Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (June 2014)
57 slides from Philip Morris International's investor day presentation, Jun 26, 2014
Slide 1: Investor Day – LA&C Region
Investor Day – LA&C Region Lausanne, June 26, 2014 Martin King President, Latin America & Canada Region Philip Morris International
Slide 2: Agenda
Agenda ● Regional Overview and Performance ● Regional Strategies ● Key Markets Overview ● Conclusion 2
Slide 3: Positive Momentum: Positioned for Accelerated Growth
Positive Momentum: Positioned for Accelerated Growth ● Robust share growth ● More predictable excise tax structures lead to pricing for income and share growth ● Making in-roads against illicit trade ● Profitability increase and cost base optimization ● Strong portfolio with improving adult smoker p
Slide 4: Regional Overview
Regional Overview 2013 ● Presence in 44 markets ● 11,500+ employees ● 10 PMI cigarette factories ● Industry Volume: 256 billion units ● PMI Volume: 97 billion units ● PMI Market Share: 38.0% ● Adjusted OCI: $1.1 billion Market Leader Share Growth Source: PMI estimates and PMI Financials 4
Slide 5: Contribution to 2013 PMI Results
Contribution to 2013 PMI Results 11% 11% 8% Cigarette Shipment Volume Net Revenues Adjusted OCI Source: PMI Financials 5
Slide 6: Macro-economic Environment
Macro-economic Environment Real GDP Growth (%) 2013 GDP per Capita (USD thousand) 43.1 3.5 2.5 1.6 18.6 1.2 15.6 12.1 Argentina Brazil Mexico Canada Argentina Brazil Mexico Canada Unemployment (%) Inflation Rate (%) 7.3 7.1 28.8 5.8 4.8 6.3 3.6 1.1 Argentina Brazil Mexico Canada Argentina Brazil Mex
Slide 7: LA&C Region: Industry Volume
LA&C Region: Industry Volume Industry Volume (units billion) 2013 Industry Volume in Key Markets CAGR: (3.4)% (units billion) CAGR 2008-2013 305 Brazil 76 (6.2)% 256 Argentina 43 (0.4)% Mexico 35 (4.7)% Canada 29 1.7% Colombia 14 (5.7)% 2008 2013 Source: PMI estimates 7
Slide 8: LA&C Region: PMI Outperforming the Industry
LA&C Region: PMI Outperforming the Industry PMI Volume (units billion) and Share of Market PMI Share Growth (2013 vs. 2008): +3.5pp 38.0% PMI SoM 36.9% 34.5% CAGR 2008-2013 99 99 97 (0.4)% 25 23% 2008 2012 2013 Note: Excludes brands sold under license Source: PMI Financials and PMI estimates 8
Slide 9: LA&C Region: Strong Market Share Momentum
LA&C Region: Strong Market Share Momentum PMI Share of Market (%) and Growth (pp) Top 5 markets account for 90% of our Regional volume 2013 vs. 2008 +4.8pp +5.8pp +1.9pp +1.5pp +2.9pp +3.5pp 75.6% 73.5% 51.0% 37.2% 38.0% 15.7% Argentina Mexico Colombia Canada Brazil LA&C Region Source: PMI estimates
Slide 10: LA&C Region: Strong Financial Performance
LA&C Region: Strong Financial Performance Shipment Volume Net Revenues Adjusted OCI (units billion) ($ million) ($ million) CAGR: -0.4% CAGR: +7.6% CAGR: +12.0% CAGR: +10.2% (ex-currency) CAGR: +15.8% (ex-currency) 3,354 1,139 99.4 97.3 2,328 647 2008 2013 2008 2013 2008 2013 Source: PMI Financials
Slide 11: Regional Strategies
Regional Strategies ● Effective price management ● Recovery of volume lost to illicit trade ● Cost base optimization ● Brand portfolio enhancement ● Reduced-Risk Products introduction Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce indiv
Slide 12: LA&C Region: Favorable Pricing Environment
