Philip Morris International Inc · NYSE:PM
Philip Morris International — FY2018 Earnings Presentation
50 slides from Philip Morris International's earnings presentation, Feb 7, 2019
Slide 1: Delivering a Smoke-Free Future: 2018 Fourth-Quarter and Full-Year Results
Exhibit 99.3 Delivering a Smoke-Free Future 2018 Fourth-Quarter and Full-Year Results February 7, 2019
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, are at the end of today’s webcast slides, which are posted on our we
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: 2018: Overview
2018: Overview • Robust combustible tobacco portfolio results • Nearly doubled our HTU IMS volume, driven by growth in all IQOS markets • Fell short of our initial full-year net revenue growth target provided in February 2018(a): Almost entirely attributable to lower-than-anticipated IQOS consumer a
Slide 5: 2018: Flat PMI Total Shipment Volume, ex-Inventory
2018: Flat PMI Total Shipment Volume, ex-Inventory Total Volume, • Reported volume down by 2.1%, Excluding Estimated notably reflecting the reduction in Net Distributor Inventory Movements(a) distributor HTU inventory in Japan (Variance vs. PY) Flat volume, excluding estimated net • ̶ Industry(b) di
Slide 6: 2018: PMI Cigarette Shipment Volume
2018: PMI Cigarette Shipment Volume • Volume down by 2.8%, due mainly to: Lower industry volume (notably in Russia and Saudi Arabia) ⎼ Impact of consumer switching to HTUs (notably in Japan, Korea and the EU Region) ⎼ • Decline partly offset by increased volume, notably in: Pakistan and Turkey (driv
Slide 7: 2018: PMI HTU Volume Performance
2018: PMI HTU Volume Performance (billion units) Shipments In-Market Sales +14.2% +93.2% 44.3 41.4 36.2 Growth Driven by despite the all IQOS estimated 22.9 launch net markets, distributor including inventory Japan and movements Korea in Japan 2017 2018 2017 2018 Note: % change for shipments and in-
Slide 8: 2018: Financial Results
2018: Financial Results Growth vs. PY • Net revenues increased, ex-currency, driven by: (ex-currency) Strong pricing for our combustible tobacco portfolio ⎼ HTU shipment volume growth ⎼ • RRP net revenues reached $4.1 billion, or 13.8% of total net revenues: IQOS devices and accessories accounted fo
Slide 9: 2018: Strong Combustible Tobacco Pricing Variance
2018: Strong Combustible Tobacco Pricing Variance • 7.6% of prior year combustible tobacco net revenues • Positive contributions from all six Regions • Particularly strong pricing in Canada, Germany, Indonesia, the Philippines and Russia: Russia: pricing benefited from a very favorable comparison, f
Slide 10: 2018: Financial Results
2018: Financial Results Growth vs. PY • Essentially flat adjusted OI, ex-currency (ex-currency) • Adjusted OI margin down by 1.3 points, ex- currency, primarily reflecting: The impact of our net incremental RRP investments of approximately $600 million ⎼ 3.4% 0.1% Net Adjusted Adjusted Revenues OI D
Slide 11: 2018: Financial Results
2018: Financial Results Growth vs. PY • Adjusted diluted EPS of $5.10 increased by (ex-currency) 8.1%, driven by: Both a lower effective tax rate and net interest expense (as a result of the 2017 U.S. Tax Cuts and Jobs Act) ⎼ 3.4% 0.1% 10.4% Net Adjusted Adjusted Revenues OI Diluted EPS Source: PMI
Slide 12: 2018: Strong Operating Cash Flow Growth
2018: Strong Operating Cash Flow Growth • Operating cash flow up by 566 million (or PMI Operating Cash Flow 6.4%): ($ in billions) 9.5 Principally driven by higher net earnings 8.9 ⎼ Partly offset by unfavorable currency ⎼ • Ex-currency, operating cash flow up by 8.9% • Capital expenditures of $1.4
Slide 13: 2018: Total Share Growth, Driven by HTUs
2018: Total Share Growth, Driven by HTUs (%) PMI Total International SoM Total share 30% +0.5pp growth 28.4 in all 27.9 six Regions 0.8 HTUs 1.6 27.1 Cigarettes 26.8 20% 2017 2018 Note: Excluding China and the U.S. Source: PMI Financials or estimates 13
Slide 14: 2018: Maintained Leadership in the Cigarette Category
2018: Maintained Leadership in the Cigarette Category (%) PMI International Cigarette SoM(a) 27.4 27.4 Others 9.7 Marlboro 9.7 2017 2018 (a) Sales volume of PMI cigarettes as a percentage of the total industry sales volume for cigarettes Note: Excluding China and the U.S. Source: PMI Financials or e
Slide 15: IQOS: Continued User Growth
IQOS: Continued User Growth (in millions) 1/3 ̴ (b) of total IQOS 9.6 Total IQOS users 8.8 user base now 8.3 outside Asia(a) 6.9 7.6 5.2 4.1 2.9 Estimated users who 70% 71% 71% 68% 67% 67% 67% 69% have stopped smoking and switched to IQOS(b) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2018 (a) As of Q4, 2018 (b) S
