Philip Morris International Inc · NYSE:PM
Philip Morris International — Consumer Analyst Group of New York (CAGNY) Conference 2010
79 slides from Philip Morris International's conference presentation, Feb 17, 2010
Slide 1: CAGNY Conference
Consumer Analyst Group of New York (CAGNY) Conference February 17, 2010 Hermann Waldemer Chief Financial Officer Philip Morris International Exhibit 99.2
Slide 2: Introduction
Introduction Unless otherwise stated, we will be talking about results in the fourth quarter or the full-year 2009 and comparing them with the same period in 2008 References to PMI volumes refer to shipment data Industry volume and market shares are the latest data available from a number of i
Slide 3: Forward-Looking and Cautionary Statements
Forward-Looking and Cautionary Statements This presentation and related discussion contain statements that, to the extent they do not relate strictly to historical or current facts, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Su
Slide 4: Agenda
Agenda Review of 2009 results 2010 business outlook Superior brand portfolio Cost savings and productivity improvements Cash flow enhancement and capital structure M&A Shareholder returns
Slide 5: PMI Results
PMI Results Source: PMI Financials 864.0 2009 Results (units billion) 1 – 2% - 1.5% - 0.7% Cigarette Volume Excl. Acquisitions Actual Mid to Long-Term Annual Growth Targets % Growth 2009 vs. 2008
Slide 6: PMI Results
PMI Results 25.0 2009 Results ($ billion) 4 – 6% + 5.3% - 2.6% Net Revenues Excl. Curr. & Acquisitions Actual Mid to Long-Term Constant Currency Annual Growth Targets % Growth 2009 vs. 2008 Source: PMI Financials. See reconciliations to U.S. GAAP measures at the end of this presentation.
Slide 7: PMI Results
PMI Results 10.4 25.0 2009 Results ($ billion) 6 – 8% + 8.7% - 1.9% Adjusted OCI (a) 4 – 6% + 5.3% - 2.6% Net Revenues Excl. Curr. & Acquisitions Actual Mid to Long-Term Constant Currency Annual Growth Targets % Growth 2009 vs. 2008 (a) Excludes asset impairment, exit and other costs Source: PMI Fin
Slide 8: PMI Results
PMI Results 3.29 10.4 25.0 Results ($) 6 – 8% + 8.7% - 1.9% Adjusted OCI (a) 10 – 12% + 15.4% (b) - 0.6% Adjusted Diluted EPS 4 – 6% + 5.3% - 2.6% Net Revenues Excl. Curr. & Acquisitions Actual Mid to Long-Term Constant Currency Annual Growth Targets % Growth 2009 vs. 2008 (a) Excludes asset impairm
Slide 9: Agenda
Agenda Review of 2009 results 2010 business outlook Superior brand portfolio Cost savings and productivity improvements Cash flow enhancement and capital structure M&A Shareholder returns
Slide 10: Cigarette Industry Volume
(a) Excluding USA and duty-free Note: Organization for Economic Co-operation and Development (“OECD”) Source: PMI estimates Cigarette Industry Volume 1,196 1,156 2,134 2,183 2,140 2,181 5,470 5,520 Non-OECD OECD (a) China (3.3)% +2.3% +1.9% +0.9% (billion units)
Slide 11: Cigarette Industry Volume
(a) Excluding USA and duty-free Note: Organization for Economic Co-operation and Development (“OECD”) Source: PMI estimates Cigarette Industry Volume 1,196 1,156 1,130 2,134 2,183 2,141 2,140 2,181 2,289 5,470 5,520 5,560 Non-OECD OECD (a) China (3.3)% +2.3% +1.9% +0.9% (2.2)% (1.9)% +5.0% +0.7% (bi
Slide 12: Industry Volume Trends: OECD
Source: PMI estimates Industry Volume Trends : OECD Western Europe underlying trend: -2.5% to -3.0% a year Central Europe was declining faster, driven by excise tax increases related to EU accession, but volume decline rate should in future be in line with Western Europe Japan underlying trend : -3.
