Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (February 2021)
36 slides from Philip Morris International's investor day presentation, Feb 10, 2021
Slide 1: The Next Growth Phase
2021 Delivering a Smoke-Free Future INVESTOR DAY The Next Growth Phase Emmanuel Babeau, Chief Financial Officer Philip Morris International February 10, 2021
Slide 2: Rapidly Becoming a Different Business After Pivotal 2020
Rapidly Becoming a Different Business After Pivotal 2020 • 2020 was a pivotal year in our journey to becoming a different company • Significant breakthroughs in the growth of our IQOS business, despite COVID: - Smoke free products now ¼ of our business, 26% of net revenues in Q4, 2020 - Rapid effici
Slide 3: On Track For 2019-21 HTU and EPS Objectives Despite COVID
On Track For 2019-21 HTU and EPS Objectives Despite COVID FY 2021 2019-21 2019–21 Annual Expected Targets Guidance Performance(a) Net Revenue Organic Growth ≥5% 4-7% 3-4% CAGR OI Margin Average Annual Organic - ≥150bps ≥190bps Increase Adjusted Diluted EPS Organic CAGR ≥8% 9-11% 8-9% HTU Shipment Vo
Slide 4: Accelerating In The Next Growth Phase
Accelerating In The Next Growth Phase 2019–21 2019-21 2021–23 Targets Expected Performance(a) Targets Net Revenue Organic Growth ≥5% 3-4% >5% CAGR OI Margin Average Annual Organic - ≥190bps ≥150bps Increase Adjusted Diluted EPS Organic CAGR ≥8% 8-9% >9% HTU Shipment Volume (billion)(b) 90-100 90-100
Slide 5: Becoming A Majority Smoke-Free Company by 2025
Becoming A Majority Smoke-Free Company by 2025 >50% ~40% Previous 2025 Ambition 38-42% 23.8% 18.7% 12.7% 13.8% 2.7% 0.2% 2015 2016 2017 2018 2019 2020 2023 2025 $0.1 $0.7 $3.6 $4.1 $5.6 $6.8 Financial Ambition Target RRP Net Revenues ($ in billions) Source: PMI Financials or estimates 5
Slide 6: IQOS Already at 35% of Net Revenues in Regions Where Meaningfully Present
IQOS Already at 35% of Net Revenues in Regions Where Meaningfully Present (as a % of Total PMI Net Revenues in 2020) 6 markets where smoke-free products >50% net revenues 35% Aggregate of 3 Regions 55% 33% 25% East Asia & Australia Eastern Europe European Union vs. PY +5pp +8pp +7pp Source: PMI Fina
Slide 7: Japan: IQOS Business is Increasingly Profitable
Japan: IQOS Business is Increasingly Profitable (RRP Net Revenues as a % of Total Net Revenues) 126 Adjusted OI Margin (Index = 2016) 100 101 67% 56% 24% 2016 2018 2020 Source: PMI Financials or estimates 7
Slide 8: High-Quality IQOS Business Driving Growth
High-Quality IQOS Business Driving Growth • Leadership in growing smoke-free category propels strong volume growth and share gains • Strong positive price/mix impact from higher net revenue per unit • Higher organic gross margin rates, further enhanced by manufacturing & supply chain productivities
Slide 9: Driving Revenue Growth: Volume and Share
Driving Revenue Growth: Volume and Share 2017-19 2020 2021-23 Total Nicotine Industry ~(2)% ~(5)% ~(1)-(2)% Volume Growth CAGR(a) Nicotine Industry by category 2023 2017 2020 2023 (volumes) Net Revenues Combustible(b) 97% 94% 90% ~80% Non-combustible(c) 3% 6% 10% ~20% Heat-not-Burn 1% 3% 7% >15% 202
Slide 10: Target Strong HTU Volume and Share Growth
Target Strong HTU Volume and Share Growth PMI HTU PMI Total HTU Shipment Volumes International Share (a) (in billion) 140-160 90-100 76.1 ~+3pp ~6% 59.7 41.4 36.2 +0.8pp 3.0% 2.2 % 7.4 0.4 2015 2016 2017 2018 2019 2020 2021 2023 2019 2020 2023 Target Target Target (a) Excluding China and the U.S. Cu
Slide 11: Net Revenue per Unit of IQOS HTUs
Net Revenue per Unit of IQOS HTUs 10bn HTUs Equate to ~24bn Cigarettes (in Net Revenue Terms) ~24 Excise Incidence: HTU vs. closed E-Vapor(a) (Index = HTUs) 10 100 20 E-Vapor HTUs HTUs Equivalent Cigarette Volumes (a) Weighted average excise as a % of retail selling price, closed e-vapor cartridges.