Slide 16: Global Launch of Next Generation of IQOS
Global Launch of Next Generation of IQOS, the World’s Leading Heated Tobacco Product 16
Slide 17: IQOS: HTU IMS Volume in Japan
IQOS: HTU IMS Volume in Japan 7.5 6.6 6.0 6.3 5.2 5.6 4.3 2.9 PMI HTU Q3/Q4, 2018 PMI HTU IMS volume IMS Volume • (billion units) is distorted, resulting from: Sizable trade and consumer purchases of both cigarettes and HTUs across the ⎼ industry during Q3, 2018, prior to October 1st excise tax-driv
Slide 18: IQOS: HTU Share in Japan
IQOS: HTU Share in Japan 7.5 6.6 6.0 6.3 5.2 5.6 4.3 15.8% 2.9 15.5% 15.5% 15.2% 13.9% PMI HTU Q3/Q4, 2018 PMI HTU shares reflect IMS Volume • (billion units) 11.9% the same distortion: 10.0% When equalized for the purchase patterns, estimated shares in both quarters were ⎼ approximately 15.4% 7.1%
Slide 19: IQOS: HTU National Weekly Offtake Share in Japan
IQOS: HTU National Weekly Offtake Share in Japan (%) 17.7 17.1 16.0 16.4 Week ending: Sep 2 Sep 30 Dec 30 Jan 27 2018 2018 2018 2019 Note: Offtake share represents select C-Store sales volume for HTUs as a percentage of the total retail sales volume for cigarettes and HTUs in these C-Stores Source:
Slide 20: RRPs: Optimistic on Japan's Long-Term Growth Potential
RRPs: Optimistic on Japan’s Long-Term Growth Potential (%) 45.6 Device Ownership 31.3 40.5 Past 7-Day Usage 28.0 18.5 Heated Tobacco Category Share 14.0 11.0 22.7 6.2 4.3 3.1 0.4 Dec 2015 Dec 2016 Dec 2017 Nov 2018 Note: All numbers reflect a three-month moving average Device ownership of any heated
Slide 21: IQOS: HEETS Share in Korea
IQOS: HEETS Share in Korea 1.4 1.4 1.5 1.2 0.9 0.5 8.5% <0.1 8.0% 7.3% 7.4% PMI HTU Q4, 2018 share distorted by trade IMS Volume • (billion units) inventory movements: 5.5% Ahead of the change in health warnings on heated tobacco products in late-December ⎼ 2018 2.5% • FY 2018 share up by 5.8 points
Slide 22: IQOS: HEETS Sequential Share Growth in the EU Region
IQOS: HEETS Sequential Share Growth in the EU Region 1,769 1,364 1.7% 1,089 842 • Q4, 2018 share growth, supported by 593 1.2% all IQOS markets 340 240 1.0% Total • FY 2018 share up by 0.9 points to IQOS Users 0.8% (in thousands) 1.2% 0.6% • IQOS is only present in geographic 0.3% 0.2% areas represe
Slide 23: IQOS: Select EU Markets Driving HEETS Share Growth
IQOS: Select EU Markets Driving HEETS Share Growth Market Shares (Q4, 2018) Var. vs. PY Greece 6.6% +3.8p p Portugal 4.4% +2.9p p Czech +3.2p Republic 4.2% p Italy 3.3% +2.1p p Poland 1.5% +0.9p p Germany 0.8% +0.6pp Source: PMI Financials or estimates 23
Slide 24: IQOS: HEETS Sequential Share Growth in Russia
IQOS: HEETS Sequential Share Growth in Russia 816 542 • Impressive Q4, 2018 sequential 1.8% performance, given that IQOS is present 345 in only seven cities (HEETS share nearly 218 8%, on average) 140 85 • Strong performance primarily reflects: Total 1.1% IQOS Users Increased adult smoker interest i
Slide 25: 2019-2021: PMI Compound Annual Growth Targets
2019-2021: PMI Compound Annual Growth Targets Net Adjusted Revenues Diluted EPS ≥5% ≥8% CAGR CAGR ex-Currency ex-Currency Source: PMI Financials or estimates (PMI Investor Day, September 27, 2018) 25
Slide 26: 2019: EPS Guidance
2019: EPS Guidance • Reported diluted EPS guidance of at least $5.37, at prevailing exchange rates, compared to $5.08 in 2018: Includes approximately 14 cents of unfavorable currency at prevailing exchange rates ⎼ Does not include any share repurchases ⎼ • Ex-currency, our guidance represents a grow
Slide 27: 2019 Guidance Assumptions: Net Revenue Growth
2019 Guidance Assumptions: Net Revenue Growth • Assume currency-neutral net revenue growth of at least 5.0%: Includes an expected adverse impact of approximately 0.6 points, due to move to highly inflationary accounting in Argentina ⎼ • Drivers: HTU volume growth ⎼ Combustible tobacco pricing ⎼ Sour
Slide 28: 2019 Guidance Assumptions: Total Volume Change vs. PY
2019 Guidance Assumptions: Total Volume Change vs. PY PMI(a) Industry(b) (1.5)% (2.0)% (2.5)% (3.0)% (a) Shipment volume (b) Excluding China and the U.S. Note: Reflects cigarettes and HTUs Source: PMI Financials or estimates 28
Slide 29: 2019 Guidance Assumptions: PMI HTU Shipment Volume
2019 Guidance Assumptions: PMI HTU Shipment Volume • Not providing a specific 2019 target at this early stage of the year • Expect positive volume contributions from all IQOS markets in 2019 • Remain confident in our volume target of 90 to 100 billion units by 2021 Source: PMI Financials or estimate
