Philip Morris International Inc · NYSE:PM
Philip Morris International — Consumer Analyst Group of New York (CAGNY) Conference 2009
58 slides from Philip Morris International's conference presentation, Feb 17, 2009
Slide 1: Consumer Analyst Group of New York (CAGNY) Conference
Exhibit 99.2 Consumer Analyst Group of New York (CAGNY) Conference Consumer Analyst Group of New York (CAGNY) Conference 17 February, 2009 17 February, 2009
Slide 2: Summary
Summary Summary PMI had an excellent year in 2008 We face currency headwinds if current rates prevail throughout 2009 We have not seen consumer downtrading in emerging markets so far We remain as committed as ever to generously rewarding our shareholders Our constant currency outlook is very strong
Slide 3: Growth Rates
Growth Rates 2008 Results Cigarette Volume 1 – 2% Net Revenues 4 – 6% Operating Income 6 – 8% EPS 10 – 12% Source: PMI Financials Mid / Lon g -Term Currency Neutral Tar g ets Mid / Lon g -Term Currency Neutral Tar g ets
Slide 4: PMI Results
PMI Results PMI Results + 9.9 + 16.7 10.4 OCI + 5.6 + 12.7 25.7 Net Revenues (bio) + 1.0 % + 2.5 % 869.8 Cigarette Volume Excl. Curr. & Acquisitions Actual Full Year 2008 % Growth 2008 vs. 2007 Source: PMI Financials
Slide 5: PMI Results
PMI Results PMI Results + 13.2 + 18.6 3.32 Adjusted EPS ($ / share) + 10.8 % + 16.1 % 3.32 Reported EPS Excl. Currency Actual Full Year 2008 % Growth 2008 vs. 2007 Source: PMI Financials
Slide 6: Share Trends
Share Trends Share Trends 25.2 25.8 25.9 12MM 3MM Overall PMI Share Development (a) OECD/Non-OECD Share Development (a)(b) OECD Non-OECD (%) (%) (%) (a) Excluding PRC and USA; (b) Also excluding Duty-Free Source: PMI Estimates (from GIMS) 33.5 34.6 34.8 12MM 3MM 20.0 20.8 21.1 12MM 3MM
Slide 7: Exchange Rate: Euro - USD
Exchange Rate: Euro – Exchange Rate: Euro – USD USD Daily Average Source: Bloomberg London Close 18:00 PM 1.20 1.30 1.40 1.50 1.60 01 Jan 01 Apr 01 Jul 30 Sep 30 Dec
Slide 8: Exchange Rates vs. USD
Exchange Rates vs. USD Exchange Rates vs. USD Source: Bloomberg London Close 18:00 PM Daily Average Indices Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Ukrainian Hryvnia Russian Ruble Turkish Lira Indo. Rupiah Mexican Peso
Slide 9: 2009 Guidance: Adverse Currency
2009 Guidance: Adverse Currency 2009 Guidance: Adverse Currency (0.16) Other developed market currencies (0.11) Other emerging market currencies (0.58) Key emerging market currencies (a) (0.80) Total 0.03 Swiss Franc 0.15 Japanese Yen (0.13) Euro EPS Impact ($ / share) (a) Russian Ruble, Turkish Lir
Slide 10: Impact of Currency
Impact of Currency Impact of Currency Revenues have straight line translation impact Currency impact on profitability is neither linear, simple nor consistent across our markets Elements in the cost structure that are not in local currency magnify the impact on OCI
Slide 11: Hedging
Hed g in g Hed g in g PMI policy never to do net income hedges (“translation hedges”) as we do not speculate on currencies Where appropriate, PMI carries out revenue and purchasing hedges (“transaction hedges”) Transaction hedges not feasible in most emerging markets
Slide 12: PMI Cost Structure
PMI Cost Structure PMI Cost Structure 2008 Total 16.2 TOTAL COSTS (b) 6.9 Mkting, O/H and Other Costs above OCI 3.3 Other COGS (a) 2.4 Direct Materials 3.6 Tobacco Leaf ($ bio) (a) Other manufacturing related costs and shipping. (b) Total costs above OCI and sales allowances. Source: PMI Financials
