' on page 5 of the 2021 Integrated Report for more information. 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 our forward-looking and cautionary statements on page 252. In the 2021 Integrated Report and in related communications, the terms “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.