Philip Morris International Inc · NYSE:PM
Philip Morris International — Q3 2020 Earnings Presentation
58 slides from Philip Morris International's earnings presentation, Oct 20, 2020
Slide 1: Delivering a Smoke-Free Future: 2020 Third-Quarter Results
Exhibit 99.3 Delivering a Smoke-Free Future 2020 Third-Quarter Results October 20, 2020
Slide 2: Introduction
Introduction • A glossary of key terms and definitions, including the definition for reduced-risk products, or "RRPs," additional heated tobacco unit market data, as well as adjustments, other calculations and reconciliations to the most directly comparable U.S. GAAP measures are at the end of today
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: Forward-Looking and Cautionary Statements (COVID-19)
Forward-Looking and Cautionary Statements (COVID-19) • The COVID-19 pandemic has created significant societal and economic disruption, and resulted in closures of stores, factories and offices, and restrictions on manufacturing, distribution and travel, all of which will adversely impact our busines
Slide 5: Strong Performance in Q3 and YTD September, 2020
Strong Performance in Q3 and YTD September, 2020 •Further robust growth from IQOS •Continued strong IQOS user acquisition to reach an estimated 16.4 million(a) •Sequential improvement in combustible volumes •Excellent margin expansion driven by RRP profitability and cost efficiencies •Strong cash ge
Slide 6: Q3, 2020: Improving Revenues, Strong Margins
Q3, 2020: Improving Revenues, Strong Margins (Organic variance vs. PY) Net Revenues (1.5)% Net Revenue per Unit(a) 6.5% Combustible Tobacco Pricing % (as a percentage of PY combustible tobacco net revenues) 2.1 Adjusted OI Margin +310bps Adjusted Diluted EPS 5.6% (a) Reflects total PMI net revenues
Slide 7: YTD September, 2020: Exceptional Resilience
YTD September, 2020: Exceptional Resilience (Organic variance vs. PY) Net Revenues (0.9)% Net Revenue per Unit(a) 7.6% Combustible Tobacco Pricing % (as a percentage of PY combustible tobacco net revenues) 4.2 Adjusted OI Margin +260bps Adjusted Diluted EPS 7.4% (a) Reflects total PMI net revenues d
Slide 8: Q3, 2020: Multiple Levers Driving Higher Gross Margin
Q3, 2020: Multiple Levers Driving Higher Gross Margin 67.7% 67.6% (0.2)pp +0.5pp Currency Global +0.5pp Manufacturing (0.3)pp Productivity / Other Devices Combustible +1.1pp Pricing 65.9% HTU Mix Impact Q3, 2019 Q3, 2020 Q3, 2020 (Excluding Currency) Note: Sum of the drivers do not foot due to round
Slide 9: Q3, 2020: Cost Efficiencies Support Margin Expansion
Q3, 2020: Cost Efficiencies Support Margin Expansion Marketing, Admin. & Research Costs (as a % of net revenues) 24.1% 23.8% (1.4)pp +1.1pp 22.7% SG&A / Other Currency Q3, 2019 Q3, 2020 Q3, 2020 Note: Variances are vs. prior year as a percentage of net revenues. (Excluding Currency) Q3, 2019 exclude
Slide 10: FY, 2020: ~5-6% Organic EPS Growth
FY, 2020: ~5-6% Organic EPS Growth • Now expect around 5% to 6% adjusted diluted EPS growth, on an organic basis: Forecast range of $5.05 to $5.10, including a 32-cent currency headwind, at prevailing exchange rates ⎼ • Assumes: A total industry decline of 7% to 8% (vs. -7% to -9%, previously) Total
Slide 11: Q4, 2020: Stable Underlying Trends
Q4, 2020: Stable Underlying Trends • Underlying consumption trends assumed broadly stable, following robust Q3: Q3 helped by opening of hospitality settings and summer conditions in many markets Continued pandemic-related uncertainty, with tightening local restrictions in certain countries ⎼ ⎼ • Pha
