When E-Invoices Go Wrong: Out-of-the-Box Solution and Key Learnings

Last Tuesday, our team in Poland informed me about a technical issue with our e-archive invoices not being posted to the e-invoice portal. I promptly reported the problem to the outside service provider and classified the ticket as "high priority".

The next day, I had a meeting with the assigned person from the service provider and another in-house contracted colleague to discuss the technical aspects of the issue. Despite our efforts and the support of our third-party IT service provider, we couldn’t resolve the issue that day, which led to a halt in shipments from our Serbia factory.

On Thursday, I started the day early and sent reminders about the urgency of the issue. As the delay continued, I started working on an alternative solution, let's call it Plan B: manually creating e-archive invoices on the portal. This process was slow and prone to errors, but it was necessary.

In the meantime, I reached out to our service providers via email and phone, but to no avail. Finally, I decided to contact the VP of our service provider directly on LinkedIn, explaining our situation and the need for urgent support.

Thankfully, she responded promptly and within half an hour, the issue was resolved. I quickly shared the good news with all stakeholders. This experience was a reminder of the importance of being proactive, thinking out-of-the-box, and using all available communication channels effectively when solving problems.

Key Learnings:

• Always have a Plan B ready.
• Don’t hesitate to use different communication channels.
• Be proactive and solution-oriented.

Above was the long story short. Let me share the long story as well just to keep this personal experience in a written format. Who knows, maybe one day it will inspire me or someone else for more...

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Last Tuesday afternoon, around 5 PM, I was informed by our team in Poland, who handle our invoicing, that our e-archive invoices created in SAP had not been posted to the e-invoice portal. As is common in today’s multinational companies, when encountering such issues while working with shared service centers and third-party service providers, I reported the problem by opening a ticket. Although I classified it as “high priority”, the first communication for the ticket I was able to open at 5 PM was the next day, Wednesday.

The person assigned to the ticket reached out to me by phone and listened to the situation. We decided to continue with an online meeting with a colleague who could speak the same language when the questions involved technical information. After the meeting we had at noon, I prepared the electronic documents requested via the ticket with the support of our third-party IT service provider with whom we work on a contracted basis. On Wednesday evening, there was a notification that the ticket was being worked on, but since the solution could not be provided, e-archive invoices could not be arranged. As a result, both on Tuesday and Wednesday, shipments stopped and trucks waiting to depart from Serbia factory waited.

On Thursday morning, knowing that this problem needed to be solved within the day and with the advantage of starting the day earlier than our stakeholders in Europe, I sent messages over the ticket reminding them of the urgency of the issue and wrote that we expected support. The lack of response was starting to make me nervous too, so I tried to draw attention by writing one of the messages in capital letters (I am one of those who believe that writing in caps lock in the digital world is rude). As the news that the office-hour started in Europe and the shipment did not start was conveyed to the team managers in the supply chain, the managers of those departments started to reach out and ask about the current situation and started to question alternatives such as reporting the issue to senior managers in my function. Since we needed a technical correction (mapping) to be done by a completely third-party service provider, I stated that there was no need for internal support and worked on the “Plan B”.

My plan B was to create an e-archive invoice by manually entering invoice items line by line from the e-invoice portal. Since the colleague responsible for arranging the invoice did not know Turkish, I first opened the page in English and showed which fields were mandatory and where to enter which information. Although the headings turned into English, he still needed support because the items in the drop-down menu were in Turkish. For example, there was no Germany in the Country menu, instead there was “Almanya” (in Turkish) and our customers had to take note of the Turkish equivalent of their addresses. Similarly, “unit” was problematic. Also, since we were arranging an invoice in foreign currency, he had to go to Turkish Central Bank’s site and get the exchange rate and state it on the invoice. After adding the first invoice together to the drafts, I left my colleague alone with the next invoices. This process was both very slow and very prone to error due to its manual nature. I had one clear thing in mind: I had to reach our service providers who I could not get a response from over the ticket.

First, I sent a group email to the people working from the service provider company whose emails I had access to due to previous reconciliation communications or other technical problems. Then I tried the contact numbers on their website. Unfortunately, customer service was asking for a tax identification number before being directed to the technical team, and after entering this information, a voice recording saw me off saying that I could only reach the technical team by opening a ticket. When I could not provide a solution from these channels I tried, I sent a direct message to the country VP of our service provider on Linkedin with the mindset that “the customer is always right” and wrote that we needed support due to the stop of the shipment and shared the ticket number that was created 2 days ago. Although I don’t think it’s right to classify or position people with their titles, it would be appropriate to continue with this title in this content in order not to put people and companies in a difficult situation. Even though I had never met her physically before, I really reached out to her out of need and thankfully, she immediately responded to my message and asked me to forward the issue to her with a short email. I was hopeful and my hope did not go in vain, less than half an hour later, my colleague who manually entered the e-archive invoices on the portal first wrote that the invoices he sent from SAP were transferred to the portal, and the same comment came from our service provider within minutes. I quickly conveyed the good news to all stakeholders. Then the VP sent a direct message on Linkedin saying that the team informed her that the problem was solved and asked me to confirm. I shared that the problem was solved and that our stakeholders in Switzerland, Poland and Serbia were extremely happy with this situation. I was really relieved.