LA&C Region: Favorable Pricing Environment Average Pricing Variances ($ million) Yearly Average 255 260 2008-2013 $240 207 2008-2009 2010-2011 2012-2013 Average Average Average Source: PMI Financials 12
Slide 13: LA&C Region: Making In-Roads Against Illicit Trade
LA&C Region: Making In-Roads Against Illicit Trade 2013 Consumption Volume 2013 Illicit Trade (units billion) Volume (units billion) and Incidence (%) ● Gather information on trade Others routes and illegal traffic 8 billion hotspots Tax-Paid 256 billion Illicit Trade 48 billion Colombia 3 billion 2
Slide 14: Focus on Optimizing our Cost Base
Focus on Optimizing our Cost Base ● 5 factories closed in three years ● Distribution model restructurings ● Leaf: - Sustainable growing footprint - Synergies in tobacco supply chain Curaçao ● Clustering across the markets Mexico City Venezuela Guatemala Cast Leaf ● Rightsizing Uruguay Operating fact
Slide 15: PMI: Steady Adjusted OCI and Margin Growth
PMI: Steady Adjusted OCI and Margin Growth Adjusted OCI ($ million) and Adjusted OCI Margin Growth Growth 2008-2013(a) 1,139 +15.8% (CAGR) 1,077 850 34.0% +7.9pp 647 32.4% 27.8% 50 0 2008 2012 2013 (a) Ex-currency Source: PMI Financials 15
Slide 16: Our Portfolio Strategy
Our Portfolio Strategy PHILIP MORRIS INTERNATIONAL 16
Slide 17: Portfolio strategy: Marlboro leadership and innovation
Strengthen Portfolio Reinforce Locally leverage Expand our Marlboro’s on trademarks international leadership to with established portfolio boost volume equity growth Innovate to further address evolving adult smoker preferences Deploy the new commercial approach 17
Slide 18: PMI: Leading Position in the Premium Segment
PMI: Leading Position in the Premium Segment 2013 LA&C Region Price Segmentation (%) 2013 PMI SoS 24 Premium 47 54% 39 Mid 35 36% 37 Low 18 22% Industry PMI (excluding PMI) Note: Premium includes above premium and low includes super-low Source: PMI estimates 18
Slide 19: Marlboro: Impressive Share Growth
Marlboro: Impressive Share Growth Share of Regional Market (%) Share of Premium Segment (%) 45.7 45.0 15.0 42.6 14.6 13.7 2008 2012 2013 2008 2012 2013 Source: PMI estimates 19
Slide 20: Marlboro: Broad Geographic Footprint and Improved Profile
Marlboro: Broad Geographic Footprint and Improved Profile Shares of Market (2013) LA (min. 18) – 24 Share Growth vs. 2008 Premium Segment Leader ≥ 30% Share of Premium Segment 30.1% 29.8% Mexico: 52.3% +3.6pp Colombia: 6.9% +3.7pp 26.7% Brazil: 8.7% +2.3pp Argentina: 23.8% +0.8pp 2008 2012 2013 Sour
Slide 21: Marlboro: Growth in All Three Pillars
Marlboro: Growth in All Three Pillars Regional Market Share (%) +1.3pp vs. 2008 15.0 +0.7pp +0.2pp 13.7 +0.4pp 2008 FLAVOR GOLD FRESH 2013 Source: PMI estimates 21
Slide 22: Marlboro Red innovation
Note: Translation from Portuguese: "MARLBORO RED has just finished innovating"
Slide 23: Marlboro Kretek Mint
Note: Translation from Spanish: "Marlboro Kretek Mint, 3 flavors, a new experience"
Slide 24: To be replaced
To be replaced Note: Translation from Spanish: "Maybe I will share the moment"
Slide 25: L&M: Actively Supported with Innovative Offers
L&M: Actively Supported with Innovative Offers ● International brand with trusted quality ● 5th largest PMI brand in the Region ● Growing geographically; present in 14 markets (+8 vs. 2010) Note: Translation from Portuguese: "New L&M Box. The quality of a box pack at the price of soft packaging". Tr