Slide 12: Total PMI Shipment Volume
Total PMI Shipment Volume (billion units) Change In-Market 199.5 vs. PY Sales 16.0 Total 184.4 (7.6)% (5.8)% HTUs 19.0 18.7% 28.5% 183.5 Cigarettes 165.5 (9.8)% (8.8)% Q3, 2019 Q3, 2020 Source: PMI Financials or estimates 12
Slide 13: HTUs Now Comprise Over 10% of Our Total Volume
HTUs Now Comprise Over 10% of Our Total Volume (as a % of PMI Total Shipment Volume) 10.3% 7.8% 5.3% 4.5% 0.9% —% 2015 2016 2017 2018 2019 YTD Sept, 2020 0.4 7.4 36.2 41.4 59.7 54.4 PMI HTU Shipment Volume (billion units) Source: PMI Financials or estimates 13
Slide 14: Increasing Weight of RRPs Driven by Strong Growth
Increasing Weight of RRPs Driven by Strong Growth (as a % of PMI Total Net Revenues) 23.0% 18.7% 13.8% 12.7% 2.7% —% 0.2% 2014 2015 2016 2017 2018 2019 YTD Sept, 2020 $0.1 $0.7 $3.6 $4.1 $5.6 $4.9 RRP Net Revenues ($ in billions) Source: PMI Financials or estimates 14
Slide 15: EA&A Region: Scale in RRPs Drives Profitability
EA&A Region: Scale in RRPs Drives Profitability (RRP Net Revenues as a % of Total Net Revenues) 44.6% Adjusted 39.5% OI Margin 53.6% • EA&A Region on track to deliver >50% of net revenues from RRPs in 2020 • Strong margin progression testament 15.5% to the RRP business model at scale 2016 YTD Sept,
Slide 16: PMI Total International Market Share
PMI Total International Market Share HTUs (0.4)pp 29.3% +0.8pp (a) Cigarettes excluding 28.9% Duty Free and Indonesia Q3, 2019 Q3, 2020 (a) HTUs include a (0.1)pp impact of Duty Free HTUs Note: Excluding China and the U.S. Current view (reflecting the deconsolidation of RBH, PMI’s total market share
Slide 17: PMI Total International Market Share
PMI Total International Market Share HTUs (0.4)pp 29.3% +0.8pp (a) Cigarettes 28.9% excluding Duty Free (0.7)pp and Indonesia Indonesia (0.4)pp 28.2% Duty Free Cigarettes Q3, 2019 Q3, 2020 (a) HTUs include a (0.1)pp impact of Duty Free HTUs Note: Excluding China and the U.S. Current view (reflecting
Slide 18: Indonesia: Better Industry Volume, Challenges Remain
Indonesia: Better Industry Volume, Challenges Remain Change in Industry Volume (2020 vs. PY) (ex-inventory movements) Q1 Q2 Q3 (6.8)% (6.1)% (22.1)% Source: PMI Financials or estimates 18
Slide 19: Significant Tax Gaps Drive Downtrading
Significant Tax Gaps Drive Downtrading Industry Volume Share by Tax Tier Tier 1 Tier 2 (IDR/stick) A MILD 12s SKM 12s Retail Selling Price 1,500 900 Total Excise Tax 814 501 80% Tier 1 74% • Serious and growing threat to state excise tax revenues • We are hopeful steps will be taken over Below 26% t
Slide 20: Over 16 Million IQOS Users
Over 16 Million IQOS Users (in millions) 16.4 Total IQOS Users(a) 15.3 Estimated users who are in various stages of conversion to IQOS(a) 14.3 Estimated users who have stopped 13.5 smoking and switched to IQOS(a) 12.3 11.2 10.4 9.6 8.8 67% 69% 70% 70% 71% 71% 73% 72% 72% 3.0 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Slide 21: Key Cities Provide Excellent Base for Growth
Key Cities Provide Excellent Base for Growth PMI HTU Offtake Shares (Q3, 2020) Change vs. PY +6.1pp +3.2pp +6.5pp +2.9pp +2.0pp +2.4pp +1.0pp +4.5pp +4.1pp 29.1% 23.4% 18.2% 16.0% 14.7% 14.4% 14.1% 12.7% 11.5% Vilnius Tokyo(a) Kiev Prague Athens Moscow Bratislava Rome Warsaw +4.4pp +3.2pp +0.3pp +2.