This experience shows how important it is for us to go beyond traditional solution methods and use our “out-of-the-box” thinking ability when dealing with the difficulties we encounter in the business world. Using communication channels effectively and thinking solution-oriented helps us cope with unexpected situations. The key point of this experience is the value of being proactive and developing alternative solutions when solving problems. When things don’t go well, it is necessary to go beyond traditional methods to find a solution and think differently. In this case, I used both technology (manual invoice creation in e-invoice portal) and personal communication channels (Linkedin) effectively to solve the problem.

In conclusion, we should always continue to search for new and creative solutions. This is definitely one of the keys to success in the business world.

Strong Underlying Momentum towards Smoke Free Future: PMI's 2022-Q2 Results

Philip Morris International stock rose 4.2% on Thursday, July 21 just after Q2 2022 results were released. In this content, I will review PMI’s 2022 second quarter results and I will share some key financials and more about their drivers to make the numbers more meaningful. Since I am an employee of PMI, I prefer to use “we”, “our” and “Emmanuel” (for our CFO Babeau) in some parts of the below content.

The data used in this content are all publicly available and it does not include any investing recommendation.

Q2 2022 results reflect the exceptional one-off events that have impacted PM this year, notably the loss of earnings from Russia and Ukraine and the sharp appreciation of the U.S. dollar. Excluding these, the underlying drivers behind PM’s businesses have remained strong, and full-year 2022 outlook has been raised on an organic basis.

Before the highlights, we need to remember the announcement that PMI intends to exit the Russian market in an orderly manner, as the complexities of continuing to operate in Russia increase, such as supply chain challenges and financial and banking sector restrictions.

PMI demonstrated strong underlying momentum in the second quarter of 2022 with another quarter of positive volume supporting better-than-expected growth. Most impressive was the continued excellent IQOS performance and strong Q2 user growth of more than 1.1 million, demonstrating further acceleration compared to Q1 as device limitation and COVID restrictions continue to ease. This reflects strong momentum in the EU region, Japan and developing markets.

The proposed addition of Swedish Match would further boost our future financial profile. This is a value-creating offer for both sets of shareholders with a compelling strategic and cultural fit, providing an additional opportunity to accelerate our smoke-free future.

During Q2 2022, PMI had good volume growth and good currency-neutral revenue growth. However, EBIT growth was weaker due to margin contraction and, including currency, both revenues and EBIT fell year-on-year.

Volume growth would have been stronger except for supply chain constraints, and the margin contraction was also due to one-off factors.

Let’s dive deep into the stories behind these numbers and ratios.

In 2021, Ukraine accounted for around 2% of PMI’s total cigarette and heated tobacco unit shipment volume and under 2% of PMI’s total net revenues.

In 2021, Russia made up almost 10% of total shipment volumes and around 6% of PMI net revenues.

Despite the impact of war in Ukraine, PMI increased its shipment volume by 1.1% compared to previous year.

Net revenues increased by 5.3% and this has mainly two drivers. The first one is the continued strong growth of IQOS and the second one is ongoing recovery of the combustible business. Here it is critical to keep in mind that the recovery is realized against a pandemic-affected comparison.

When we look at the revenue per unit, we see an increase by 4.1% in total. This increase is especially important because this year there is a delayed timing of shipments, as the company manages the cancellation of planned heated tobacco unit manufacturing in Russia and company faces disruptions in global supply chains generally.

Our operating income margin declined, and this reflected:

Firstly, the investment to further expand and match the speed of PMI's smoke-free portfolio growth, including the initial higher cost of ILUMA devices and heated tobacco units, and the replenishment of distribution channels as device constraints ease to support re-accelerating IQOS user growth;

Secondly, the impact of supply chain extra costs, notably due to the war in Ukraine; and

Thirdly, cost inflation driven by the global pandemic recovery and by the war in Ukraine, notably for certain direct materials, wages, energy and transportation costs.

Lastly, the decline also reflected a challenging prior year comparison, which included productivity savings.

When we look at the assumptions for the next two quarters;

In the third quarter, it is expected that IQOS and combustible volume trends will lead the top line growth.

There are some temporary headwinds which not only impacted PMI but also the whole World and the expectation is that these will ease in third quarter.

And in the last quarter of this year, HTU capacity problems will be better, so shipment volumes for HTU will increase as well.

One of the key updates in last quarter for PMI was its interest in Swedish Match.