Slide 12: Net Revenue Per Unit Growth Increasingly Driven by IQOS Volumes
Net Revenue Per Unit Growth Increasingly Driven by IQOS Volumes Price/mix (Net Revenue per Unit)(a) (Organic variance vs. PY) Total 5.6% 8.0% 6.9% 4.2% 3.1% 0.2% CC Price Mix 4.5% 0.8% RRP Price Mix 3.7% 2.9% 0.1% HTU Category Mix 0.9% 2018 2019 2020 (a) Reflects total PMI net revenues divided by to
Slide 13: HTU Price Position & Segmentation Provides Flexibility
HTU Price Position & Segmentation Provides Flexibility 2020 Average Price Position in • HEETS mainline are often priced close to mid- IQOS Markets (Index 100 = Medium) price cigarettes reflecting lower excise • Price segmentation makes portfolio pricing Premium Cigarettes more manageable 120 (120) •
Slide 14: Price Productivity of IQOS HTUs Superior to Cigarettes
Price Productivity of IQOS HTUs Superior to Cigarettes Weighted Effect of 10c Effect of 10c Average increase on increase on Retail Price average PMI Retail Price $/Pack CC & HTU Total PMI Cigarettes 3.80 2.6% 6.9% PMI HTUs 4.10 2.4% 9.0% Reflects percentage increase on weighted average PMI net reven
Slide 15: Gross Margins Are ~10pp Higher on HTUs
Gross Margins Are ~10pp Higher on HTUs • Positive mix on revenue further boosted by higher gross margins • Further upside from manufacturing & supply chain productivity • Accelerated organic growth in gross profit 2020 % Gross Margin ~10pp Cigarettes HTUs Source: PMI Financials or estimates 15
Slide 16: Target Break-Even to Positive Device Gross Margins Over Time
Target Break-Even to Positive Device Gross Margins Over Time • Driving costs down over device lifecycles • Dilution of device margins a small investment in acquisition • Devices now a smaller part of RRP revenues Cost per device Devices as % of RRP Net Revenues (Indexed = 2018, not to scale) 22% 100
Slide 17: Target ~$1 Billion in Gross Manufacturing Productivities Over 2021-23
Target ~$1 Billion in Gross Manufacturing Productivities Over 2021-23 • Productivities across RRP and combustibles • Focus on performance, efficiency and quality • More than offsetting inflation, manufacturing investments and impact of lower combustible volumes 17
Slide 18: Multiple Levers Driving Organic Gross Margin Expansion
Multiple Levers Driving Organic Gross Margin Expansion HTU Mix Impact Combustible & HTU Pricing Manufacturing Productivity Devices Combustible Volumes 66.7 % Reinvestment Inflation / Other 2020 2023 Source: PMI Financials or estimates 18
Slide 19: Growing Organic Revenues Faster Than SG&A to Fuel Reinvestment
Growing Organic Revenues Faster Than SG&A to Fuel Reinvestment • Target Gross SG&A Efficiencies of ~$1bn by 2023: ⎼ Expect a broadly even split between Commercial and G&A savings • Increased commercial efficiency via scale and digitalization • Offset inflation of 2.5-3% • Invest for Growth: ⎼ Innova
Slide 20: Route to $1Bn Gross SG&A Savings for IQOS Reinvestment
Route to $1Bn Gross SG&A Savings for IQOS Reinvestment 2021-23 FY 2020 Targeted Savings Commercial, R&D ~$(4)bn ~$0.5bn CC ~1/3 RRP (incl. R&D) ~2/3 Of which fixed ~70% Of which variable ~30% G&A, Other ~$(3.4)bn ~$0.5bn Total SG&A $(7.4)bn ~$1.0bn Source: PMI Financials or estimates 20
Slide 21: Commercial Efficiency Allowing Scalability at Lower Cost
