Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (September 2018)
43 slides from Philip Morris International's investor day presentation, Sep 27, 2018
Slide 1: Investor Day
Investor Day Lausanne, September 27, 2018 Jacek Olczak Chief Operating Officer
Slide 2: Operating Around the Adult Consumer
OPERATING AROUND THE ADULT CONSUMER 2
Slide 3: Operating Around the Adult Consumer
Operating Around the Adult Consumer CC RRPs PMI Combustible Reduced-Risk Upskilling Cigarette Product Our Performance Performance Organization 3
Slide 4: Our Eye is On the Ball: Robust Cigarette Fundamentals
Our Eye is On the Ball: Robust Cigarette Fundamentals Sustainable Market Share Leader(a) Pricing Variance 26.8% cigarettes only ~7% combustible pricing 28.3% including heated tobacco units forecast for 2018 Superior Brand Portfolio(a) Marlboro, L&M, Chesterfield, and Philip Morris in global top 10 I
Slide 5: Our Strong Cigarette Brand Portfolio
Our Strong Cigarette Brand Portfolio International Cigarette Market Share (YTD August, 2018) 9.7% 3.3% 2.3% 1.8% 1.6% 1.2% #1 #4 #7 #10 #12 #15 We Own Six of the World’s Top 15 International Cigarette Brands Note: Excluding China and the U.S. Reflects sales volume of PMI cigarettes as a percentage o
Slide 6: Solid Global Cigarette Brand Share of Market
Solid Global Cigarette Brand Share of Market (%) 9.6 9.7 9.7 1.6 1.6 1.6 3.4 3.3 3.3 2.1 2.3 1.8 1.7 1.8 1.2 1.5 1.4 1.2 2016 2017 YTD August 2016 2017 YTD August 2018 2018 Note: Excluding China and the U.S. Reflects sales volume of PMI cigarettes as a percentage of cigarette industry sales volume S
Slide 7: Cigarette SoM Resilient Despite Investment Shift to RRPs
Cigarette SoM Resilient Despite Investment Shift to RRPs PMI SoM (12 mma) in Markets where IQOS is Available 33.2% Total(a) 32.5% PMI (CC+ HTU) Industry (CC+ HTU) 31.7% PMI CC Industry CC Cigarettes(b) 31.4% 31.2% 31.1% January December August 2017 2017 2018 (a) Sales volume of PMI cigarettes and HT
Slide 8: Focused Product Launches Yielding Higher Success Rate
Focused Product Launches Yielding Higher Success Rate Strike Rate (%) & Number of Launches Number of SKUs (0.7% SoM in 12 months after launch) 229 4,497 4,488 4,419 163 Number of Launches 83 31% 42% 24% 2015 2016 2017 (a) 2015 2016 2017 (a) Based on latest available share for 2017 launches Note: Str
Slide 9: Region/Market Snapshot
MARKET SNAPSHOT Region/Market Snapshot OPERATING RESILIENCE RUSSIA EU REGION EU TURKEY SAUDI ARABIA PHILIPPINES INDONESIA 9
Slide 10: Strong Total Market Share Performance
Strong Total Market Share Performance % Var. vs. Total Industry Volume (billion units) YTD Aug, 2017 509 502 492 326 (1.7)% Total PMI 38.3% 38.3% 38.3% 38.4% 0.3% 1.0% HEETS Philip Morris 2.7% 3.2% 3.1% 3.0% Chesterfield 5.5% 5.9% 6.0% 5.9% EU REGION L&M 6.9% 6.9% 6.9% 6.9% Marlboro 18.8% 19.0% 18.8
Slide 11: Solid Business Fundamentals
Solid Business Fundamentals % Var. vs. Cigarette Industry Volume (billion units) YTD Aug, 2017 103 105 106 78(a) 13.7% 43.8% 44.3% 43.3% 43.1% TURKEY • Amendment to cigarette excise tax structure on June 30, 2018: 9.5% 10.2% 10.2% 11.0% Marlboro ⎼ Increased specific component ⎼ Reduced ad valorem co