Slide 13: Industry Volume Trends: Non-OECD
Industry Volume Trends: Non-OECD Driven by Russia (390 billion units in 2009) and Indonesia (260 billion units) Russian market grew by 3.5% in 2008, but declined by 2.7% in 2009 Indonesian market continued to grow in 2009 at previous pace of 4-5% a year Source: PMI estimates
Slide 14: Industry Volume Trends: Outlook for 2010
Industry Volume Trends: Outlook for 2010 Emerging markets in Asia, such as Indonesia, to grow Volumes in Russia to gradually stabilize Volatility in Ukraine and adverse impact of large tax- driven price increases in Turkey Western Europe to follow recent underlying volume trend Central Europe trends
Slide 15: PMI Volume Trends: 2010 and Beyond
PMI Volume Trends : 2010 and Beyond Share improvements should enable us to outperform the industry again in 2010 PMI organic volume performance in 2010 expected to be similar to 2009, namely down around 1.5% Progressive return to our 1% annual organic growth target should be feasible, once the econo
Slide 16: Net Revenues
Net Revenues While volume is important, our prime focus is on growing net revenues by 4-6% a year, excluding currency and acquisitions Key factors influencing net revenues are excise taxes and prices
Slide 17: Excise Taxation
Excise Taxation Rate of increase and structure are of paramount importance Desirable approach is regular, reasonable increases: – Government revenues are enhanced – Manageable from industry perspective Large excise tax increases are disruptive and often have unintended consequences, such as encourag
Slide 18: Excise Taxation
Excise Taxation Most governments implement reasonable rate increases or participate in price increases through ad-valorem tax elements: - Australia, Mexico and Russia are good examples of first approach - France and Italy are good examples of second approach From time to time, some governments imple
Slide 19: Excise Taxation - Turkey
Source: Turkish Ministry of Finance and PMSA Excise Taxation - Turkey Government increased ad-valorem excise tax rate from 58% to 63% Minimum excise tax was raised from TRL 2.05/pack to TRL 2.65/pack PMI increased retail prices in a magnitude that safeguards our unit margins: – Marlboro from TRL 5.5
Slide 20: Excise Taxation - Japan
Excise Taxation - Japan Consumption tax of 5% to be left unchanged Trade margins currently 10% of retail price Unit revenue neutral pass-on retail price increase: 82 Yen per pack Key PMI objective is to obtain pricing freedom (Yen per pack of 20) Current Proposed Variance National Excise Tax 71.04 1
Slide 21: Excise Taxation
Excise Taxation From a structural perspective, what is needed is a system that protects government revenues and supports public health objectives: – Specific excise taxes – Minimum excise taxes – Minimum reference prices Today, one or more of these are in place in 23 of PMI’s top 25 OCI markets Sour
Slide 22: Excise Taxation - European Union
Excise Taxation – European Union Fiscal tool that limits downtrading Cap at 100% of MPPC No cap Minimum Excise Tax Allows for almost specific excise tax system 55.0% 76.5% Maximum Specific to Total Tax Escape clause if tax on WAP above € 115/000 in 2014. Transition periods in Central Europe 57% on M
Slide 23: Pricing Strategy
Pricing Strategy Visible, predictable excise taxation provides strong framework to optimize pricing decisions Key is balanced pricing, on a market by market basis, taking into account: – Consumer affordability – Competitive environment – Margin enhancement vs. volume/mix impact
