Philip Morris International Inc · NYSE:PM
Philip Morris International — Q4 2012 Earnings Presentation
40 slides from Philip Morris International's earnings presentation, Feb 7, 2013
Slide 1: 2012 Fourth-Quarter and Full-Year Results
2012 Fourth-Quarter and Full-Year Results February 7, 2013
Slide 2: Introduction
2 Introduction ● Unless otherwise stated, we will be talking about results for the fourth- quarter or full-year 2012 and comparing them to the same periods in 2011 ● References to PMI volumes refer to PMI shipments ● Industry volume and market shares are the latest data available from a number of in
Slide 3: Forward-Looking and Cautionary Statements
3 Forward-Looking and Cautionary Statements ● This presentation and related discussion contain forward-looking statements. Achievement of projected results is subject to risks, uncertainties and inaccurate assumptions, and PMI is identifying important factors that, individually or in the aggregate,
Slide 4: Very Strong Fourth Quarter
(a) Excluding currency and acquisitions (b) Excluding currency Source: PMI Financials 2.9 6.4 12.3 16.4 0 18 Organic Cigarette Volume Net Revenues Adjusted OCI Adjusted Diluted EPS Growth (Q4, 2012 vs. Q4, 2011) Very Strong Fourth Quarter 4 (a) (a) (b) (%)
Slide 5: Full-Year Organic Volume Growth
Source: PMI Financials 4.6 4.2 1.3 (1.6) (6.4) (7) 0 7 EEMA Asia Total PMI PMI Organic Cigarette Volume Growth (2012 vs. 2011) Full-Year Organic Volume Growth 5 (%) LA&C EU
Slide 6: Strong Regional Market Share Performances
Strong Regional Market Share Performances 6 (a) Excluding China (b) Also excluding the USA Source: PMI estimates PMI Market Shares 2011 2012 Variance Asia(a) 26.5% 27.3% (0.8)pp EEMA 23.7% 24.6% (0.9)pp EU 38.2% 38.1% (0.1)pp LA&C 35.7% 36.5% (0.8)pp Total(a)(b) 28.3% 28.8% (0.5)pp
Slide 7: Pricing Key Driver of Increased Profitability
Pricing Key Driver of Increased Profitability ● Pricing variance of $1.8 billion in 2012 ● Slightly unfavorable volume/mix variance: - Positive volume variance - Stable brand mix - Unfavorable geographic mix ● Increased investments in key brands, in-market field forces and infrastructure 7 Source: P
Slide 8: Profitability Grew at High End of Mid to Long-Term Growth Targets
5.6 8.1 0 12 Net Revenues Adjusted OCI Growth (2012 vs. 2011) Profitability Grew at High End of Mid to Long-Term Currency-Neutral Annual Growth Targets 8 (a) (a) (%) (a) Excluding currency and acquisitions Source: PMI Financials
Slide 9: Profitability Grew at High End of Mid to Long-Term Growth Targets
(a) Excluding currency and acquisitions (b) Excluding currency Source: PMI Financials 5.6 8.1 11.7 0 12 Net Revenues Adjusted OCI Adjusted Diluted EPS Growth (2012 vs. 2011) Profitability Grew at High End of Mid to Long-Term Currency-Neutral Annual Growth Targets 9 (a) (a) (b) (%)
Slide 10: 2013 Reported Diluted EPS Guidance: $5.68 to $5.78
2013 Reported Diluted EPS Guidance: $5.68 to $5.78 ● Strong business fundamentals and excellent trends ● Forecast currency headwind of approximately six cents at EPS level in 2013 at prevailing exchange rates ● 2013 reported diluted EPS guidance is $5.68 to $5.78 versus $5.17 in 2012 ● This correspo
Slide 11: Philippines: Disruptive Excise Tax Increase
Philippines: Disruptive Excise Tax Increase ● New tax law as of January 2013: ● We have increased the recommended retail prices of Marlboro box and Fortune soft, from PHP 32 to PHP 51, and PHP 15 to PHP 25.5, respectively ● Expect considerable volume impact (current estimate: down 20-25%), but margi
Slide 12: EU: Proposed Tobacco Products Directive ("TPD")
EU: Proposed Tobacco Products Directive ("TPD") ● TPD has to be agreed by the European Council of Ministers and the European Parliament ● Implementation not expected until 2015/2016 ● Proposal does not mandate plain packaging, but calls for a ban on menthol and slim cigarettes and 75% graphic health
Slide 13: 2013 Business Outlook
2013 Business Outlook ● Organic cigarette volume growth expected, excluding the Philippines ● Key premium brands Marlboro and Parliament, performing strongly ● Strong brands in mid and low-price segments ● Reasonable excise tax environment outside the Philippines ● Pricing should again be key growth
