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. Worse, it 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. It requires a holistic approach, to consider the broader impact of decisions and recognize that short-term sacrifices can lead to long-term benefits for society as a whole.

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 continues to represent the greater part of our revenues. The operating cash flows generated by cigarettes serve an essential role: supporting ongoing investments to drive our transformation by growing our smoke-free business.

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. In many places, it remains the only way we can engage and connect with adult smokers to raise awareness of smoke-free products and explain why they are a better option than continued smoking and through our relationships with distributors and retailers from the combustible business we are able to maximize the availability of smoke-free products to adult smokers. By exiting the cigarette sector and thus yielding market share to competitors, we are unlikely to offer them compelling reasons to pursue our smokefree direction. The fact that we continue to compete in the shrinking combustible tobacco product category should not be confused with it being our long-term objective. Our purpose is clear: our smoke-free business is our primary growth focus, as these are the products required to drive our transformation and, crucially, to render cigarettes obsolete.

Smoke-free products offer the prospect of higher and more sustainable returns than cigarettes, 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.