Slide 26: Chesterfield: Complement to the Mid/Low Price Portfolio
Chesterfield: Complement to the Mid/Low Price Portfolio ● Chesterfield sold in 6 markets ● Central America and Mexico introduction ● Destination for adult smokers seeking international image brands 26
Slide 27: Delicados: An Authentic Mexican Brand
Delicados: An Authentic Mexican Brand 2013 ● # 2 brand in Mexico: - 11.2% market share (+0.8pp vs. 2012) ● # 1 brand in the low-price segment ● Clear, unique positioning ● Widening appeal through a renewed brand character Source: PMI estimates and PMI Market Research 27
Slide 28: Philip Morris: #2 Brand in the LA&C Region
Philip Morris: #2 Brand in the LA&C Region ● 8.0% share YTD May, 2014 ● Successful line extensions in Argentina and Paraguay ● Low price alternative with further potential in Canada Source: PMI estimates 28
Slide 29: Canada: Market Profile
Canada: Market Profile Industry Volume (2013): 28.9 billion units PMI Market Shares (%) Offices +1.5pp +13.7pp Cigarette Factory 45.9 35.7 37.2 32.2 ● Stable economy ● PMI leader among LA (min. 18) - 29 year old National LA (min. 18) - 29 smokers smokers ● Encouraging anti-illicit trade government 2
Slide 30: Canada: Expanding Margins while Sustaining Share Growth
Canada: Expanding Margins while Sustaining Share Growth ● Sustainable pricing resulting in long-term profitability growth ● Brand equity and product quality supporting premium prices ● Strong brands in below-premium segment to capture price sensitive adult smokers 30
Slide 31: Canada: Belmont Solid Growth and Improving Profile
Canada: Belmont Solid Growth and Improving Profile ● Potential to expand to other geographies 2013 Belmont Shares (%) Market Premium Segment LA (min. 18) – 29 share Growth +2.5pp +1.6pp +6.8pp +5.7pp +11.7pp +11.8pp vs. 2008 23.8 14.8 15.1 8.7 6.9 2.9 Ontario British Ontario British Ontario British
Slide 32: Canada: Canadian Classics and Québec Classique Taking the Lead
Canada: Canadian Classics and Québec Classique Taking the Lead ● Strong Canadian heritage and superior quality ● Continued resilience against down-trading ● #1 selling brand in the country – 12.5% market share (YTD May 2014) Source: PMI Market Research 32
Slide 33: Canada: Next & Philip Morris Well Positioned in Below-Premium Segment
Canada: Next & Philip Morris Well Positioned in the Below-Premium Segment 2013 Next Shares (%) Growth vs. 2009 14.7 9.9 Market Below-Premium Segment ● Fastest-growing brand, selling at a ● Launch of a well-known brand with slight premium established equity ● Ontario + Quebec SoM: 0.4% Source: PMI es
Slide 34: Canada: Distribution & Commercial Strategy
Canada: Distribution & Commercial Strategy Enable commercial growth through a newly designed mixed distribution model: ● Improve operational and strategic capability at retail level ● More efficient implementation of portfolio strategy ● Continue leveraging on our wholesaler partners Enhanced intera
Slide 35: Mexico: Market Profile
Mexico: Market Profile Industry Volume (2013): PMI Market Share (%) 34.6 billion units 73.5 73.5 67.7 69.2 2008 2012 2013 YTD May Offices 2014 Key Brands Tobacco Processing Cigarette Manufacturing ● PMI market leader since 1998 ● Market leader in relevant segments ● Key production center for the reg
