Philip Morris International Inc · NYSE:PM
Philip Morris International — Q4 and FY2019 Earnings Presentation
63 slides from Philip Morris International's earnings presentation, Feb 6, 2020
Slide 1: Delivering a Smoke-Free Future: 2019 Fourth-Quarter and Full-Year Results
Exhibit 99.3 Delivering a Smoke-Free Future 2019 Fourth-Quarter and Full-Year Results February 6, 2020
Slide 2: Introduction
Introduction • A glossary of key terms and definitions, including the definition for reduced-risk products, or "RRPs," as well as adjustments, other calculations and reconciliations to the most directly comparable U.S. GAAP measures and our business transformation metrics are at the end of today’s w
Slide 3: Forward-Looking and Cautionary Statements
Forward-Looking and Cautionary Statements • This presentation and related discussion contain projections of future results and other forward-looking statements. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. In the event that risks or uncertainties mater
Slide 4: Strong Performance in 2019
Strong Performance in 2019 • Broad-based growth for IQOS • Robust combustible tobacco portfolio results, with solid pricing • Strong adjusted financial results on a currency-neutral like-for-like basis • FDA Pre-Market Tobacco Authorization and U.S. commercial launch of IQOS(a) (a) IQOS 2.4 device S
Slide 5: PMI Total Volume: Full-Year 2019 In Line with Forecast
PMI Total Volume: Full-Year 2019 In Line with Forecast Total Volume (Change vs. PY) • Industry total volume decline broadly Industry(a) PMI Shipments(b) in line with historical trend; slightly better than our prior forecast of around 2.5% • PMI volume in line with full-year forecast (1.4)% (2.0)% (a
Slide 6: PMI Total Volume: Q4, 2019
PMI Total Volume: Q4, 2019 PMI Total Volume (Like-for-Like Change vs. PY) • Shipments include unfavorable Shipments IMS impact of cigarette inventory movements vs. prior year quarter • IMS decline primarily reflects the impact of recent pricing actions in Turkey and the Philippines (3.1)% (4.4)% Sou
Slide 7: Well On Track to Deliver HTU Shipment Volume Target by 2021
Well On Track to Deliver HTU Shipment Volume Target of 90 to 100 Billion Units by 2021 60 billion units(a) in 2019 (a) 59.7 billion units Source: PMI Financials or estimates 7
Slide 8: Growing Contribution of HTUs to Our Total Shipments
Growing Contribution of HTUs to Our Total Shipments As a % of PMI Total Shipment Volume 7.8% 5.3% 4.5% 0.9% —% 2015 2016 2017 2018 2019 0.4 7.4 36.2 41.4 59.7 PMI HTU Shipment Volume (billion units) Source: PMI Financials or estimates 8
Slide 9: Strong Adjusted Financial Results in 2019
Strong Adjusted Financial Results in 2019 Growth vs. PY • Currency-neutral like-for-like net revenue growth driven by: (ex-currency, like-for-like basis) Strong pricing for our combustible tobacco portfolio ⎼ Higher HTU shipment volume ⎼ 6.4% Net Adjusted Adjusted Revenues OI Diluted EPS Source: PMI
Slide 10: Five Years of Strong RRP Net Revenue Growth
Five Years of Strong RRP Net Revenue Growth As a % of Total PMI Net Revenues 18.7% 13.8% 12.7% 2.7% —% 0.2% 2014 2015 2016 2017 2018 2019 $0.1 $0.7 $3.6 $4.1 $5.6 RRP Net Revenues ($ in billions) Source: PMI Financials or estimates 10
Slide 11: Strong Combustible Tobacco Pricing in 2019
Strong Combustible Tobacco Pricing in 2019 PMI Combustible Tobacco Pricing Variance(a) 6.5% 6.5%(c) Notable contributions from Germany, Indonesia, the Philippines, Russia and Turkey Average (2008-2018)(b) 2019 (a) Reflects combustible tobacco pricing as a % of PY combustible tobacco net revenues (b)
Slide 12: Strong Adjusted Financial Results in 2019