Slide 12: Improved Pricing
Improved Pricing RUSSIA • Strong pricing mainly driven by the annualization of pricing announced in H2, 2017, and further supported PMI Cigarette SoM (%) by price increases earlier this year % Var. vs. Total Industry Volume (billion units) YTD Aug, 2017 280 260 156(a) (8.6)% • July 1, 2018 excise ta
Slide 13: Solid SoM Performance Supported by Marlboro
Solid SoM Performance Supported by Marlboro • PMI cigarette share growth driven by strong INDONESIA performances of Marlboro Filter Black and Dji Sam Soe Magnum Mild PMI Cigarette SoM (%) % Var. vs. Cigarette Industry Volume (billion units) YTD Aug, 2017 Industry Segment Split (%) 316 307 200 1.2% H
Slide 14: Gaining Share and Increasing Profitability
Gaining Share and Increasing Profitability PHILIPPINES • Further profit growth from excise tax- driven price increases PMI Cigarette SoM (%) % Var. vs. • Strong PMI share growth led by: Cigarette Industry Volume (billion units) YTD Aug, 2017 ⎼ Fortune: benefiting from narrowed price gaps vs. 75 47(a
Slide 15: Sequential Improvement
MARKET SNAPSHOT Sequential Improvement SAUDI ARABIA – SEQUENTIAL SAUDI ARABIA IMPROVEMENT IN VOLUME DECLINE Cigarette Volume (Variance vs. PY) Industry PMI IMS PMI Cigarette SoM (%) % Var. vs. Cigarette Industry Volume (billion units) H1 2017 15 11 10 (33.2)% 52.8 (23.8)% 1.9 40.8 35.4 Others 18.2 1
Slide 16: Our Eye is On the Ball: Robust Cigarette Fundamentals
Our Eye is On the Ball: Robust Cigarette Fundamentals Sustainable Market Share Leader(a) Pricing Variance 26.8% cigarettes only ~7% combustible pricing 28.3% including heated tobacco units forecast for 2018 Superior Brand Portfolio(a) Marlboro, L&M, Chesterfield, and Philip Morris in global top 10 I
Slide 17: Everything Else Comes On Top
Everything Else Comes On Top International Cigarette SoM(a) (YTD August, 2018) 9.7% 1.5%(b) 3.3% 2.3% 1.8% 1.6% 1.2% #1 #4 #7 #10 #12 #15 (a) Sales volume of cigarette brand as a percentage of the total industry sales volume for cigarettes (b) Sales volume of PMI HTUs as a percentage of the total in
Slide 18: Operating Around the Adult Consumer
Operating Around the Adult Consumer CC RRPs PMI Combustible Reduced-Risk Upskilling Cigarette Product Our Performance Performance Organization 18
Slide 19: Every Consumer Matters
Every Consumer Matters Approximately 5.8 million adult consumers around the world have already stopped smoking and switched to IQOS Note: Status at the end of August 2018 Source: PMI Financials or estimates, IQOS user panels, and PMI Market Research 19
Slide 20: Continued IQOS User Growth
Continued IQOS User Growth (in millions) 8.3 8.6 Total IQOS users(a) 7.7 6.9 5.2 Users that have 5.6 5.8 stopped smoking 4.7 5.2 and switched to IQOS 3.7 Q3 Q4 Q1 Q2 August 2017 2018 (a) Total IQOS users means the estimated number of Legal Age (minimum 18-year-old) who have used HeatSticks/HEETS for
Slide 21: Total IQOS Users by Region
Total IQOS Users by Region (in thousands) EE EU 665 1,298 469 863 LA&C 27,255 LA&C 40 24 EA&A 6,562 4,412 Total IQOS users Users that have stopped smoking and switched to IQOS ME&A 28 4 Note: Status at the end of August 2018 Source: PMI Financials or estimates, IQOS user panels and PMI Market Resear