Philip Morris International is in takeover talks with Swedish Match over a multibillion-dollar deal that would expand its smoke-free business.

In May, 2022, Philip Morris Holland Holdings B.V. (PMHH), an affiliate of PMI, announced a recommended public offer to the shareholders of Swedish Match to tender all shares in Swedish Match to Philip Morris Holland Holdings at a price of almost 16 billion USD in cash.

This alignment is strategic because it has the potential to create a global smoke free champion with PMI’s leading heated tobacco and Swedish Match’s oral nicotine brands. It will also open US market for PMI with nicotine pouch which has long term opportunities for smoke free categories. But the deal is not completed yet and PMI announces that the transaction is expected to close in the last quarter of this year.

To sum up:

Across H1 as a whole, total shipment growth was strong.

IQOS’ growth was helped by the new ILUMA device.

Combustible products perform well to support smoke-free transformation.

PMI is focused on its smoke free portfolio. IQOS will continue its dominance of the Heat-Not-Burn ("HNB") category, to grow strongly in Europe and remain at least stable in Japan. PMI has also launched its own e-vapor products since 2020 and has entered the nicotine pouch market with its own products on a limited scale.

Management comments reiterated their “unwavering” commitment to the dividend and hinted at the possibility of increasing it with cashflows from Swedish Match after deal close.

In conclusion, PMI provides positive updates for its investors which make the share prices increase.

Smart investors and analysts are focused on how to earn returns and how to cash out. 

Investors and analysts make decisions by asking critical Questions. That’s why I prefer to give a special part for Q&A session from the Investors’ Meeting. The key Questions are on IQOS new user momentum, Swedish Match acquisition, OI Margin decrease, menthol ban in Heat Not Burn Products and reintroducing IQOS in the US market.

The first question is about the strong IQOS new user momentum.

According to Emmanuel, our CFO, People realize all the benefits they can get by switching from combustible cigarettes to the IQOS product.

Emmanuel also states that we are enlarging the choice and that makes IQOS even more desirable and attractive.

Additionally, Emmanuel highlights that launching ILUMA is the second stage of the rocket in the various countries to sell IQOS even higher, so it brings momentum. This can also easily be seen in the above graph.

The second question is about Swedish Match transaction and other potential acquisitions.

Emmanuel highlights that we continue to expect the closing of the transaction in Q4, of course, subject to Swedish Match shareholder acceptance.

He also mentions that the priority and the focus in terms of acquisitions is on Swedish Match for the time being.

The third question is about the decrease in the margins and its relationship with the higher costs of ILUMA and HTUs and if this situation will continue or not.

Our CFO says that inflation is one of the headwinds on the margin. Also, there are costs that are coming from the disruption in the supply chain, notably coming from the war in Ukraine.

Moreover, there is a temporary acceleration of air freight charges. Emmanuel mentions that We're not going to keep air shipping on the long term.

In conclusion, inflation and other headwinds seen in Half One are temporary from PMI perspective.

The fourth question is about the full availability of devices when there is chip shortage.

Emmanuel states that it is crucial for smokers to have Access to IQOS device in order to get converted. He mentions that we see a rapid replacement of existing IQOS blade device by IQOS ILUMA in the markets where ILUMA is launched. So, the main objective is to equip the core consumer with new devices. According to Emmanuel, this temporary shortage will finalize so its temporary impact on the margin will be cleared.

The fifth question is about the impact of the proposed elimination of menthol variants in the EU for heat-not-burn products.

Emmanuel highlights the facts that this plan needs to be approved by the Parliament and by the European Council. Emmanuel reminds that it already has happened on a combustible business with almost no impact or very limited impact. So, it isn't clear that this will have a meaningful impact if it happens on our heat-not-burn business.

The sixth question is about the timing of reintroducing IQOS into the marketplace in the US.

For those who are not aware of the latest IQOS situation in the US market, in November 2021, PM USA had to remove IQOS from the market due to an import ban and (cease-and-desist) orders from the U.S. International Trade Commission (ITC). Altria, which runs Philip Morris USA, announced it “does not expect to have access to IQOS devices” in 2022, but “remains focused on returning IQOS to the market and is working on re-entry plans.” 

Emmanuel only shares with the analysts that we expect to be in a position to introduce IQOS in H1 of 2023.

The last question is about Russia, mainly exporting IQOS devices to Russia and taking cash out of Russia for dividend payments are questioned.

Our CFO shares that there is no sanction for device export to Russia. Thus, although there are some limitations coming from supply chain related problems, exportation is not impacted.

For dividend Payment, it is not exercised by PMI so Emmanuel could not provide an answer about it. On the other hand, intercompany payments and royalties are paid without any problem.

All these announcements, investments and financials support PMI’s ambition to become a majority smoke-free product company by 2025, building on its 2016 commitment to a smoke-free future.