Slide 13: PMI Costs by Currency
PMI Costs by Currency PMI Costs by Currency Source: PMI Financials Currency (%) 2008 Total EUR USD 3.6 Tobacco Leaf Other CHF ($ bio)
Slide 14: Tobacco Leaf
Tobacco Leaf Tobacco Leaf Key Sources: – Virginia: USA, Brazil – Burley: USA, Malawi, Brazil, Argentina – Oriental: Turkey, Greece US Dollar based agricultural crop PMI converts a large part of its leaf purchases into Euros for inventory and balance sheet valuation purposes
Slide 15: PMI Costs by Currency
PMI Costs by Currency PMI Costs by Currency (a) Other manufacturing related costs and shipping. (b) Total costs above OCI and sales allowances. Source: PMI Financials 16.2 TOTAL COSTS (b) 6.9 Mkting, O/H and Other Costs above OCI 3.3 Other COGS (a) Currency (%) 2008 Total EUR USD - 2.4 Direct Materi
Slide 16: Indonesia / Russia Costs by Currency
Indonesia / Russia Costs by Currency Indonesia / Russia Costs by Currency Total – Mkting, O/H and Other Costs above OCI Total COGS Russia Currency (%) EUR Total – USD Mkting, O/H and Other Costs above OCI Total COGS Indonesia Local Other Source: PMI Financials
Slide 17: Currencies
Currencies Currencies Japanese Yen is the only major currency that has appreciated in value Large currency swings tend to be at least partially reversed over time We are optimistic that these strong currency headwinds will be temporary
Slide 18: Emerging Markets: Premium
Emerging Markets: Premium Emerging Markets: Premium 4.1 (b) 31.6 (b) 35.7 Argentina 2.6 62.8 65.4 Mexico 20.2 23.3 43.5 Romania 2.1 21.0 23.1 Indonesia 19.6 14.8 17.9 % 2.9 16.7 Turkey 5.9 8.9 Ukraine 6.0 pp 11.9 % Russia Variance Premium Share of Market (a) (a) Including above premium (b) 2006 data
Slide 19: Emerging Markets: Price Gaps
Source: Retail prices available in market on February 1, 2009. Exchange rates from Bloomberg, London Close 18:00 PM, February 2, 2009 Emer g in g Emer g in g Markets: Price Gaps Markets: Price Gaps Premium Mid Low Mexico Indonesia Turkey Russia Montana PS 17/18 ($1.32/20) PS 28 ($1.95) PS 22 ($1.54)
Slide 20: Consumer Prices: Russia
Consumer Prices: Russia Consumer Prices: Russia 0.50 Bread (500 g ) 0.56 Mineral Water (0.5 liters) 1.76 Big Mac 0.92 Baltic a Beer (local) 1.12 Marlbor o 1.40 Milk (1 liter) 1.15 Coca-Cola (0.5 liters) 1.96 Colgate toothpaste 3.36 Budweiser beer (imported) 6.99 Cinema Ticket Price (USD) Price (RBL)
Slide 21: Emerging Markets: Premium
Emer g in g Emer g in g Markets: Premium Markets: Premium 4.6 5.1 6.3 6.8 Romania 0.9 2.5 2.7 2.5 Argentina 0.8 0.9 (0.2) (0.3) Indonesia (0.5) (0.1) 0.7 2.8 Mexico 1.4 2.7 + 2.2 pp Q2 2.1 2.1 0.8 Turkey 3.2 3.1 2.1 Ukraine + 1.3 pp + 2.1 pp + 2.1 pp Russia Q4 Q3 Q1 Premium Share Growth 2008 vs. 200
Slide 22: PMI Pricing
PMI Pricin g PMI Pricin g Pricing contributed $1.2 billion to OCI in 2008 Higher prices already announced for 2009, notably in: PMI expects to retain its pricing power during the economic crisis Argentina Colombia Mexico Australia Indonesia Philippines Egypt Romania Russia Serbia Ukraine Belgium Cze
Slide 23: Excise Tax Environment
Excise Tax Environment Excise Tax Environment Reasonable approach being taken by governments in key markets Greater emphasis on: – Specific vs. ad-valorem – Minimum excise taxes and minimum reference price mechanisms – Reduction in loopholes