Slide 22: EU Region: Continued HEETS Share Growth
EU Region: Continued HEETS Share Growth Adjusted 2.5% 4.0% SoM(a) 3.9% +1.5pp 2.4% Q3, 2019 Q3, 2020 Sequential Performance (vs. Q2, 2020) Adjusted SoM: +0.1pp(a) Adjusted IMS Volume: +15.7%(a) (a) Excluding the estimated impact of retailer inventory movements and consumer pantry loading Note: Sales
Slide 23: Russia: Continued PMI HTU Share Growth
Russia: Continued PMI HTU Share Growth 5.8% +1.8pp 4.0% Q3, 2019 Q3, 2020 Sequential Performance (vs. Q2, 2020) Adjusted SoM: +0.1pp(a) Adjusted IMS Volume: +9.5%(a) (a) Excluding the impact of estimated trade inventory movements Note: Adjusted shares are equal to reported shares for Q3, 2019 and Q3
Slide 24: Japan: Continued PMI HTU Share Growth
Japan: Continued PMI HTU Share Growth Adjusted Total 16.3% 18.9% Tobacco SoM(a) 20.5% +3.4pp 17.1% Q3, 2019 Q3, 2020 Sequential Performance (vs. Q2, 2020) Adjusted Total Tobacco SoM: +0.2pp(a) Adjusted IMS Volume: +7.3%(a) (a) Excluding the impact of estimated trade inventory movements, and includin
Slide 25: Geographic Expansion of IQOS Continues
Geographic Expansion of IQOS Continues 61 Markets Worldwide(a) Market Launches Of which 2015 (7) 2016 (13) 32 2017 (18) Non-OECD 2018 (6) 2019 (8) 2020 (9) (a) Status at October 1, 2020 Note: Reflects markets where IQOS is available in key cities or nationwide. Reflects date of initial geographic ex
Slide 26: IQOS VEEV Launch
IQOS VEEV Launch • New Zealand launch in August • Further markets in Q4 and 2021 • Leveraging IQOS commercial infrastructure • Testing age verification technology 26
Slide 27: lil SOLID Launched in Russia and Ukraine
lil SOLID Launched in Russia and Ukraine • Convenient, affordable proposition to reach more adult smokers • Encouraging early results with positive consumer feedback “Something new endorsed by IQOS. I’ll be one of the first owners in Russia” — Consumer testimonial Source: PMI Financials or estimates
Slide 28: lil HYBRID Launch in Japan
lil HYBRID Launch in Japan • Launching shortly in Japan • Innovative and differentiated heated tobacco experience • Further broadening range of consumer offer 28
Slide 29: ESG at the Core of Our Mission & Strategy
ESG at the Core of Our Mission & Strategy • Innovating with significantly better reduced-risk products for public health, at scale: Important contribution to Sustainable Development Goals, notably ‘Good Health & Well-Being’ (SDG3) ⎼ • Best-in-class practices on the central ESG topics across our valu
Slide 30: Superior, Sustainable Growth Prospects
Superior, Sustainable Growth Prospects • Strong Q3 performance; raising full-year guidance • Multiple growth drivers: Positive mix from RRPs Pricing ⎼ Manufacturing productivities ⎼ Cost efficiencies from digitalization and simplification ⎼ ⎼ • Product offer and innovation to step up in 2021 • ESG a
Slide 31: Questions & Answers
Delivering a Smoke-Free Future 2020 Third-Quarter 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 devices Or go to:
Slide 32: Delivering a Smoke-Free Future: 2020 Third-Quarter Results
Delivering a Smoke-Free Future 2020 Third-Quarter Results October 20, 2020
Slide 33: 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 33
Slide 34: 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 35: 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 t
Slide 36: 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 37: 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 38: Glossary: Reduced-Risk Products (cont.)
