Philip Morris International Inc · NYSE:PM
Philip Morris International — Q1 2020 Earnings Presentation
55 slides from Philip Morris International's earnings presentation, Apr 21, 2020
Slide 1: Delivering a Smoke-Free Future: 2020 First-Quarter Results
Exhibit 99.3 Delivering a Smoke-Free Future 2020 First-Quarter Results April 21, 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 and our business transf
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: Supporting Our Employees and Communities Through the COVID-19 Pandemic
Supporting Our Employees and Communities Through the COVID-19 Pandemic • Our main focus is the health and wellbeing of our employees, their families and the communities in which we operate • Implemented policies and measures to protect, support and reassure employees • Outstanding strength and spiri
Slide 6: Our Business and Organization has Shown Resilience in Challenging Times
Our Business and Organization has Shown Resilience in Challenging Times • Very strong Q1, 2020, with continued structural growth momentum • Our business continues to function well: Sufficient inventories and consumer access to our products Strong balance sheet, liquidity and cash generation ⎼ ⎼ • Re
Slide 7: Q1, 2020: Strong Start to Year
Q1, 2020: Strong Start to Year Including (Variance vs. PY) estimated impact related to COVID-19 PMI HTU Shipment Volume (billion units) 16.7 (+45%) +0.4 PMI Total Shipment Volume % pp (like-for-like) (0.6) +1.7 Net Revenues % pp (ex-currency, like-for-like) +10.0 +2.0 Combustible Tobacco Pricing(a)
Slide 8: Main Areas of Business Impact from COVID-19
Main Areas of Business Impact from COVID-19 IQOS Indonesia Duty-Free Sales User Acquisition Pricing Enforcement • Almost 4% of 2019 net revenues: 37% SoM ⎼ Skew to premium brands (e.g., Marlboro and HEETS) ⎼ • Consumer offtake trends: Declines of over 80% exiting March ⎼ Expect similar trends to con
Slide 9: Main Areas of Business Impact from COVID-19
Main Areas of Business Impact from COVID-19 IQOS Indonesia Duty-Free Sales User Acquisition Pricing Enforcement • Almost 4% of 2019 net revenues: • Lockdown/restrictive measures 37% SoM hamper ability to engage with adult smokers ⎼ Skew to premium brands (e.g., Marlboro and HEETS) • IQOS retail touc
Slide 10: Main Areas of Business Impact from COVID-19
Main Areas of Business Impact from COVID-19 IQOS Indonesia Duty-Free Sales User Acquisition Pricing Enforcement • Almost 4% of 2019 net revenues: • Lockdown/restrictive measures • 2020, already an abnormal year of 37% SoM hamper ability to engage with adult catch-up on excise tax and pricing smokers
Slide 11: COVID-19 Impact on Consumption Patterns
COVID-19 Impact on Consumption Patterns In Developed Markets In Certain Developing Markets • Stronger social support programs • High prevalence of daily wage workers, lower resources for social support, greater income • Only limited impact on consumption so far fragility • Instances of pantry-loadin
Slide 12: Our Supply Chain and Inventories are Resilient
Our Supply Chain and Inventories are Resilient Manufacturing & Distribution Operations Functioning Well • Implemented contingency measures to ensure continuity of production and customer supply • Inventories remain healthy, on average: >2 months on HTUs >3 months on IQOS devices ⎼ >1.5 months on cig
Slide 13: Strong Liquidity, Balance Sheet and Cost Management
Strong Liquidity, Balance Sheet and Cost Management Liquidity & Balance Sheet Cost Management • Ample liquidity sources • Our cost efficiency programs continue • Strong balance sheet • Well on track to deliver over $1 billion in efficiencies by 2021 • As of March 31, 2020: Approximately $3.7 billion
Slide 14: Introducing Quarterly Guidance Given Reduced Visibility on Full-Year Outlook
Introducing Quarterly Guidance Given Reduced Visibility on Full-Year Outlook • Withdrawing full-year 2020 guidance (issued February 6th) due solely to uncertainty related to COVID-19 pandemic • Introducing quarterly guidance (one quarter forward), given comparatively better short-term visibility • E
Slide 15: Q1, 2020: Total PMI Shipment Volume
Q1, 2020: Total PMI Shipment Volume Shipments Like-for Like Change vs. PY (billion units) (Shipments) (IMS) 175.8 173.7 Total (0.6)% (3.7)% 11.5 16.7 HTUs 45.5% 35.6% 164.3 157.0 Cigarettes (3.8)% (6.7)% 100 Q1, 2019 Q1, 2020 Source: PMI Financials or estimates 15
Slide 16: HTUs Now Make up Nearly 10% of Our Total Volume
HTUs Now Make up Nearly 10% of Our Total Volume As a % of PMI Total Shipment Volume 9.6% 7.8% 5.3% 4.5% 0.9% —% 2015 2016 2017 2018 2019 Q1, 2020 0.4 7.4 36.2 41.4 59.7 16.7 Source: PMI Financials or estimates PMI HTU Shipment Volume (billion units) 16
Slide 17: Q1, 2020: Very Strong Adjusted Financial Results
Q1, 2020: Very Strong Adjusted Financial Results • Net revenue growth (ex-currency, like-for-like), Growth vs. PY driven by: (ex-currency, like-for-like) Combustible tobacco pricing Favorable comparison vs. Q1, 2019 ⎼ Higher HTU shipment volume ⎼ • 510bps⎼ adjusted OI margin expansion (ex-currency,
Slide 18: Strong RRP Net Revenue Growth Continues in Q1, 2020
Strong RRP Net Revenue Growth Continues in Q1, 2020 As a % of Total PMI Net Revenues 21.7% 18.7% 13.8% 12.7% 2.7% —% 0.2% 2014 2015 2016 2017 2018 2019 Q1, 2020 $0.1 $0.7 $3.6 $4.1 $5.6 $1.6 Source: PMI Financials or estimates RRP Net Revenues ($ in billions) 18
Slide 19: Total Share Supported by HTUs
Total Share Supported by HTUs PMI Total International Share 28.1% 27.9% 2.0% HTUs 2.9% +0.9pp 26.1% Cigarettes 25.0% (1.1)pp 20% Q1, 2019 Q1, 2020 Note: Excluding China and the U.S. Current view (reflecting the deconsolidation of RBH, PMI’s total market share has been restated for previous periods).
