Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (September 2016)
32 slides from Philip Morris International's investor day presentation, Sep 30, 2016
Slide 1: Investor Day, Lausanne, September 30, 2016
Investor Day Lausanne, September 30, 2016 Jacek Olczak Chief Financial Officer
Slide 2: Agenda
Agenda ● Key factors supporting revised 2016 EPS guidance ● 2016 free cash flow target ● Capital structure update ● Shareholder returns 2
Slide 3: Narrowed and Revised 2016 EPS Guidance
Narrowed and Revised 2016 EPS Guidance ● Narrowed, and revised for currency only, 2016 reported diluted EPS guidance to $4.53 to $4.58, at prevailing exchange rates, compared to $4.42 in 2015 ● Guidance now includes approximately 35 cents of unfavorable currency at prevailing exchange rates (vs. 40
Slide 4: Distorted Quarterly Comparisons vs. 2015
Distorted Quarterly Comparisons vs. 2015 % Variance vs. PY Q1 Q2 Q3 Q4 2016 2015 2016 2015 2015 2015 Net Revenues(a) 2.4 9.1 1.4 4.5 5.9 4.0 Adjusted OCI(a) (0.9) 16.3 1.8 6.1 9.3 (7.2) Adjusted Diluted EPS(b) 0.9 23.5 1.7 9.2 15.8 (3.9) (a) Excluding currency and acquisitions (b) Excluding currency
Slide 5: Moderating Currency Impact on PMI EPS
Moderating Currency Impact on PMI EPS ($ per share) Feb 2016 Sept 2016 2014 2015 Guidance Guidance Russian Ruble (0.14) (0.44) (0.16) (0.09) Egyptian Pound (0.01) (0.02) (0.03) (0.06) Mexican Peso (0.01) (0.04) (0.03) (0.05) Turkish Lira (0.04) (0.07) (0.02) (0.04) Euro (0.03) (0.14) (0.02) (0.01) I
Slide 6: Moderating Cigarette Industry Volume Decline
Moderating Cigarette Industry Volume Decline ● Further moderation in cigarette industry volume decline, down by 1.7% YTD August, 2016: - Supported by relatively modest decreases in the EU and EEMA Regions - Decline mainly due to the Asia and LA&C Regions ● Forecast full-year 2016 cigarette industry
Slide 7: PMI Cigarette Volume Performance
PMI Cigarette Volume Performance (units billion) Volume down by 3.9% 566 544 YTD August YTD August 2015 2016 Source: PMI Financials or estimates 7
Slide 8: PMI Cigarette Volume Performance
PMI Cigarette Volume Performance (units billion) Volume down (1.6)pp by 3.9% 566 (6) (4) 544 YTD August Philippines Pakistan YTD August 2015 2016 Source: PMI Financials or estimates 8
Slide 9: PMI Cigarette Volume Performance
PMI Cigarette Volume Performance (units billion) Volume down (1.6)pp (1.6)pp by 3.9% 566 (6) (4) (5) (4) 544 YTD August Philippines Pakistan Russia Indonesia YTD August 2015 2016 Source: PMI Financials or estimates 9
Slide 10: PMI Cigarette Volume Performance
PMI Cigarette Volume Performance (units billion) Volume down (1.6)pp (1.6)pp (0.7)pp by 3.9% 566 (6) (4) (5) (4) (4) 544 1 YTD August Philippines Pakistan Russia Indonesia Algeria Others YTD August 2015 2016 Source: PMI Financials or estimates 10
Slide 11: PMI and Marlboro Cigarette Market Shares
PMI and Marlboro Cigarette Market Shares YTD Aug, 2016 Var. vs. PY YTD Aug, 2016 Var. vs. PY EU 38.5% 0.2 pp 19.1% 0.3 pp EEMA 25.2 (0.5) 6.7 (0.7) Asia(a) 23.9 (1.3) 6.8 0.5 LA&C 39.1 0.4 15.6 0.6 Total PMI(a)(b) 28.2 (0.5) 9.6 ̶ (a) Excluding China (b) Also excluding the U.S. Note: Pack design is
Slide 12: Robust Pricing
Robust Pricing ● Since the spin through 2015, annual pricing variance averaged 6.4% of net revenues ● Anticipate 2016 pricing variance to be around 6% of 2015 net revenues ● Announced or implemented price increases in Q3, 2016, in markets including Argentina, Canada, Mexico and Turkey Source: PMI Fi