Strong Adjusted Financial Results in 2019 Growth vs. PY • Currency-neutral like-for-like net revenue growth driven by: (ex-currency, like-for-like basis) Strong pricing for our combustible tobacco portfolio ⎼ Higher HTU shipment volume ⎼ • 170bps currency-neutral like-for-like adjusted OI margin exp
Slide 13: Strong Adjusted Financial Results in 2019
Strong Adjusted Financial Results in 2019 Growth vs. PY • Currency-neutral like-for-like net revenue growth driven by: (ex-currency, like-for-like basis) Strong pricing for our combustible tobacco portfolio ⎼ Higher HTU shipment volume ⎼ • 170bps currency-neutral like-for-like adjusted OI margin exp
Slide 14: 2019: Operating Cash Flow; Capital Expenditures
2019: Operating Cash Flow; Capital Expenditures PMI Operating Cash Flow • Operating cash flow up by $0.6 billion, benefiting from: ($ in billions) Working capital initiatives $10.1 The timing of certain cash costs related to our $9.5 ⎼ Berlin factory optimization ⎼ • Capital expenditures of $0.9 bil
Slide 15: HTUs Drove Total Share Growth in 2019
HTUs Drove Total Share Growth in 2019 PMI Total International Share +0.1pp 28.3% 28.4% 1.6% HTUs 2.2% +0.6pp 26.7% Cigarettes 26.2% (0.5)pp 20% 2018 2019 Note: Excluding China and the U.S. Current view (reflecting the deconsolidation of RBH, PMI’s total market share has been restated for previous pe
Slide 16: Marlboro Cigarette Share at All-Time High in 2019
Marlboro Cigarette Share at All-Time High in 2019 PMI International Cigarette Share 27.2% 26.9% Others 9.7% Marlboro 10.0% +0.3pp 2018 2019 Note: Excluding China and the U.S. Current view (reflecting the deconsolidation of RBH, PMI’s total market share has been restated for previous periods). Sales
Slide 17: IQOS Available for Sale in Markets Worldwide
IQOS Available for Sale in 52 Markets Worldwide Available for sale (a) (a) IQOS 2.4 Plus internationally, IQOS 2.4 in the U.S. Note: Status at February 6, 2020. Reflects markets where IQOS is available in key cities or nationwide. The number of markets includes Duty Free 17
Slide 18: IQOS DUO Now Offered in All IQOS Markets
IQOS 3 DUO Now Offered in All IQOS Markets(a) Positive initial effects on adult smoker conversion & satisfaction Positive initial effects on adult smoker conversion & satisfaction THIS PRODUCT CONTAINS NICOTINE AND IS NOT-RISK FREE. FOR ADULT USE ONLY. THE BEST WAY TO REDUCE TOBACCO RELATED HEALTH R
Slide 19: Approaching Million IQOS Users
Approaching 14 Million IQOS Users (in millions) (a) Total IQOS users 13.6 Estimated users who are in various stages of conversion to IQOS(a) 12.3 Estimated users who have stopped 11.3 smoking and switched to IQOS(a) 10.4 9.6 8.8 8.3 7.6 67% 67% 67% 69% 70% 70% 71% 71% 3.0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 201
Slide 20: Third-Largest Tobacco 'Brand' in IQOS Markets
Third-Largest Tobacco ‘Brand’ in IQOS Markets Share in IQOS Markets (Q4, 2019) 12.0% 5.5% 3.9% #3 Marlboro Winston PMI HTUs Rothmans L&M Note: Excluding the U.S. Reflects sales volume as a percentage of the total industry sales volume for cigarettes and HTUs Source: PMI Financials or estimates 20
Slide 21: HTU Offtake Shares in Key Cities
HTU Offtake Shares in Key Cities PMI (Q4, 2019) Change vs. PY +5.6pp +3.6pp +7.2pp +5.4pp +3.3pp +4.0pp +7.9pp +1.9pp 16.5% 13.2% 13.6% 13.5% 8.6% 8.3% 7.7% 4.4% Athens Bratislava Kiev Kuala Lumpur Lisbon Milan Moscow Munich +3.7pp +4.6pp (2.1)pp (0.5)pp +1.8pp +13.3pp +5.9pp +1.2pp 28.5% 20.6% 13.7
Slide 22: EU Region: Continued HEETS Share Growth
EU Region: Continued HEETS Share Growth 3.2% +1.5pp 1.7% Q4, 2018 Q4, 2019 Sequential Performance (vs. Q3, 2019) SoM: +0.7pp IMS Volume: +16.1% Source: PMI Financials or estimates 22