Glossary: Reduced-Risk Products (cont.) • "Predominant IQOS Users" is defined as the estimated number of Legal Age (minimum 18 years) IQOS users that used PMI HTUs units for between 70% and 95% of their daily tobacco consumption over the past seven days • "Situational IQOS Users" is defined as the e
Slide 39: 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 40: 2020: EPS Guidance
2020: EPS Guidance Full-Year ($/share) 2020 Organic Forecast 2019 Growth Reported Diluted EPS $5.03≥ – $5.08 $4.61 - Tax items (0.06) (0.04) - Asset impairment and exit costs 0.04 0.23 - Canadian tobacco litigation-related expense 0.09 - Loss on deconsolidation of RBH 0.12 - Russia excise and VAT au
Slide 41: EU Region: HEETS SoM Performance in Select Markets
EU Region: HEETS SoM Performance in Select Markets Growth Growth Growth Q3, 2020 vs. PY Q3, 2020 vs. PY Q3, 2020 vs. PY Croatia 4.4% +1.5pp Italy 7.8% +3.2pp Romania 2.8% +0.8pp Czech Slovak Latvia Republic 8.0 +2.2 10.3 +4.4 Republic 9.1 +2.1 Germany 1.9 +0.8 Lithuania 20.0 +5.1 Slovenia 4.5 +1.6 G
Slide 42: Third-Largest 'Brand' in IQOS Markets
Third-Largest ‘Brand’ in IQOS Markets Share in IQOS Markets (Q3, 2020)(a) 13.0% 6.0% 3.8% #3 Marlboro Winston PMI HTUs Rothmans L&M (a) Reflects 60 markets where IQOS is available in key cities or nationwide at October 1, 2020. Excludes the U.S. Note: All ‘brands’ except ‘PMI HTUs’ include cigarette
Slide 43: Korea: Sequential Share Performance
Korea: Sequential Share Performance HEETS SoM 6.3% 6.4% 6.7% 6.4% 6.1% Adjusted(a) 6.6% 6.6% 6.2% 6.3% 6.0% Q3 Q4 Q1 Q2 Q3 2019 2020 (a) Excluding the impact of estimated trade inventory movements Source: PMI Financials or estimates 43
Slide 44: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency, and Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS, excluding Currency (Unaudited) Quarters Ended September 30, 20
Slide 45: Net Revenues by Product Category, Currency and Acquisitions
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Quarters Ended Net Excluding Curren
Slide 46: 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 Asset Excluding Asset Adjusted Operating Income Operati
Slide 47: 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 48: Reconciliation of Reported Diluted EPS, Nine Months
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) Nine Months Ended September 30,
Slide 49: Net Revenues by Product Category, Nine Months
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 Nine Months Ended Net Excluding Cur
Slide 50: Reconciliation of Operating Income, Nine Months
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 Asset Excluding Asset Adjusted Operating Income Adjuste
Slide 51: Reconciliation of Adjusted Operating Income Margin, Nine Months
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 52: 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, except per share data) / (Unaudited) Nine Months Ended September 30, 2020 2019 % Change Net Revenues $ 21,250 $ 22,092 (3.8)% Net Revenues attri
Slide 53: 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 Ended Ended Ended Ended Ended Ended Ended Mar 31, Jun 30, Jun 30, Sep
Slide 54: Net Revenues by Product Category, 2019
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: 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 56: 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 57: Calculation of Adjusted Operating Income Margin
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Calculation of Adjusted Operating Income Margin ($ in millions) / (Rounded) Year Ended December 31, 2016 Asset Adjusted Adjusted Operating Net Impairment & Operating Operating Income Revenues Exit Costs Income Inco
Slide 58: Delivering a Smoke-Free Future: 2020 Third-Quarter Results
Delivering a Smoke-Free Future 2020 Third-Quarter Results October 20, 2020
Philip Morris International — Q3 2020 Earnings Presentation on 6ix