Slide 13: Continued Focus on Managing Costs
Continued Focus on Managing Costs ● In 2016, we expect our total cost base to increase by approximately 1%, excluding currency: - Includes the impact of higher investments behind the commercialization of RRPs - Includes higher-than-anticipated costs associated with iQOS device replacements and air f
Slide 14: Moderating Prices for Key Inputs
Moderating Prices for Key Inputs Tobacco, Clove and Direct Materials 120 Price Evolution (Index)(a) 2015 ($ billion) % split 110 Tobacco and cloves 2.9 18% 100 Direct materials Direct materials 2.6 17% 90 Tobacco Other COGS(b) 3.9 25% 80 Marketing, overhead & 70 other costs above OCI 6.4 40% Cloves
Slide 15: Superior PMI Margin
Superior PMI Margin Adjusted OCI Margin (H1, 2016) 42.3% 30.5% 30.4% Company International Peer Group Tobacco Competitors Average Average Note: PMI is not included in the averages for the Company Peer Group and International Tobacco Competitors. Figures are for H1, 2016 or nearest comparable period.
Slide 16: RRPs: The Opportunity
RRPs: The Opportunity ● We continue to expect RRPs to approach break-even OCI in 2017, and become accretive in 2018, though the timeline for individual markets to be accretive may be shorter, depending on the speed of their success ● By 2020, targeting an additional annual OCI of $0.7 to $1.2 billio
Slide 17: RRPs: Increasing Capacity for Heated Tobacco Sticks
RRPs: Increasing Capacity for Heated Tobacco Sticks Heated Tobacco Stick Capacity Forecast (units billion) Year-End 50 Installed ● As of 2018, we estimate Capacity that we can increase installed annual capacity by approx. 4 billion units per month, with a lead time of around 12 months 15 Annual Capa
Slide 18: RRPs: Capital Expenditures
RRPs: Capital Expenditures $ Million Investment per Billion Units Capacity Approximately Bologna Greenfield $22 Around Capacity Expansion $16 - $18 Around Platform 2 $25 - $30 Platform 4 Around (next generation) $10 - $15 Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to
Slide 19: Free Cash Flow
Free Cash Flow ● Increased 2016 capital expenditures estimate to $1.2 billion (vs. $1.1 billion) to accelerate RRP capacity expansion ● Forecast full-year 2016 free cash flow to be modestly above last year’s level of $6.9 billion, despite increase in capital expenditures target ● Anticipate capital
Slide 20: Growing Proportion of RRP-Related Capital Expenditures
Growing Proportion of RRP-Related Capital Expenditures Investment in RRPs as a % of Capital Expenditures Total Capital Expenditures $1.2 billion $1.2 billion $1.0 billion $1.2 billion 27% 20% 14% 7% 2013 2014 2015 2016 Forecast Note: Reduced-Risk Products ("RRPs") is the term the company uses to ref
Slide 21: Free Cash Flow as a % of Net Revenues
Free Cash Flow as a % of Net Revenues Company Peer Group (2008 – June 30, 2016) Anheuser-Busch InBev 30.1% PMI 27.2% Roche 25.3% BAT 25.3% Altria 21.2% Johnson & Johnson 21.0% Coca-Cola 17.2% Diageo 16.6% McDonald's 16.4% Imperial Brands 15.9% Colgate-Palmolive 14.7% Procter & Gamble 13.8% Japan Tob
Slide 22: Solid Capital Structure