Slide 24: Pricing Variance vs. Volume/Mix (2009)
Pricing Variance vs. Volume/Mix (2009) 1,997 (572) 2,000 Pricing Volume / Mix Note: variances at level of OCI Source: PMI Financials ($ million) 3.5x
Slide 25: Pricing
Source: PMI Financials Pricing In last twelve months, PMI implemented price increases notably in: As of end of January, two-thirds of pricing embedded in our 2010 EPS guidance already implemented Argentina Brazil Canada Dominican Rep. Mexico Australia Indonesia Malaysia Pakistan Philippines Romania
Slide 26: Russia - PMI Shipment Volume by Price Segment
Source: PMI Financials Russia – PMI Shipment Volume by Price Segment 25% 31% 44% 25% 29% 46% 22% 27% 51% 21% 25% 54% Premium Mid Low/Super-low H1, 2008 H2, 2008 H1, 2009 H2, 2009
Slide 27: Russia - PMI Market Share
Source: A.C. Nielsen Russia – PMI Market Share 24.9 24.7 25.0 25.3 25.1 25.3 25.6 25.7 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 (%)
Slide 28: Ukraine - PMI Shipment Volume by Price Segment
Source: PMI Financials Ukraine – PMI Shipment Volume by Price Segment 22% 35% 43% 23% 36% 41% 21% 36% 43% 22% 35% 43% H1, 2008 H2, 2008 H1, 2009 H2, 2009 Premium Mid Low/Super-low
Slide 29: Ukraine - PMI Market Share
Source: A.C. Nielsen Ukraine – PMI Market Share 34.7 35.2 35.5 35.3 35.8 35.8 35.6 36.2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 (%)
Slide 30: Spain - Price Segmentation
Source: PMI estimates Spain – Price Segmentation 19.0 19.6 20.2 18.1 16.7 17.3 17.1 15.8 16.1 15.8 16.0 16.1 16.3 16.4 14.7 15.1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Share of Market (%) Premium " 3.60 Mid ! 3.35
Slide 31: Spain - PMI Market Share
Source: PMI estimates Spain – PMI Market Share 31.8 31.6 32.3 31.9 31.8 31.8 32.1 31.7 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 (%)
Slide 32: Agenda
Agenda Review of 2009 results 2010 business outlook Superior brand portfolio Cost savings and productivity improvements Cash flow enhancement and capital structure M&A Shareholder returns
Slide 33: PMI Share Developments
20.8 21.0 21.3 Q4 PMI Share Developments 34.5 34.9 35.2 Q4 (a) Excluding USA and duty-free (b) Excluding PRC and duty-free Note: For definition of OECD countries, refer to PMI’s Registration Statement on Form 10 (page 68) dated March 5, 2008 Source: PMI estimates OECD markets (a) Non-OECD markets (b
Slide 34: Marlboro
Marlboro The only truly global cigarette brand Volume grew by 4.3% in Asia and by double digits in North Africa in 2009 Global volume adversely impacted in 2009 by: – Continued overall market contractions in developed markets – Consumer downtrading in selected markets Marlboro share in Japan was up
Slide 35: Marlboro Flavor Line
Marlboro Flavor Line
Slide 36: Marlboro Red
0 2 4 6 8 10 Marlboro Red Upgraded packaging Positive consumer reaction Introduced in nine markets (32% of worldwide volume) By year end, expect to cover 75% of worldwide volume Masculine That I like Beautiful That goes well with me Original In the spirit of the times High-End Elegant/chic M
Slide 37: Marlboro Filter and Flavor Plus
Marlboro Filter and Flavor Plus First introduced in Korea in November 2007 Currently available in 38 markets worldwide Helping to build PMI share in ultra-light and 1mg segments Positive “halo” effect on parent brand Source: A.C. Nielsen and PMI estimates
Slide 38: Marlboro Flavor Plus - Slovakia
28% 22% 17% 41% 32% 25% 31% 46% 58% Marlboro Flavor Plus – Slovakia 6mg variant launched in October 2008 0.7% share of market in Q4, 2009 47% 53% 35-64 25-34 18-24 Age Profile Marlboro Flavor Plus Marlboro Family Total Market Cannibalization Rate Competition Marlboro Source: PM Slovakia market resea