Slide 24: Top International Brands (2007)
Top 15 International Brands (2007) Top 15 International Brands (2007) (bio) Lark Parliament Chesterfield Bond Street Philip Morris L&M Marlboro Source: Competitive data for BAT and JT International Brands derived from company reports and PMI estimates. PMI data from Financials. Note: PMI brands in r
Slide 25: Marlboro Architecture
Marlbor o Marlbor o Architecture Architecture
Slide 26: Marlboro Filter / Flavor Plus
Marlboro Filter / Flavor Plus Marlboro Filter / Flavor Plus Enhanced taste due to tobacco plug in filter Attractive sliding pack 6 / 3 / 1 mg tar (%) Marlboro Filter Plus Source: A.C. Nielsen Romania Market Share 0.2 2.5 Jan Dec
Slide 27: Marlboro Filter / Flavor Plus
Marlboro Filter / Flavor Plus Marlboro Filter / Flavor Plus Key City Market Shares (Dec 2008) Now available in 20 markets Initial focus on key cities JAP KUW RUS BRA UKR Source: Business Analytica, A.C. Nielsen and PMI estimates (%) 2.2 1.2 0.6 0.4 0.3 2.5 Kuwait Moscow (a) Kiev Tokyo São Paulo (b)
Slide 28: Marlboro Intense / Compact / Pocket Pack
Marlboro Intense / Compact / Pocket Pack Marlboro Intense / Compact / Pocket Pack Marlbor o Intens e is a shorter, flavorful variant in a red pack Marlbor o Intens e launched in Belgium, Germany, the Netherlands and Turkey Marlbor o Compact is a lighter flavored version in Italy in a silver pack Mar
Slide 29: Marlboro Gold
Marlbor o Marlbor o Gold Gold Marlboro Gold Edg e (super slims) launched in Hungary, Poland and Eastern Europe Marlboro Gold Advanc e (full flavor) in test market New Marlbor o Gold pack in Austria and Poland
Slide 30: Menthol Segment
Menthol Se g ment Menthol Se g ment 4.0 12.0 16.0 Poland 23.1 5.0 19.5 47.2 37.5 22.0 % 21.2 4.3 18.5 (a) 45.6 37.2 (a) 18.4 % Menthol Share of Market 1.9 Finland 0.7 Mexico 1.6 Singapore 1.0 Colombia 0.3 Hong Kong 3.6 pp Japan Variance (a) 2006 data Source: A.C. Nielsen, Tobacco Institute of Japan
Slide 31: Marlboro Fresh Initiatives
Marlbor o Marlbor o Fres h Fres h Marlbor o Cris p , Fresh and Ice Mint variants launched in 2007 in various Asian markets Marlbor o Black Mentho l in Japan since July 2008 Marlboro Share of Menthol Segment in Japan (%) Source: Tobacco Institute of Japan 24.7 25.1 27.1 27.2 Q1 Q2 Q3 Q4 Initiatives I
Slide 32: Marlboro Fresh Initiatives
Marlbor o Marlbor o Fresh Fresh Initiatives Initiatives Menthol important segment in Colombia Growing off low base in several other Latin American markets New Marlboro menthol initiatives in second half 2008 (Brazil, Colombia, Mexico) 0.3 4.5 4.9 H1 08 H2 08 Non- menthol Menthol Source: A.C. Nielsen
Slide 33: Marlboro
Marlbor o Marlbor o Geographic expansion of innovative line extensions using our superior global infrastructure Pipeline of new products and concepts Increased vibrancy and “halo effect” Marlbor o volume grew by 0.2% in 2008 following a decline the previous year Increased volume in EEMA, Asia and La
Slide 34: Parliament
Parliament Parliament Recessed filter, sophisticated image and above premium pricing Volume +20.0% in 2008 Growth driven by Korea, Russia, Turkey and Ukraine Upscale image being reinforced with Parliament Reserv e Parliament Market Shares (%) Source: Business Analytica, A.C. Nielsen, PMI estimates a
Slide 35: Slimmer Diameter