Slide 23: EU Region: HEETS SoM Performance in Select Markets
EU Region: HEETS SoM Performance in Select Markets Growth Growth Growth Q4, 2019 vs. PY Q4, 2019 vs. PY Q4, 2019 vs. PY Bulgaria 4.6% (0.1)pp Hungary 4.2% +4.2pp Portugal 7.2% +2.8pp Croatia 4.2 +2.5 Italy 6.1 +2.8 Romania 2.5 +0.5 Czech Slovak Latvia Republic 7.2 +3.0 7.7 +6.1 Republic 7.5 +1.5 Ger
Slide 24: Russia: Continued Strong HEETS Share Growth
Russia: Continued Strong HEETS Share Growth 5.0% +3.3pp 1.7% Q4, 2018 Q4, 2019 Sequential Performance (vs. Q3, 2019) SoM: +1.0pp IMS Volume: +20.3% Source: PMI Financials or estimates 24
Slide 25: Japan: PMI HTU Share Performance
Japan: PMI HTU Share Performance 17.6% 17.0% 17.1% 16.6% 15.2% Q4 Q1 Q2 Q3 Q4 2018 2019 Source: PMI Financials or estimates 25
Slide 26: Japan: PMI HTU Share Performance
Japan: PMI HTU Share Performance Adjusted Total Tobacco SoM(a) 15.4% 16.6% 16.5% 16.3% 16.9% 17.6% 17.0% 17.1% 16.6% 15.2% Q4 Q1 Q2 Q3 Q4 2018 2019 (a) Excluding the impact of estimated trade inventory movements, and including the cigarillo category Source: PMI Financials or estimates 26
Slide 27: Korea: Stable HEETS Sequential Share Performance
Korea: Stable HEETS Sequential Share Performance SoM SoS Adjusted(a) 7.8% 7.8% 7.0% 6.3% 6.4% 66.2% 62.8% 65.1% 67.2% 8.5% 64.0% 63.5% 7.3% 7.3% 63.1% 62.5% 6.2% 6.3% Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2018 2019 2019 (a) Excluding the impact of estimated trade inventory movements Source: PMI Financials or e
Slide 28: IQOS Now Available in the U.S.
IQOS Now Available in the U.S. 40 • First IQOS retail stores opened million in the initial launch markets of adult smokers in the U.S. Atlanta and Richmond • The only heat-not-burn product authorized through FDA’s PMTA pathway as "appropriate for the protection of public health" • Plan to seek an ad
Slide 29: Launching IQOS MESH 2.0 Across Multiple Markets in 2020
Launching IQOS MESH 2.0 Across Multiple Markets in 2020 • Consumer misperceptions on e-vapor category, albeit moderating, still persist • Now plan accelerated launch starting in Q3, 2020 • Notable international e-vapor market dynamics: 10 markets account for around 70% of total international adult u
Slide 30: Global Collaboration Agreement with KT&G
Global Collaboration Agreement with KT&G to Accelerate the Achievement of a Smoke-Free Future • Requires multiple products providing a wide array of brand, taste, price and technology choices to adult Driving smokers • Leveraging on PMI’s best-in-class RRP commercialization, technology, scientific s
Slide 31: 2020: EPS Guidance
2020: EPS Guidance • Reported diluted EPS guidance of at least $5.50, at prevailing exchange rates, compared to $4.61 in 2019: Includes four cents of unfavorable currency at prevailing exchange rates Does not include any share repurchases ⎼ ⎼ • On a currency-neutral like-for-like basis, our guidance
Slide 32: 2020: Indonesia Dynamics
2020: Indonesia Dynamics • Excise tax and minimum banderole price increases: January 1st: excise tax +24%(a) / minimum banderole price +46%(a) April 1st: minimum RSP of 85% of new banderole price takes effect ⎼ In context of a two-year stack, increases broadly in-line with historical levels ⎼ Opport
Slide 33: 2020: Select Guidance Assumptions
2020: Select Guidance Assumptions Combustible Tobacco % (a) ̴ 5 Pricing Variance ex-currency, like-for-like basis % Net Revenue Growth ̴ 5 ex-currency, like-for-like basis (a) Reflects combustible tobacco pricing as a % of PY combustible tobacco net revenues Source: PMI Financials or estimates 33
Slide 34: 2020: Select Guidance Assumptions (cont.)