Slide 30: 2019 Guidance Assumptions: Margin Improvement
2019 Guidance Assumptions: Margin Improvement • Efforts to deliver over $1 billion in annualized cost efficiencies by 2021 are already underway • In 2019, expect an increase in operating income margin of at least 100 basis points, ex- currency Source: PMI Financials or estimates 30
Slide 31: 2019 Guidance Assumptions: Tax Rate and Interest
2019 Guidance Assumptions: Tax Rate and Interest Full-Year % … consistent with 2018 Effective Tax Rate ̴ 23 Net Relatively … vs. 2018 Interest Expense Stable Source: PMI Financials or estimates 31
Slide 32: 2019 Guidance Assumptions: Operating Cash Flow Growth
2019 Guidance Assumptions: Operating Cash Flow Growth At least Operating … subject to year-end Cash Flow $10 working capital requirements billion … reflecting further Total Capital investment behind RRPs, in ̴ $1.1 particular to support Expenditures our Platform 4 e-vapor billion manufacturing capac
Slide 33: 2019: Forecast Strong Q1 EPS Growth, ex-Currency
2019: Forecast Strong Q1 EPS Growth, ex-Currency • Anticipate reported diluted EPS of approximately $1.00: Flat vs. Q1, 2018, subject to the timing of commercial spending associated with some of our IQOS-related projects ⎼ Includes approximately nine cents of adverse currency, at prevailing exchange
Slide 34: Robust '18 Performance; Better '19 Fundamentals
Robust '18 Performance; Better '19 Fundamentals • Successfully managing our transition from cigarettes to RRPs: Total international share growth; stable cigarette share(a) • Robust⎼ combustible tobacco portfolio performance and pricing power: International cigarette volume decline was broadly in-lin
Slide 35: Questions & Answers
Delivering a Smoke-Free Future 2018 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 36: Delivering a Smoke-Free Future: 2018 Fourth-Quarter and Full-Year Results
Delivering a Smoke-Free Future 2018 Fourth-Quarter and Full-Year Results February 7, 2019
Slide 37: Appendix, Glossary and Reconciliation of Non-GAAP Measures
Appendix, Glossary of Key Terms and Definitions, and Reconciliation of Non-GAAP Measures 37
Slide 38: 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 39: Glossary: General Terms (cont.)
Glossary: General Terms (cont.) • From time to time, PMI’s shipment volumes are subject to the impact of distributor inventory movements, and estimated total industry/market volumes are subject to the impact of inventory movements in various trade channels that include estimated trade inventory move
Slide 40: 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 41: Glossary: Financial Terms (cont.)
Glossary: Financial Terms (cont.) • Management reviews net revenues, OI, OI margins, operating cash flow and earnings per share, or "EPS," on an adjusted basis, which may exclude the impact of currency and other items such as acquisitions, asset impairment and exit costs, tax items and other special
Slide 42: 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 continued smoking. PMI has a range of RRPs in various
Slide 43: Glossary: Reduced-Risk Products (cont.)
Glossary: Reduced-Risk Products (cont.) • "Converted IQOS Users" means the estimated number of Legal Age (minimum 18-year-old) IQOS users that used PMI HTUs for over 95% of their daily tobacco consumption over the past seven days • "Predominant IQOS Users" means the estimated number of Legal Age (mi
Slide 44: Reconciliation of Non-GAAP Measures: 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 45: 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 46: 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 47: 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, 2018 2
Slide 48: Reconciliation of Operating Cash Flow, excluding Currency
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Cash Flow to Operating Cash Flow, excluding Currency ($ in millions) / (Unaudited) Years Ended December 31, 2018 2017 % Change Net cash provided by operating activities (a) $ 9,478 $ 8,9
Slide 49: 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 Adjusted Diluted EPS (Unaudited) Quarter Ended March 31, 2018 Reported Diluted EPS $ 1.00 Asset impairment and exit costs - Tax items - Adjusted Diluted EPS $ 1.00 49
Slide 50: Delivering a Smoke-Free Future: 2018 Fourth-Quarter and Full-Year Results
Delivering a Smoke-Free Future 2018 Fourth-Quarter and Full-Year Results February 7, 2019
Philip Morris International — FY2018 Earnings Presentation on 6ix