Slide 36: Mexico: Industry Tax-Paid Volume and Illicit Trade
Mexico: Industry Tax-Paid Volume and Illicit Trade ● No tax increase in the last three years Industry Tax-Paid Volume Decline vs. PY (%)(a) Illicit Trade Incidence (%) CAGR 2007-2013: (2.2)% Empty Pack Survey Pack Swap 2008 2009 2010 2011 2012 2013 Tax 15.5 Increase (0.2) (0.5) 12.7 (b) (2.6) (2.1)
Slide 37: Mexico: Industry Dynamics
Mexico: Industry Dynamics Price Segmentation Dynamics (%) Down-trading Pressure Premium 65.4 66.6 63.7 58.4 PMI SoS 82.8 89.8 90.7 91.3 13.5 11.9 10.9 Mid 12.0 22.6 24.2 Low 22.6 21.1 Super-Low 0.4 2.8 3.9 2008 2012 2013 YTD May, 2014 Source: PMI estimates 37
Slide 38: Mexico: Restoring Share Growth
Mexico: Restoring Share Growth Investing in Marlboro’s Brand Equity Leveraging on Affordability ● Support through menthol and kretek ● Marlboro 18’s and Ice Xpress 100s innovations ● Delicados value offers: 14s, 15s and 24s 38
Slide 39: Mexico: Pioneer in Launching New Commercial Approach
Mexico: Pioneer in Launching New Commercial Approach 39
Slide 40: Mexico: Key Opportunities
Mexico: Key Opportunities ● Maintain and reinforce our leadership position in the premium segment ● Accelerate illicit volume recovery to the legal market ● Leverage our efficient manufacturing footprint ● Advocate for a predictable and reasonable fiscal environment ● Fully capture the benefits of t
Slide 41: Colombia: Market Profile
Colombia: Market Profile Industry Volume (2013): PMI Market Share (%) 13.7 billion units 50.5 50.8 49.1 47.5 Offices Tobacco Processing Cigarette Manufacturing 2008 2010 2012 2013 Key Brands ● Solid economic outlook ● Continued Marlboro growth ● Ongoing actions to fight high illicit trade SoM (2013)
Slide 42: Colombia: Strength of Marlboro
Colombia: Strength of Marlboro ● Continuous market share growth ● Achieved market leadership among LA (min. 18) – 24 year old smokers Marlboro Market Share (%) 6.9 6.0 4.8 3.8 2.7 2.0 1.3 0.6 2010 2011 2012 2013 Total Marlboro Marlboro Fresh Family Source: PMI estimates and PMI Market Research 42
Slide 43: Brazil: Market Profile
Brazil: Market Profile Industry Volume (2013): PMI Market Share (%) 76.5 billion units 15.7 16.1 14.8 12.8 2008 2012 2013 YTD May 2014 Key Brands Offices Manufacturing Facility ● Favorable economic conditions ● Marlboro leading brand in São Paulo ● New integrated manufacturing facility ● Leaf vertic
Slide 44: Brazil: Excise Tax Change Leads to Better Price Gaps
Brazil: Excise Tax Change Leads to Better Price Gaps Tax System Rates Convergence MPPC Price Gap vs. RSP (BRL/Pack) Marlboro Box 20s (BRL/Pack) Marlboro 4.75 5.50 6.25 6.75 Box RSP 1.30 1.30 1.25 MPPC 1.20 Box 1.15 Price Gap 1.35 1.20 1.25 1.25 1.05 1.00 0.90 Soft Pack 0.80 1 Dec May Jan Jan Jan Apr
Slide 45: Brazil: At a Glance
Brazil: At a Glance Cigarette Industry Price Segmentation (%) Adult Smoker Up-Trading PMI SoS 2013 (growth vs. 2010) 23.1 27.7 32.7% +1.4 pp Premium 28.4 Mid 32.0 9.7% +0.6 pp 39.9 Low 31.2 10.7% +0.1 pp 8.6 Super-Low 9.1 2.1% +2.1 pp 2010 2013 Source: PMI estimates 45
Slide 46: Brazil: Focus Area
Brazil: Focus Area PMI Market Shares (%) +1.7pp +0.7pp 23.5 24.2 Focus Area 15.7 14.0 Brazil South Brazil North Population: 87.2 million 111.5 million GDP/capita(a) (USD thousand): 15.4 8.4 2010 2013 2010 2013 % of Tax-Paid Cigarette Market: 65% 35% National Focus Area (a) Nominal GDP per capita 201