Slide 39: Marlboro Gold Line
Marlboro Gold Line
Slide 40: Marlboro Gold Touch
Marlboro Gold Touch Slightly slimmer cigarette Novel packaging Launched in 2009 in 8 markets In Q4, 2009, Marlboro Gold Touch achieved market share of: – 1.5% in Italy – 0.8% in Romania – 0.6% in Greece Source: A.C. Nielsen and PMI estimates
Slide 41: Marlboro Gold Touch - Russia
52% 27% 14% 34% 41% 25% 14% 32% 61% Marlboro Gold Touch – Russia Introduced in 6mg ( Gold Touch ) and 4mg ( Fine Touch ) in Moscow in July 2009 In December, combined 0.5% share in Moscow 88% 7% 5% 35-64 25-34 18-24 Age Profile Marlboro Touch Marlboro Family Total Market Cannibalization Rate Competit
Slide 42: Marlboro Fresh Line Up
Marlboro Fresh Line Up Innovative technological approach include: – Different levels of mentholation – Mentholated threads in the filter – Capsules in the filter Delivers different freshness sensations
Slide 43: Marlboro Black Menthol - Japan
Source: Tobacco Institute of Japan Marlboro Black Menthol - Japan Share of Market 1mg Black Menthol (8 mg) (%) 0.8 1.0 1.0 1.0 1.0 1.0 0.3 0.3 0.3 0.8 1.0 1.0 1.3 1.3 1.3 1.5 Q3 Q4 Q1 Q2 Q3 Q4
Slide 44: Marlboro - Japan
Source: Tobacco Institute of Japan Marlboro - Japan Marlboro Share of Market 7.0 8.0 8.4 8.9 9.2 9.7 9.9 9.9 10.1 10.5 (%)
Slide 45: Menthol - Mexico
Source: PMI estimates Menthol - Mexico 4.6 5.0 5.9 58.9 62.7 55.9 17.4 17.3 26.1 77.9 81.7 83.0 Menthol Share of Market PMI Share of Segment (%) (%) Other Benson & Hedges Marlboro
Slide 46: Marlboro Innovation
Source: PMI Financials Russia Japan Italy Ukraine Spain Indonesia Marlboro Innovation New Line Extensions as % Marlboro Volume (Q4, 2009) (%)
Slide 47: Parliament
Source: PMI Financials, A.C. Nielsen, Korea Research Center and Tobacco Institute of Japan 7.5 3.2 2.8 2.3 1.9 8.4 4.3 2.9 2.3 2.3 Turkey Korea Russia Japan Ukraine Parliament Volume stable at 37.3 billion units Super-premium Parliament Reserve (Eastern Europe), Platinum and Parliament Nouveau (Japa
Slide 48: L&M
Source: PMI Financials L&M Our second largest brand, positioned in mid-price in emerging markets and low-price in developed markets Volume declined by 1.7% in 2009 to 90.8 billion units, an improved performance compared to the previous two years Volume grew by 19% last year in the Middle East and Af
Slide 49: L&M - EU Region
(a) Through end November Source: PMI Financials, A.C. Nielsen and PMI estimates 6.7 2.6 2.3 1.5 1.3 Slovak. Czech Sweden Spain Germ. L&M – EU Region Volume grew by close to 9% in EU Region in 2009 and by 17% in the fourth quarter Share of Market Gains 2009 vs. 2008 (a) (pp)
Slide 50: L&M - EU Region
(a) Through end November Source: A.C. Nielsen and PMI estimates L&M – EU Region 14.7 14.4 13.9 8.8 8.5 7.2 7.1 6.7 Poland Slovakia Belgium Germany Sweden Czech Republic Neth. Spain Share of Market Q4, 2009 (%) (a)
Slide 51: Brand Portfolio
Brand Portfolio Mid-Price Premium & Above Local Heritage International Low-Price
Slide 52: A Mild - Indonesia
Source: A.C. Nielsen 9.7 10.4 10.5 10.9 H1 H2 H1 H2 A Mild - Indonesia Premium price Leading brand in Indonesia Fastest growing top 10 brand (%) Share of Market
Slide 53: Delicados - Mexico
Source: PMI estimates 3.8 3.5 3.0 4.3 4.3 5.4 0.7 2.3 3.2 8.8 10.1 11.6 Delicados - Mexico Share of Market Filter Box Filter Soft Non- Filter (%)
Slide 54: Bond Street - Russia
Source: A.C. Nielsen Bond Street - Russia 20.5 20.5 21.0 21.7 21.6 22.1 23.2 24.7 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Share of Low Price Segment (%)