Slide 20: Indonesia: 2020 Headwinds Exacerbated by COVID-19
Indonesia: 2020 Headwinds Exacerbated by COVID-19 • Cigarette industry volume down by 0.6% in PMI Cigarette Share Q1, 2020, reflecting favorable trade inventory movements (likely to reverse in Q2, 2020) 32.7% 30.4% • Pricing taken on all main premium and mid- price brands: PMI price increases since
Slide 21: Approaching 15 Million IQOS Users
Approaching 15 Million IQOS Users (in millions) Total IQOS users(a) 14.6 Estimated users who are in various 13.6 stages of conversion to IQOS(a) Estimated users who have stopped 12.3 smoking and switched to IQOS(a) 11.3 10.4 9.6 8.8 8.3 7.6 67% 67% 67% 69% 70% 70% 71% 71% 73% 3.0 Q1 Q2 Q3 Q4 Q1 Q2 Q
Slide 22: Third-Largest Tobacco 'Brand' in IQOS Markets
Third-Largest Tobacco ‘Brand’ in IQOS Markets Share in IQOS Markets (Q1, 2020) 11.6% 6.6% 3.9% #3 Marlboro Winston PMI HTUs Rothmans L&M (cigarettes) Note: Excluding the U.S. Reflects sales volume as a percentage of the total industry sales volume for cigarettes and HTUs Source: PMI Financials or es
Slide 23: EU Region: Very Strong HEETS Share Growth
EU Region: Very Strong HEETS Share Growth 3.9% +1.8pp 2.1% Q1, 2019 Q1, 2020 Sequential Performance (vs. Q4, 2019) SoM: +0.7pp IMS Volume: +13.0% Source: PMI Financials or estimates 23
Slide 24: Russia: Continued Strong HEETS Share Growth
Russia: Continued Strong HEETS Share Growth 6.5% +3.5pp 3.0% Q1, 2019 Q1, 2020 Sequential Performance Important Information: (vs. Q4, 2019) IQOS is not risk-free SoM: +1.5pp IMS Volume: 3.1% Source: PMI Financials or estimates 24
Slide 25: Japan: PMI HTU Share Performance
Japan: PMI HTU Share Performance Adjusted Total 15.4% 16.6% 16.5% 16.3% 17.1% 17.7% Tobacco SoM(a) 19.1% 17.7% 17.1% 17.0% 16.6% 15.2% Q4 Q1 Q2 Q3 Q4 Q1 2018 2019 2020 (a) Excluding the impact of estimated trade inventory movements, and including the cigarillo category Source: PMI Financials or esti
Slide 26: U.S.: IQOS Regulatory Authorizations
U.S.: IQOS Regulatory Authorizations •On March 30, 2020, PMI submitted a supplemental PMTA for IQOS 3 with the FDA •FDA’s review of PMI’s MRTP applications for IQOS 2.4 continues 26
Slide 27: Expect Robust Underlying Trends to Provide Resilience in Highly Uncertain Times
Expect Robust Underlying Trends to Provide Resilience in Highly Uncertain Times • Continued strong underlying business momentum, especially the impressive growth of RRPs • Remain confident in structural mid-term growth prospects. When headwinds pass, expect to resume growth consistent with targeted
Slide 28: Questions & Answers
Delivering a Smoke-Free Future 2020 First-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 29: Delivering a Smoke-Free Future: 2020 First-Quarter Results
Delivering a Smoke-Free Future 2020 First-Quarter Results April 21, 2020
Slide 30: 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 30
Slide 31: 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 32: 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 33: 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 34: 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 35: 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 36: 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 37: HTU Offtake Shares in Key Cities
HTU Offtake Shares in Key Cities PMI (Q1, 2020) Change vs. PY +4.4pp +3.1pp +8.9pp +3.3pp +2.5pp +4.8pp +6.2pp +2.2pp 18.5% 14.9% 18.1% 14.4% 9.4% 10.2% 8.2% 5.2% Athens Bratislava Kiev Kuala Lumpur Lisbon Milan Moscow Munich +2.2pp +5.9pp (1.2)pp (1.6)pp +1.6pp +8.8pp +6.2pp +1.7pp 29.7% 22.0% 14.5
Slide 38: EU Region: HEETS SoM Performance in Select Markets