Slide 22: IQOS in Italy
IQOS in Italy Total IQOS Users (in thousands) SoM Aug’18 Sep 2017 117 SoM Aug’18 2.5% 1.8% Aug 2018 318 Milan Torino IQOS Conversion Rate (>95%) Bologna SoM Aug’18 & 5.4% Sep 2017 63% Modena Aug 2018 D 67% Rome Awareness Level SoM Aug’18 Sep 2017 5% 19% 3.8% Jun 2018 8% 23% Tier 3 Tier 1 IMS SoM Sep
Slide 23: IQOS in Germany
IQOS in Germany Total IQOS Users (in thousands) Sep 2017 36 Hamburg Aug 2018 111 Berlin SoM Aug’18 IQOS Conversion Rate (>95%) 1.1% Sep 2017 57% Dusseldorf Aug 2018 D 64% Frankfurt Awareness Level (3 cities) Dresden SoM Aug’18 2.1% Sep 2017 28% 63% Aug 2018 38% 66% Stuttgart Tier 3 Tier 1 SoM Aug’18
Slide 24: IQOS in Greece
IQOS in Greece Total IQOS Users (in thousands) Sep 2017 36 Aug 2018 113 IQOS Conversion Rate (>95%) Sep 2017 76% SoM Aug’18 Aug 2018 D 82% 6.7% Athens Awareness Level Oct 2017 6% 17% Jul 2018 13% 39% Tier 3 Tier 1 IMS SoM Sep 2017 1.8% Aug 2018 4.3% Notes: City share represents offtake share Source:
Slide 25: Growing IQOS User Base in the EU Region
Growing IQOS User Base in the EU Region (in thousands) Total IQOS users Users that have stopped smoking and switched to IQOS 1,298 1,124 873 611 863 749 353 602 250 418 233 157 Q2 Q3 Q4 Q1 Q2 August 2017 2018 Source: PMI Financials or estimates, IQOS user panels and PMI Market Research 25
Slide 26: IQOS in Russia
IQOS in Russia Total IQOS Users (in thousands) Sep 2017 85 Aug 2018 479 IQOS Conversion Rate (>95%) Sep 2017 62% SoM Aug’18 Aug 2018 D 76% St. Petersburg 5.7% Moscow Novosibirsk Awareness Level (Moscow) Yekaterinburg Sep 2017 12% 12% 22% Rostov-on-Don Krasnodar Aug 2018 20% 20% 41% Vladivostok Tier
Slide 27: IQOS in South Korea
IQOS in South Korea Total IQOS Users (in thousands) Sep 2017 353 Aug 2018 1,136 IQOS Conversion Rate (>95%) Sep 2017 66% Aug 2018 D 59% Awareness Level 13% Sep 2017 13% 51% Aug 2018 35%35% 87% Tier 3 Tier 1 IMS SoM Sep 2017 2.9% Aug 2018 8.1% Source: PMI Financials or estimates, Hankook Research, IQ
Slide 28: IQOS in Japan
IQOS in Japan Total IQOS Users (in thousands) Sep 2017 4,358 Aug 2018 5,426 IQOS Conversion Rate (>95%) Sep 2017 Sep 2017 65% Aug 2018 58% Awareness Level Sep 2017 34% 87% Aug 2018 35% 88% Tier 3 Tier 1 IMS SoM Sep 2017 12.8% Aug 2018 15.2% Source: PMI Financials or estimates, Tobacco Institute of J
Slide 29: Japan: Market Opportunity for Smoke-Free Alternatives is Real
Japan: Market Opportunity for Smoke-Free Alternatives is Real 2015 2016 2017 2018 December August 41.6% 37.1% 31.3% 28.0% 22.2% 14.0% 18.5% 11.0% Device Ownership 4.3% 3.1% 6.2% Past 7-Day Usage 0.4% HnB Category Share Note: All numbers reflect a three-month moving average Device ownership of any he
Slide 30: Initiatives in Japan
Initiatives in Japan 1 2 3 Increased Second Simplified Warranty 2.4 Plus Improved Registration Process Holder Penetration Device Improved Response Time 4 5 6 Campaign “5 Million” New IQOS Devices Stronger-Tasting HTU Variants 30
Slide 31: 2018 IMS Evolution for IQOS Kit and Holder – Japan
2018 IMS Evolution for IQOS Kit and Holder – Japan (in thousands) 874 817 304 IQOS Holder 616 622 302 543 124 189 200 515 570 IQOS Kit 492 433 343 April May June July August Source: PMI Financials or estimates 31