2020: Select Guidance Assumptions (cont.) Combustible Tobacco % (a) ̴ 5 Pricing Variance ex-currency, like-for-like basis % Net Revenue Growth ̴ 5 ex-currency, like-for-like basis Adjusted OI ≥150bps Margin Expansion ex-currency, like-for-like basis Expect improvement of 25% in our acquisition cost/
Slide 35: 2020: Industry Total Volume Decline Assumption
2020: Industry Total Volume Decline Assumption • 3% to 4% decline weaker than historical average, impacted by: Indonesia: 2020 excise tax increase % 5-year trend (2)-(3) (2015-2019) Japan: cigarillo category growth driven ⎼ by preferential tax treatment ⎼ • Underlying fundamentals remain unchanged ̴
Slide 36: 2020: Select Guidance Assumptions (cont.)
2020: Select Guidance Assumptions (cont.) % PMI Total Shipments (2.5)-(3.5) like-for-like basis Well on track to meet PMI HTU Shipments 90 to 100 billion units by 2021 Source: PMI Financials or estimates 36
Slide 37: 2020: Select Guidance Assumptions (cont.)
2020: Select Guidance Assumptions (cont.) Full-Year Effective Tax Rate ̴ 23% Net Interest Expense Relatively Stable Operating Cash Flow ̴ $10.5 billion Total Capital Expenditures ̴ $1.0 billion Note: Operating cash flow is defined as net cash provided by operating activities Source: PMI Financials or
Slide 38: Anticipate Strong Underlying Business Fundamentals to Continue into 2020
Anticipate Strong Underlying Business Fundamentals to Continue into 2020 • Very significant progress on our transformation to a smoke-free future • IQOS continues to perform strongly: Project significantly more new users in 2020 ⎼ • Robust combustible tobacco portfolio performance and pricing power •
Slide 39: Questions & Answers
Delivering a Smoke-Free Future 2019 Fourth-Quarter and Full-Year Results Questions & Answers Have you downloaded the PMI Investor Relations App yet? iOS Download Android Download The free IR App is available to download at the Apple App Store for iOS devices and at Google Play for Android mobile dev
Slide 40: Delivering a Smoke-Free Future: 2019 Fourth-Quarter and Full-Year Results
Delivering a Smoke-Free Future 2019 Fourth-Quarter and Full-Year Results February 6, 2020
Slide 41: Glossary of Key Terms and Definitions, Appendix, and Reconciliation of Non-GAAP Measures
Glossary of Key Terms and Definitions, Appendix, and Reconciliation of Non-GAAP Measures 41
Slide 42: Glossary: General Terms
Glossary: General Terms • "PMI" refers to Philip Morris International Inc. and its subsidiaries • Until March 28, 2008, PMI was a wholly owned subsidiary of Altria Group, Inc. ("Altria"). Since that time the company has been independent and is listed on the New York Stock Exchange (ticker symbol "PM
Slide 43: Glossary: General Terms (cont.)
Glossary: General Terms (cont.) • "EU" is defined as the European Union Region • "EE" is defined as the Eastern Europe Region • "ME&A" is defined as the Middle East & Africa Region and includes PMI's duty free business • "S&SA" is defined as the South & Southeast Asia Region • "EA&A" is defined as the Ea
Slide 44: Glossary: Financial Terms
Glossary: Financial Terms • Net revenues related to combustible products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. PMI recognizes revenue when contro
Slide 45: Glossary: Reduced-Risk Products
Glossary: Reduced-Risk Products • "Reduced-risk products," or "RRPs," is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continuing smoking. PMI has a range of RRPs in variou
Slide 46: Glossary: Reduced-Risk Products (cont.)