Solid Capital Structure ● Remain fully committed to our single-A credit rating ● Long-term credit ratings: A2 / A / A (Outlook: stable / negative / negative) ● Short-term credit ratings: P-1 / A-1 / F1 ● Access to tier 1 commercial paper market ● Strong liquidity profile backed by $8 billion stand-b
Slide 23: Well-Laddered Bond Portfolio
Well-Laddered Bond Portfolio ($ billion) Bond Maturity Profile as of June 30, 2016 3.5 CHF EUR USD 3.0 2.5 2.0 1.5 1.0 0.5 0 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2029 2033 2036 2038 2041 2042 2043 2044 Source: PMI Financials or estimates 23
Slide 24: Debt Financing at Increasingly Attractive Terms
Debt Financing at Increasingly Attractive Terms Weighted-Average Coupon Weighted-Average Time to Maturity of Total Bond Portfolio (%) of Total Long-Term Debt (years) 5.4 10.8 10.8 10.5 10.6 10.1 4.8 4.2 8.2 3.8 3.4 7.0 3.3 3.2 2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016 For
Slide 25: Net Debt to Adjusted EBITDA Evolution
Net Debt to Adjusted EBITDA Evolution Net Debt ($ billion) Net Debt to Adjusted EBITDA Ratio 27.8 25.5 25.1 Adjusted Net Debt 19.9 to EBITDA Ratio(a) 2.1 2.2 16.0 Target Range PMI (2015) 13.9 14.8 1.7 10.4 1.3 Moody’s 1.5x – 2.5x 2.6x 1.3 1.2 1.1 0.9 S&P 1.5x – 2.0x 2.4x 2008 2009 2010 2011 2012 201
Slide 26: Rewarding Our Shareholders: Attractive Dividend
Rewarding Our Shareholders: Attractive Dividend ● Dividends are currently the primary use PMI Dividend CAGR: 10.7% of our free cash flow $4.16 ● Increased our dividend this month, to an annualized rate of $4.16 per share ● Nine consecutive dividend increases since 2008, representing a total $1.84 in
Slide 27: Rewarding Our Shareholders: Strong Dividend Yield
Rewarding Our Shareholders: Strong Dividend Yield Dividend Yield: Company Peer Group (September 23, 2016) PMI 4.1% Altria 3.8% Reynolds American 3.8% Imperial Brands 3.6% Roche 3.3% Coca-Cola 3.3% Japan Tobacco 3.2% BAT 3.2% Unilever 3.1% Anheuser-Busch InBev 3.1% Procter & Gamble 3.1% McDonald's 3.
Slide 28: Rewarding Our Shareholders: Total Shareholder Return
Rewarding Our Shareholders: Total Shareholder Return January 1, 2016 – September 23, 2016 March 28, 2008 – September 23, 2016 PMI 17.9% PMI 188.9% Company Company 8.5% 116.8% Peer Group Peer Group S&P 500 8.2% S&P 500 99.2% Note: In USD. The company peer group represents the market weighted-average
Slide 29: Conclusion
Conclusion ● Remain on track to deliver a strong underlying performance in 2016 ● Reported diluted EPS guidance reflecting currency-neutral growth of approximately 10.5% to 11.5% vs. adjusted diluted EPS of $4.42 in 2015 ● Our pricing outlook remains intact; expect cost management to help drive curr
Slide 30: PMI Annual Growth Algorithm
PMI Annual Growth Algorithm ● Currency-neutral net revenue growth target of 4% to 6%(a) ● Currency-neutral adjusted OCI growth target of 6% to 8%(a), including continued investments in RRPs ● Currency-neutral adjusted diluted EPS growth target of 8% to 10% ● We envisage being able to revisit the alg
Slide 31: Investor Day, Lausanne, September 30, 2016
Investor Day Lausanne, September 30, 2016
Slide 32: Reconciliations of non-GAAP measures included in this presentation
Reconciliations of non-GAAP measures included in this presentation to the most comparable GAAP measures are provided on our website at: www.pmi.com/2016InvestorDay/RecSlides Glossary of Terms: www.pmi.com/2016InvestorDay/Glossary
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