Slide 14: Very Strong Brand Performance Again in 2012
(2) 8 Marlboro L&M Fortune Bond Street Parl. Sam. A Lark Dji Sam Soe Very Strong Brand Performance Again in 2012 14 Volume Growth (2012 vs. 2011)(a) (a) Excluding Japan hurdle Note: Parl. is Parliament, Sam. A is Sampoerna A and Chest. is Chesterfield Source: PMI Financials (units billion) Philip Mo
Slide 15: Marlboro: Market Share Growth in All Four Regions
Market Shares 2009 2010 2011 2012 Asia(a) 5.9% 6.2% 6.5% 6.6% EEMA 6.4 6.5 6.9 7.0 EU 18.4 18.2 18.0 18.3 LA&C 13.8 14.2 13.9 14.5 Total(a)(b) 9.0 9.1 9.2 9.3 Marlboro: Market Share Growth in All Four Regions 15 (a) Excluding China (b) Also excluding the USA Source: PMI estimates
Slide 16: Parliament: Double-Digit Volume Growth in 2012
Parliament: Double-Digit Volume Growth in 2012 16 0 2 Turkey Russia Other EE Middle East Source: PMI Financials (units billion) Volume Growth in EEMA Markets (2012 vs. 2011) ● Above premium-priced with refined luxury image ● Double-digit volume growth in 2012 to 43.4 billion units ● Packaging upgrad
Slide 17: L&M: Global Volume up 4% in 2012
L&M: Global Volume up 4% in 2012 17 Volume Growth in Key Non-EU Markets (2012 vs. 2011) Note: Balk. is the Balkans, Thail. is Thailand, Slk. is Slovakia, Belg. is Belgium, Ger. is Germany and Neth. is the Netherlands Source: PMI Financials and PMI estimates (units billion) 0 2 Egypt Russia Balk. Tha
Slide 18: Indonesia: PMI Outperformed in a Growing Market
Indonesia: PMI Outperformed in a Growing Market 18 ● Industry volume increased 8.2% in 2012 to 303 billion units ● Going forward, we expect 5-6% industry volume growth ● PMI volume surged by 17.5% in 2012 ● PMI share gains driven by: - Strong premium-skewed portfolio - Superior national distribution
Slide 19: Russia: Investments Showing Positive Returns
Source: PMI Financials, PMI estimates and Nielsen Russia: Investments Showing Positive Returns 19 ● PMI volume increased by 3.8% in 2012 ● Total industry volume declined by 1.3% ● PMI share growth driven by: - Parliament in above premium - L&M in mid-price - Bond Street and Next in low-price - Share
Slide 20: Turkey: Growing Market Share and Improving Mix
Source: PMI estimates, PMI Financials and Nielsen Turkey: Growing Market Share and Improving Mix 20 ● Total industry volume grew 8.8% in 2012 to 99 billion units: - Reduction in illicit trade - Trade loading in Q4, 2012 - Weak Q4, 2011 - Growth in adult population - Strong economy ● PMI volume up 12
Slide 21: Italy: Marlboro Gained Share in a Challenging Environment
● Unemployment of 11.1% in Nov. 2012 was up 1.7 points year-on-year ● Cigarette industry volume declined by 7.9% in 2012, as adult smokers switched to fine cut and illicit products ● Reduction in tax differential resulted in much slower fine cut growth in Q4, 2012 ● PMI international brands performe
Slide 22: Improved OCI Margins
Improved OCI Margins 22 (a) Excluding currency and acquisitions Source: PMI Financials Adjusted OCI Margins 2011 2012 Variance(a) Asia (45.3)% 45.9 % (0.6)pp EEMA (41.3)% 44.8 (3.5) EU (50.0)% 49.5 (0.5) LA&C (30.7)% 32.4 (1.7) Total (44.1)% 45.2 (1.1) (a)
Slide 23: $300 Million Productivity Savings Target in 2013
$300 Million Productivity Savings Target in 2013 23 ● Target of $300 million in pre-tax productivity savings in 2013 ● Will help offset moderate increase in leaf and direct material prices, as well as higher clove costs Source: PMI Forecasts
Slide 24: Higher Working Capital Requirements Impacted Free Cash Flow in 2012
Higher Working Capital Requirements Impacted Free Cash Flow in 2012 24 ● Free cash flow of $8.4 billion in 2012, down $1.1 billion, or 11.6%, excluding currency ● $1.7 billion increase in working capital requirements: - Higher tobacco leaf and finished goods inventories in Indonesia, driven by our s
Slide 25: Free Cash Flow as a % of Net Revenues