Glossary: Reduced-Risk Products (cont.) • "Total IQOS users" is defined as the estimated number of Legal Age (minimum 18 years) IQOS users that used PMI HTUs for at least 5% of their daily tobacco consumption over the past seven days • "Converted IQOS Users" is defined as the estimated number of Leg
Slide 47: Glossary: IQOS in the United States
Glossary: IQOS in the United States • On April 30, 2019, the U.S. Food and Drug Administration (FDA) announced that the marketing of a version of IQOS, PMI's heat-not-burn product, together with its heated tobacco units (the term PMI uses to refer to heated tobacco consumables), is appropriate for t
Slide 48: HTU Offtake Shares in Key Cities (FY 2019)
HTU Offtake Shares in Key Cities PMI (FY, 2019) Change vs. PY +6.2pp +5.8pp +6.8pp +4.2pp +3.7pp +3.5pp +7.2pp +1.7pp 13.9% 12.8% 11.5% 10.7% 6.5% 7.7% 6.4% 3.6% Athens Bratislava Kiev Kuala Lumpur Lisbon Milan Moscow Munich +5.4pp +4.5pp (0.9)pp +2.7pp +1.8pp +13.6pp +4.5pp +1.1pp 20.4% 23.1% 12.8%
Slide 49: EU Region: HEETS SoM Performance in Select Markets
EU Region: HEETS SoM Performance in Select Markets Growth Growth Growth FY, 2019 vs. PY FY, 2019 vs. PY FY, 2019 vs. PY Bulgaria 4.5% +1.7pp Hungary 1.9% +1.9pp Portugal 6.2% +3.2pp Croatia 3.4 +2.6 Italy 4.8 +2.6 Romania 2.3 +0.4 Czech Slovak Latvia Republic 5.9 +3.3 5.4 +4.7 Republic 6.8 +3.2 Germ
Slide 50: 2020: EPS Guidance
2020: EPS Guidance Full-Year ($/share) 2020 Adjusted Forecast 2019 Growth Reported Diluted EPS ≥ $5.50 $4.61 - Tax items (0.04) - Asset impairment and exit costs 0.23 - Canadian tobacco litigation-related expense 0.09 - Loss on deconsolidation of RBH 0.12 - Russia excise and VAT audit charge 0.20 -
Slide 51: Business Transformation Metrics
Business Transformation Metrics(a) Shifting Company Resources to Deliver a Smoke-Free Future Aspiration(b) 2015 2016 2017 2018 2019 by 2025 R&D expenditure (smoke-free/total) 70% 72% 74% 92% 98% Commercial expenditure (smoke-free/total) 8% 15% 39% 60% 71% Net revenues(c) (smoke-free/total) 0.2% 2.7%
Slide 52: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency, and Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS, excluding Currency (Unaudited) Years Ended December 31, 2019 2
Slide 53: Adjustments for the Impact of RBH, excluding Currency
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, excluding Currency (Unaudited) Years Ended December 31, 2019 2018 % Change Adjusted Diluted EPS(a) $ 5.19 $ 5.10 1.8% Net earnings attributable to RBH (0.26) (b) Adjusted Diluted
Slide 54: Net Revenues by Product Category
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Years Ended Net Excluding Currency
Slide 55: Adjustments for the Impact of RBH, excluding Currency
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, excluding Currency ($ in millions) / (Unaudited) Years Ended December 31, 2019 2018 % Change Net Revenues $ 29,805 $ 29,625 0.6% Net Revenues attributable to RBH (742) (a) Net Rev
Slide 56: Reconciliation of Operating Income to Adjusted Operating Income
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Income to Adjusted Operating Income, excluding Currency and Acquisitions ($ in millions) / (Unaudited) Adjusted Adjusted Operating Excluding Asset Adjusted Operating Income Asset Adjuste
Slide 57: Adjustments for the Impact of RBH, excluding Currency
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, excluding Currency ($ in millions) / (Unaudited) Years Ended December 31, 2019 2018 % Change Operating Income $ 10,531 $ 11,377 (7.4)% Asset impairment and exit costs (422) - Cana
Slide 58: Reconciliation of Adjusted Operating Income Margin
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Adjusted Operating Income Margin, excluding Currency and Acquisitions ($ in millions) / (Unaudited) Adjusted Adjusted Adjusted Adjusted Adjusted Net Operating Adjusted Operating Net Operating Adju
Slide 59: Adjustments for the Impact of RBH, excluding Currency
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, excluding Currency ($ in millions) / (Unaudited) Years Ended December 31, 2019 2018 % Change Adjusted Operating Income(a) $ 11,760 $ 11,377 3.4% Net Revenues $ 29,805 $ 29,625 Adj
Slide 60: Reconciliation of Reported Diluted EPS to Pro Forma Adjusted Diluted EPS
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Pro Forma Adjusted Diluted EPS (Unaudited) Quarter Quarter Six Months Quarter Nine Months Quarter Year Quarter Ended Ended Ended Ended Ended Ended Ended Ended Mar 31, Jun 3
Slide 61: Net Revenues by Product Category (2017)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Years Ended Net Excluding Currency
Slide 62: Net Revenues by Product Category (2016)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Years Ended Net Excluding Currency
Slide 63: Delivering a Smoke-Free Future: 2019 Fourth-Quarter and Full-Year Results
Delivering a Smoke-Free Future 2019 Fourth-Quarter and Full-Year Results February 6, 2020
Philip Morris International — Q4 and FY2019 Earnings Presentation on 6ix