Slide 47: Brazil: Marlboro's Continued Growth
Brazil: Marlboro’s Continued Growth ● Leading brand in São Paulo, Brazil’s ● New Marlboro 2.0 Architecture largest city ● Continuous market share growth Marlboro Market Shares (%) National Focus Area (2013) +1.9pp 18.2 12.2 8.7 6.8 2010 2013 SoM LA (min. 18) – 24 Note: Translation: "NEW MARLBORO RED
Slide 48: Brazil: L&M
Brazil: L&M ● Fastest-growing mid-price brand in the focus area ● First box format in its price category L&M Market Shares (%) National Focus Area (2013) 6.6 4.7 2.7 2.2 2010 2013 SoM LA (min. 18) – 24 Source: PMI estimates, Nielsen and PMI Market Research 48
Slide 49: Brazil: Market Priorities
Brazil: Market Priorities ● Broaden Marlboro’s appeal to emerging middle class adult smokers ● Fully capitalize on anti-trust ruling ● Seek productivity to fund further investments 49
Slide 50: Argentina: Market Profile
Argentina: Market Profile Industry Volume (2013): PMI Market Share (%) 42.6 billion units 75.6 76.8 74.9 70.8 Offices Stemmery Manufacturing Facility 2008 2012 2013 YTD May 2014 Key Brands ● Balanced portfolio and outstanding share performance ● Solid footprint ● Economic and regulatory restrictions
Slide 51: Argentina: Marlboro's Improving Profile and Relevance
Argentina: Marlboro’s Improving Profile and Relevance ● Marlboro’s share of market grew by 0.8pp from 2008 - 2013 Marlboro LA (min. 18) – 24 Share (%) +3pp vs. 2008 30 28 27 2008 2012 2013 Source: PMI estimates and PMI Market Research 51
Slide 52: Argentina: Philip Morris Continues to Lead
Argentina: Philip Morris Continues to Lead ● #1 brand in the market ● Smart and approachable attitude ● Leader and growing among LA (min. 18) – 24 year old smokers 42.7 Philip Morris Market Share (%) 41.5 Philip Morris Caps 39.4 34.1 8.0 5.1 2.0 2008 2012 2013 May 2014 Source: PMI estimates and PMI
Slide 53: Argentina: Strength of PMI Innovations
Argentina: Strength of PMI Innovations Capsules Share of Market (%) Total 12.8 Industry Other 9.3 4.6 8.7 PMI 5.6 1.3 0.3 2.0 0.2 2010 2011 2012 2013 YTD May 2014 Source: PMI estimates 53
Slide 54: Argentina: Leveraging on Our Continued Strength in the Country
Argentina: Leveraging on Our Continued Strength in the Country ● Undisputed market leader with strong footprint ● Successfully navigating in complex environment ● Winning, well-balanced brand portfolio driving innovation 54
Slide 55: LA&C Region: Conclusion
LA&C Region: Conclusion ● Address temporary challenges in Mexico ● Sustainable pricing and cost optimization will drive profitability ● Strong share growth momentum is expected to continue ● Marlboro’s brand position will fuel our market share ● Opportunity to recover illicit trade volume to tax-pai
Slide 56: Investor Day – LA&C Region: Questions & Answers
Investor Day – LA&C Region Lausanne, June 26, 2014 Questions & Answers
Slide 57: Reconciliation of non-GAAP measures included in this presentation
Reconciliation of non-GAAP measures included in this presentation to the most comparable GAAP measures are provided on our website at: www.pmi.com/2014InvestorDay/RecSlides Glossary of Terms: www.pmi.com/2014InvestorDay/Glossary
Philip Morris International — Investor Day (June 2014) on 6ix