Free Cash Flow as a % of Net Revenues – (2008 – September 30, 2012) 25 8.4% 8.4% 9.3% 9.5% 9.5% 16.3% 16.4% 16.7% 16.7% 17.4% 19.6% 20.5% 21.2% 24.4% 24.9% 25.7% 29.7% Unilever Nestlé PepsiCo Heineken Bayer McDonald's Imperial Tobacco Vodafone Diageo Coca-Cola GlaxoSmithKline Johnson & Johnson Novar
Slide 26: Very Significant Dividend Increases
Very Significant Dividend Increases +17.4% +7.4% +10.3% +20.3% +10.4% $1.84 $3.40 2008 Aug Sept Sept Sept Sept 2012 2008 2009 2010 +84.8% 2011 2012 Note: Dividends for 2008 and 2012 are annualized rates. 2008 annualized rate is based on a quarterly dividend of $0.46 per common share, declared June 1
Slide 27: Very Substantial Share Repurchase Programs
Very Substantial Share Repurchase Programs ● Initiated new three-year $18 billion share repurchase program in August 2012 ● Last year, we spent $6.5 billion to repurchase 74.9 million shares ● Target share repurchases of $6 billion in 2013 Source: PMI Financials and PMI Forecasts 27
Slide 28: Conclusion: Strong Results Expected in 2013
28 Conclusion: Strong Results Expected in 2013 ● 2013 reported diluted EPS guidance of $5.68 to $5.78 ● This guidance corresponds to a growth rate of 10% to 12%, excluding currency, compared to our adjusted diluted EPS of $5.22 in 2012 ● Excise tax and regulatory environments manageable ● Favorable
Slide 29: Questions & Answers
2012 Fourth-Quarter and Full-Year Results Questions & Answers
Slide 30: Reconciliation: Currency and Acquisitions Adjustments, Quarter
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Quarters Ended December 31, ($ in millions) (Unaudited) 30 Reported Net Revenues Less Excise Taxes Reported Net Revenues excluding Excise Taxes Less C
Slide 31: Reconciliation: Reported to Adjusted OCI, Quarter
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income & Reconciliation of Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions For the Quarters Ende
Slide 32: Reconciliation: Reported to Adjusted Diluted EPS, Quarter
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Quarters Ended December 31, (Unaudited) 32 2012 2011 % Change Reported Diluted EPS 1.25$ 1.08$ 15.
Slide 33: Reconciliation: Reported Diluted EPS excluding Currency, Quarter
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Quarters Ended December 31, (Unaudited) 33 2012 2011 % Change Reported Diluted EPS 1.25$ 1.08$ 15.7% Less: Currency impact
Slide 34: Reconciliation: Currency and Acquisitions Adjustments, Full Year
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) 34 Reported Net Revenues Less Excise Taxes Reported Net Revenues excluding Excise Taxes Less Curr
Slide 35: Reconciliation: Reported to Adjusted OCI, Full Year
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures 35 Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income & Reconciliation of Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions For the Years Ende
Slide 36: Reconciliation: Reported to Adjusted Diluted EPS, Full Year
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Years Ended December 31, (Unaudited) 36 2012 2011 % Change Reported Diluted EPS 5.17$ 4.85$ 6.6% A
Slide 37: Reconciliation: Reported Diluted EPS excluding Currency, Full Year
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Years Ended December 31, (Unaudited) 37 2012 2011 % Change Reported Diluted EPS 5.17$ 4.85$ 6.6% Less: Currency impact (0.2
Slide 38: Reconciliation: Operating Cash Flow to Free Cash Flow
For the Quarters Ended For the Years Ended December 31, December 31, 2012 2011 % Change 2012 2011 % Change Net cash provided by operating activities(a) 1,650$ 961$ 71.7% 9,421$ 10,529$ (10.5)% Less: Capital expenditures 337 329 1,056 897 Free cash flow 1,313$ 632$ +100% 8,365$ 9,632$ (13.2)% Less: C
Slide 39: Reconciliation: Free Cash Flow as Percent of Net Revenues
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Cash Flow to Free Cash Flow and Free Cash Flow as a Percent of Net Revenues Excluding Excise Taxes ($ in millions) (Unaudited) (a) Operating Cash Flow For the Nine Months Ended For the Y
Slide 40: 2012 Fourth-Quarter and Full-Year Results
February 7, 2013 2012 Fourth-Quarter and Full-Year Results
Philip Morris International — Q4 2012 Earnings Presentation on 6ix