Slide 55: Agenda
Agenda Review of 2009 results 2010 business outlook Superior brand portfolio Cost savings and productivity improvements Cash flow enhancement M&A Shareholder returns
Slide 56: Productivity and Cost Savings Program
450 250 1,550 850 Source: PMI Financials Manufacturing Productivity G&A + Other EU Program Total ($ million) Forecast Cumulative Gross Cost Savings (2008-10) Productivity and Cost Savings Program
Slide 57: Tobacco
Tobacco As previously communicated, leaf cost increases $200 million higher than anticipated for - Objective to stabilize leaf supplies going forward: – PMI requirements quite predictable – Farmers prefer consistent prices Balance between supply and demand should be achievable on a permanent basis T
Slide 58: Agenda
Agenda Review of 2009 results 2010 business outlook Superior brand portfolio Cost savings and productivity improvements Cash flow enhancement and capital structure M&A Shareholder returns
Slide 59: Free Cash Flow
Free Cash Flow (a) 1.5 6.8 8.6 7.1 Actual Actual Excluding Currency (a) Free cash flow equals net cash provided by operating activities less capital expenditures. In 2009, net cash provided by operating activities was $7,884 million and capital expenditures were $715 million. In 2008, net cash provi
Slide 60: Cumulative Operating Cash Flow (2008-2010)
Source: PMI Financials Cumulative Operating Cash Flow (2008-2010) 6.6 7.9 7.3 7.9 7.8 21.7 15.8 March 2008 Actual ($ billion)
Slide 61: Cash Flow Enhancement Program
Cash Flow Enhancement Program Our goal is to generate an additional $750 million - $1 billion over three years through improvements in working capital: – Supply chain initiatives – Tobacco leaf inventory durations – Improved forestalling regulations – Tighter finished goods inventory management Syst
Slide 62: Capital Structure
Source: PMI Financials Capital Structure Tremendous cash flow underpins our strong balance sheet Long-term credit ratings: A2 / A / A Short-term credit ratings: P-1 / A-1 / F1 Over $10 billion well-laddered bonds with an attractive weighted average cost of long-term debt of 5.6% Access to tier 1 com
Slide 63: Capital Structure
Capital Structure Goal is to preserve current credit ratings whilst having flexibility to make acquisitions
Slide 64: Agenda
Agenda Review of 2009 results 2010 business outlook Superior brand portfolio Cost savings and productivity improvements Cash flow enhancement and capital structure M&A Shareholder returns
Slide 65: Acquisitions
Acquisitions Complement organic growth Often provide unique opportunities to enter new markets or significantly step up our presence: - Sampoerna in Indonesia - Lakson in Pakistan - Rothmans Inc. in Canada - Coltabaco in Colombia - Interval (fine cut) in France and other EU markets - Petterøes (
Slide 66: Top 10 Emerging Markets - PMI Share
(a) Top ten emerging markets in 2009 excluding China are Russia, Indonesia, Ukraine, Turkey, India, Brazil, Philippines, Egypt, Vietnam and Pakistan Source: A.C. Nielsen and PMI estimates 24% Top 10 Emerging Markets – PMI Share 16% 2009 Volume : 1.38 trillion units PMI PMI 2004 Volume : 1.30 trillio
Slide 67: Top 10 Emerging Markets - PMI Market Shares
Note: PMI has less than 1% market share in India (#5) and Vietnam (#9) Source: A.C. Nielsen and PMI estimates Top 10 Emerging Markets – PMI Market Shares Russia Indonesia Ukraine Turkey Brazil Philippines Egypt Pakistan Share of Market (2009) (%) #10 #8 #7 #6 #4 #3 #2 #1 #2 #2 #2 #2 #1 #1 #1 #2
Slide 68: Agenda