Slimmer Diameter Slimmer Diameter Source: Business Analytica, A.C. Nielsen, Tobacco Institute of Japan and PMI estimates 37.4 6.3 13.8 9.0 12.1 % 35.5 6.0 6.5 3.0 3.8 % Slims Share of Market 0.3 Japan 1.9 Korea 7.3 Poland 6.0 Ukraine 8.3 pp Russia Variance
Slide 36: Virginia Slims
Vir g inia Slims Vir g inia Slims Volume +8.2% in 2008 Un o concept and geographic expansion driving Virginia Slims growth 2.0 1.4 1.3 0.3 91% 80% 91% 9% 100% 9% 20% 2.5 Japan Rom. Russia Greece Source: Business Analytica, A.C. Nielsen, Tobacco Institute of Japan and PMI Financials. Other Uno Virgin
Slide 37: PMI Slims Initiatives
PMI Slims Initiatives PMI Slims Initiatives Marlboro Gold Edge in Poland and Eastern Europe Muratti Gold Slims and Silver slims in Eastern Europe Slimmer line extensions of L&M in Poland and Eastern Europe
Slide 38: Chesterfield
Chesterfield Chesterfield Chesterfield Market Shares Volume +13.7% in 2008 Strong gains in Italy, Portugal, Russia and Ukraine Growth more than offsetting decline in L& M volume Source: Business Analytica, A.C. Nielsen, PMI estimates and PMI Financials. (%) 9.8 6.4 3.2 2.0 2.4 9.9 8.5 3.6 3.3 2.9 Sp
Slide 39: L&M Comprehensive Repositioning
L& M L& M Comprehensive repositioning in key EEMA markets Still under pressure in Russia in spite of success of slimmer line extensions Early signs of stabilization in Romania and Ukraine L&M Market Shares Source: A.C. Nielsen (%)
Slide 40: L&M Overall volume decline
L& M L& M Overall volume decline of 4.6% in 2008 EU shipment volume increased by 2.0% in the same period L&M Market Share Gains (2008) Source: A.C. Nielsen, PMI estimates and PMI Financials (pp) 1.9 1.8 0.5 0.3 0.2 Ger. Neth. Pol. Fra. Bel.
Slide 41: Low-Price International Brands
Low - Low - Price International Brands Price International Brands Bond Street Next Red & Whit e collectively gained 3.8% in volume in 2008 Bond Street and Next achieved double digit growth in EEMA Market Shares (2008) Source: A.C. Nielsen, Business Analytica and PMI Financials. (%) 12.6 3.6 7.8 7.4
Slide 42: Local Brands
Local Brands Local Brands Source: A.C. Nielsen and PMI estimates
Slide 43: PMI Brand Portfolio
PMI Brand Portfolio PMI Brand Portfolio Premium Mid Low Mature Markets Emerging Markets
Slide 44: Volume / Mix Impact on OCI
Volume / Mix Impact on OCI Volume / Mix Impact on OCI (198) (155) (290) ($ mio) Source: PMI Financials
Slide 45: Geographic Expansion
Geo g raphic Expansion Geo g raphic Expansion Recent entry into Algerian and Bulgarian markets Marlbor o and L& M are key brands Market Shares (%) Source: A.C. Nielsen and PMI estimates 10.9 4.9 10.3 14.9 Algeria Bulgaria
Slide 46: China
China China Market size of 2.2 trillion in 2008, up 3.1% PMI agreements with CNTC. Aim to be preferred partner Production of Marlboro under license in two factories started in August International joint venture has successfully launched three Chinese heritage brands in six international markets Marl
Slide 47: Other Tobacco Products
Other Tobacco Products Other Tobacco Products PMI achieved an 18% organic volume growth in OTP in 2008 Recent acquisitions have included leading fine cut brands in France and Norway Smokeless tobacco joint venture with Swedish Match Source: PMI Financials
Slide 48: Productivity and Cost Saving Programs