EU Region: HEETS SoM Performance in Select Markets Growth Growth Growth Q1, 2020 vs. PY Q1, 2020 vs. PY Q1, 2020 vs. PY Bulgaria 4.7% (1.0)pp Hungary 7.4% 7.4 pp Portugal 7.5% 2.2 pp Croatia 4.3 +1.6 Italy 7.4 +3.7 Romania 3.0 +0.5 Czech Slovak Latvia Republic 9.4 +4.5 10.9 +7.7 Republic 9.4 +4.2 Ge
Slide 39: Korea: Sequential Share Performance
Korea: Sequential Share Performance HEETS SoM Heated Tobacco Category SoM Adjusted(a) 7.8% 7.8% 7.0% 6.3% 6.4% 6.7% PMI Adjusted SoS(a) 8.5% 67.2% 66.2% 65.5% 7.3% 7.3% 65.1% 62.8% 6.2% 6.3% 6.6% Industry Adjusted(a) 11.7% 11.2% 9.6% 9.5% 10.3% Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 2018 2019 2020 2019 20
Slide 40: Shifting Our Resources to Deliver a Smoke-Free Future
Shifting Our Resources to Deliver a Smoke-Free Future Business Transformation Metrics(a) Aspiration(b) 2015 2016 2017 2018 2019 by 2025 R&D expenditure (smoke-free/total) 70% 72% 74% 92% 98% Commercial expenditure (smoke-free/total) 8% 15% 39% 60% 71% Net revenues(c) (smoke-free/total) 0.2% 2.7% 12.
Slide 41: Reconciliation: Shipment Volume Adjusted for RBH Deconsolidation and COVID-19
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Shipment Volume Adjusted for the Impact of RBH Deconsolidation and COVID-19 (in million units) / (Unaudited) Total PMI Quarters Ended March 31, 2020 2019 % Change Total Shipment Volume 173,745 175,795 (1.2)% (a) Sh
Slide 42: 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 March 31, 2020 2
Slide 43: Adjustments for the Impact of RBH, COVID-19, excluding Currency
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, COVID-19, excluding Currency (Unaudited) Quarters Ended March 31, 2020 2019 % Change Adjusted Diluted EPS (a) $ 1.21 $ 1.09 11.0% Net earnings attributable to RBH (0.06) (b) Adjus
Slide 44: 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 Quarters Ended Net Excluding Curren
Slide 45: Adjustments for the Impact of RBH, COVID-19: Net Revenues
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, COVID-19, excluding Currency ($ in millions) / (Unaudited) Quarters Ended March 31, 2020 2019 % Change Net Revenues $ 7,153 $ 6,751 6.0% Net Revenues attributable to RBH (181) (a)
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 Excluding Asset Adjusted Operating Income Asset Adjuste
Slide 47: Adjustments for the Impact of RBH, COVID-19: Operating Income
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, COVID-19, excluding Currency ($ in millions) / (Unaudited) Quarters Ended March 31, 2020 2019 % Change Operating Income $ 2,789 $ 2,050 36.0% Less: Asset impairment and exit costs
Slide 48: 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 49: Adjustments for the Impact of RBH, COVID-19: Adjusted OI Margin
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, COVID-19, excluding Currency ($ in millions) / (Unaudited) Quarters Ended March 31, 2020 2019 % Change Adjusted Operating Income (a) $ 2,789 $ 2,503 11.4% Net Revenues $ 7,153 $ 6
Slide 50: Calculation of Total Debt to Adjusted EBITDA and Net Debt Ratios
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Calculation of Total Debt to Adjusted EBITDA and Net Debt to Adjusted EBITDA Ratios ($ in millions, except ratios) / (Unaudited) Year Ended March 31, 2020 Year Ended April ~ December January ~ March 12 months Decem
Slide 51: 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 52: Net Revenues by Product Category, Year 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 53: Net Revenues by Product Category, Year 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 54: Net Revenues by Product Category, Year 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 55: Delivering a Smoke-Free Future: 2020 First-Quarter Results
Delivering a Smoke-Free Future 2020 First-Quarter Results April 21, 2020
Philip Morris International — Q1 2020 Earnings Presentation on 6ix