Slide 32: Business Model Evolution: Increasing Interactions with Adult Consumers
BUSINESS Interactions Increasing MODEL EVOLUTION with Adult Consumers Wholesale & Retail From "Business-to-Business" to "Business-to-Consumer" LEARN EXPERIENCE LIVE ADVOCATE Discover Consider Evaluate Find Try Buy Use Convert Bond 32
Slide 33: Investing for Revenue Growth
C Investing for Revenue Growth Revenue LEARN EXPERIENCE LIVE ADVOCATE Discover Consider Evaluate Find Try Buy Use Convert Bond Acquisition Cost Retention Cost 33
Slide 34: RRP Commercial Investment at Market Level
RRP Commercial Investment at Market Level (2017 % split) Split between Acquisition and Retention Costs 20 depends on Market Maturity 40 Acquisition Retention 60 80 Variable Fixed Variable IQOS Coaches Brand Retail Customer Care Registration Incentive Trade & LAMPs E-commerce Referral Programs Overhe
Slide 35: Cost per IQOS User - Index
PROFITABILITY Cost COMPA+RISON per IQOS User - Index Acquisition Retention(a) 100 Japan 24 20 39 22 14 100 Italy 34 20 48 11 11 100 65 Russia 34 20 2015 2016 2017 2015 2016 2017 (a) Indexed to base year acquisition cost per IQOS user Source: PMIContribution Note: Marginal Financials oruser of new es
Slide 36: IQOS User Economics - Index
PROFITABILITY IQOS COMPARISON User Economics - Index (2017 marginal contribution per user; Index = marginal contribution per Marlboro adult smoker) Situational & Situational & Converted Predominant Marlboro Converted Predominant Marlboro IQOS LAU IQOS LAU Adult Smoker IQOS LAU IQOS LAU Adult Smoker
Slide 37: Business Model Evolution Opens New Doors
BUSINESS Business MODEL Model EVOLUTION Evolution Opens New Doors Wholesale & Retail From "Business-to-Business" to "Business-to-Consumer" LEARN EXPERIENCE LIVE ADVOCATE Discover Consider Evaluate Find Try Buy Use Convert Bond 37
Slide 38: RRP Portfolio Drives New Revenue Opportunities
RRP Portfolio Drives New Revenue Opportunities Cigarettes Tobacco IQOS + + Consumables Device & Services Accessories 38
Slide 39: Growing Revenue Stream: IQOS Accessories
Growing Revenue Stream: IQOS Accessories Today: Narrow Range Tomorrow: Wider Range JAPAN 25% KOREA 29% RUSSIA 46% ITALY 66% 30% GERMANY 74% Adult Users Source: PMI Financials or estimates, and PMI Market Research 39
Slide 40: Operating Around the Adult Consumer
Operating Around the Adult Consumer CC RRPs PMI Combustible Reduced-Risk Upskilling Cigarette Product Our Performance Performance Organization 40
Slide 41: Aligning Organization Along The RRP Consumer Journey
Aligning Organization Along The RRP Consumer Journey LEARN EXPERIENCE LIVE ADVOCATE Discover Consider Evaluate Find Try Buy Use Convert Bond ACQUISITION RETENTION • Understand consumer needs faster • Enhance & add new capabilities • Deploy new organization at speed & scale 41
Slide 42: Summary
Summary Market Opportunity Robust CC Business for Smoke-Free Alternatives is Real PMI Business Model Deploy New Evolution Capabilities at Speed & Scale 42
Slide 43: Investor Day
Investor Day Lausanne, September 27, 2018
Philip Morris International — Investor Day (September 2018) on 6ix