450 250 1,550 850 ($ mio) Forecast Cumulative Gross Cost Savings (2008-10) Productivity and Cost Saving Programs Productivity and Cost Saving Programs Source: PMI Financials Manufacturing Productivity G&A + Other EU Program Total
Slide 49: Manufacturing Productivity
Izhora, Russia Jakarta, Indonesia Rationalization of production within customs areas and trade zones Investments in key factories Western European factories absorbed 57 billion units in 2008, previously manufactured by PM USA Rationalization of blends and product specifications Supply chain optimiza
Slide 50: Free Cash Flow
Free Cash Flow Free Cash Flow (a) (a) 4.5 6.8 + 52.7% ($ bio) (a) Operating cash flow less capital expenditures. In 2008, operating cash flow was $7,935 million and capital expenditures $1,099 million. In 2007, operating cash flow was $5,550 million and capital expenditures $1,072 million. Source: P
Slide 51: Liquidity and Capital Structure
Liquidit y Liquidit y and Capital Structure and Capital Structure Major new factory projects completed and continued focus on working capital management Very strong balance sheet: net debt to EBITDA of 0.94 to 1 at year end 2008 Very favorable debt profile: $10.1 billion bonds issued with attractive
Slide 52: Shareholder Returns
Shareholder Returns Shareholder Returns Dividend raised by 17.4% in August to an annualized rate of $2.16 / share Dividend to be maintained in 2009 even if 65% payout target is exceeded $13 billion two year share repurchase program initiated in May $5.4 billion of share repurchases in 2008 ahead of
Slide 53: Mid / Long-Term Currency Neutral Targets
Mid / Long-Term Currency Neutral Targets Mid / Long-Term Currency Neutral Targets Targets 2009 Forecast Cigarette Volume 1 – 2% Net Revenues 4 – 6% Operating Income 6 – 8% EPS 10 – 12%
Slide 54: Conclusion
Conclusion Conclusion Superior brand portfolio Strong pricing power Ambitious productivity programs in place Excellent liquidity and balance sheet Dividends and share buy-back program are enhancing shareholder value 10-14% EPS growth forecast for 2009 on a currency neutral basis
Slide 55: Adjustments for the Impact of Currency and Acquisitions
Adjustments for the Impact of Currency Adjustments for the Impact of Currency and Acquisitions and Acquisitions Full Year 2007 Acquisitions Currency Less 9.9 % $ 8,943 $ 8,943 $ 9,828 $ $ $ 10,434 Total – 17 . 5 % (4) LA & Canada 12.0 % 1,803 1,803 2,020 2,057 Asia 27.4 % 2,431 2,431 3,098 3,119 EEM
Slide 56: Reconciliation of Operating Companies Income to Operating Income
Morris Internationa l Source: PMI Financials $ 8,894 $ 10,248 Operating Income Latin America Gain on sale of leasing business (73) (142) General corporate expenses $ 8,943 $10,434 Operating Companies Income (28) (44) Amortization of intangibles 1,803 2,057 Asia 2,431 3,119 EEMA $ 4,195 $ 4,738 EU Re
Slide 57: Reconciliation of Reported EPS to Adjusted EPS
Morris Internationa l Reconciliation of Reported EPS to Adjusted EPS Reconciliation of Reported EPS to Adjusted EPS and Adjusted EPS Ex-Currency and Adjusted EPS Ex-Currency $ 13.2% $2.80 $ 3.17 Adjusted EPS Ex Currency (0.15) Currency Impact Less: 18.6% $ 2.80 $ 3.32 Adjusted EPS (0.06) Interest ex
Slide 58: Questions and Answers
Consumer Analyst Group of New York (CAGNY) Conference 17 February, 2009 Questions and Answers
Philip Morris International — Consumer Analyst Group of New York (CAGNY) Conference 2009 on 6ix