Agenda • Review of 2009 results • 2010 volume and business outlook • Superior brand portfolio • Cost savings and productivity improvements • Cash flow enhancement • M&A • Shareholder returns
Slide 69: Dividend Yield
Note: Dividend yield represents the annualized dividend at 12/31/09 over the closing share price on that date. The share price for PMI was $48.19 as of 12/31/09. The annualized dividend on 12/31/09 was $2.32 Source: Centerview Partners, based on company filings and FactSet Dividend Yield 1.8% 2.5% 2
Slide 70: Share Repurchases
Share Repurchases New share repurchase program of $12 billion May 2010 through April 2013 Total 2010 spending expected to be $4 billion Strikes optimal balance between rewarding shareholders and retaining financial flexibility Source: PMI News Release
Slide 71: Shareholder Returns
Shareholder Returns In 2009, $10 billion returned to shareholders through dividends and share repurchases Since March 2008 spin-off, more than $17 billion returned to shareholders, representing 19% of our current market capitalization Source: PMI Financials
Slide 72: Revenues and Income Growth - Peer Comparison
Revenues and Income Growth – Peer Comparison 4.0 5.0 7.5 PMI PepsiCo Coca-Cola 2009 Revenue Growth (excl. currency) (%) 6.0 7.0 11.1 PMI Coca-Cola PepsiCo 2009 Adjusted Income Growth (excl. currency) (%) (a) Currency neutral net operating revenue growth after considering items impacting comparabilit
Slide 73: 2010 EPS Guidance
Source: PMI Financials 2010 EPS Guidance Expect to reach or surpass all our currency neutral financial forecasts in 2010 At prevailing exchange rates, reported EPS guidance of $3.75 - $3.85 represents an increase of 16-19% Reported EPS growth rate ex-currency is 12-15% Against adjusted EPS of $3.29
Slide 74: P/E Ratios - Peer Comparison
P/E Ratios – Peer Comparison 17.6 16.3 14.2 Coca-Cola PepsiCo PMI (%) 15.8 14.5 12.3 Coca-Cola PepsiCo PMI 2010 Estimates (%) Source: Centerview Partners, based on FactSet
Slide 75: Questions & Answers
Consumer Analyst Group of New York (CAGNY) Conference February 17, 2010 Hermann Waldemer Chief Financial Officer Philip Morris International QUESTIONS & ANSWERS
Slide 76: Reconciliation of Net Revenues
Reported Net Revenues Less Excise Taxes Reported Net Revenues excluding Excise Taxes Less Currency Reported Net Revenues excluding Excise Taxes & Currency Less Acquisi- tions Reported Net Revenues excluding Excise Taxes, Currency & Acquisitions Reported Net Revenues Less Excise Taxes Reported Net Re
Slide 77: Reconciliation of Operating Companies Income
Reported Operating Companies Income Less Asset Impairment/ Exit Costs and Other Adjusted Operating Companies Income Less Currency Adjusted Operating Companies Income excluding Currency Less Acquisi- tions Adjusted Operating Companies Income excluding Currency & Acquisitions Reported Operating Compan
Slide 78: Reconciliation of Reported to Adjusted Diluted EPS
2009 2008 % Change Reported Diluted EPS 3.24 $ 3.31 $ (2.1)% Less: Colombian investment and cooperation agreement charge (0.04) - Asset impairment and exit costs (0.01) (0.02) Equity loss from RBH legal settlement - (0.06) Tax items - 0.08 Adjusted Diluted EPS 3.29 $ 3.31 $ (0.6)% Less: Currency Imp
Slide 79: Reconciliation of Diluted EPS Excluding Currency
2009 2008 % Change Reported Diluted EPS 3.24 $ 3.31 $ (2.1)% Less: Currency Impact (0.53) Reported Diluted EPS, Excluding Currency 3.77 $ 3.31 $ 13.9% PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS,
Philip Morris International — Consumer Analyst Group of New York (CAGNY) Conference 2010 on 6ix