Commercial Efficiency Allowing Scalability at Lower Cost • Target ~$0.5 billion in gross savings from commercial costs • Efficiency on commercial and R&D costs through improved ways of working and digitalization • Big initial investments in innovation, product platforms and commercial infrastructure
Slide 22: Commercial Efficiency Allowing Scalability at Lower Cost
Commercial Efficiency Allowing Scalability at Lower Cost Acquisition Retention 2023 Variable Cost per User Reduction Target (vs. 2020) 30% Source: PMI Financials or estimates Note: Marginal Contribution of new user assumed only for half a year. Annualized USD per User. Data based on 2018 RF6. 22
Slide 23: G&A: Gross Savings of ~$0.5 Billion
G&A: Gross Savings of ~$0.5 Billion • Efficiency levers: ⎼ Simplification ⎼ Digitalization ⎼ Standardization ⎼ Shared service centers ⎼ Project-based working • Offset inflation, including IT costs • Support reinvestment and margin expansion 23
Slide 24: Growing Organic Revenues Faster Than SG&A to Fuel Reinvestment
Growing Organic Revenues Faster Than SG&A to Fuel Reinvestment Marketing, Admin. & Research Costs 2020 (as a % of net revenues) 2023 Commercial efficiency G&A Savings Reinvestment Inflation (25.6)% 2020 excludes asset impairment and exit costs ($149 million) offset by a Brazil indirect tax credit $1
Slide 25: Ingredients for Strong Organic Financial Performance
Ingredients for Strong Organic Financial Performance • Volumes broadly stable • Strong organic revenue growth driven by IQOS and pricing • Gross margin organic improvement: ⎼ HTU mix impact ⎼ Combustible & HTU pricing ⎼ Manufacturing & supply chain productivity • Lower SG&A-to-sales ratio: ⎼ Commerc
Slide 26: Capital Allocation
Capital Allocation • Continued strong operating cash flow generation expected: around $35bn over next 3 years at constant currency: ⎼ Annual Capital expenditures around $0.8 billion • Main priority is reinvestment in growth of smoke-free products: ⎼ Continue driving the growth of IQOS ⎼ Possibility
Slide 27: Beyond Nicotine: Additional Growth Potential & Further Acceleration of Transformation
Beyond Nicotine: Additional Growth Potential & Further Acceleration of Transformation • Going ‘Beyond Nicotine’ offers start-up opportunities in high-margin areas • Leveraging our significant capabilities and select partnerships: ⎼ Life sciences, device technology and consumer expertise • Target at
Slide 28: Sustainability at PMI: Fully Integrated Into Corporate Strategy
Sustainability at PMI: Fully Integrated Into Corporate Strategy Unique Better BEST-IN-CLASS Ambition Products ESG 28
Slide 29: Route to Accelerating Change & Driving Impact
Route to Accelerating Change & Driving Impact Corporate Purpose Stakeholder & Business Social Impact & Investor Engagement Transformation Shareholder Returns Performance Reporting 29
Slide 30: Our Performance – Major Sustainability Milestones in 2020
Our Performance – Major Sustainability Milestones in 2020 (P) Product (E) Environment • 12.7 million legal-age smokers switched to IQOS and stopped • CDP Supplier Engagement Leaderboard smoking • CDP Triple-A rated • Pioneering role in Tobacco harm reduction • Validation of new science-based targets
Slide 31: Business Transformation Metrics
Business Transformation Metrics(a) Shifting Our Resources to Deliver a Smoke-Free Future 2015 2016 2017 2018 2019 2020 R&D expenditure (smoke-free/total) 70% 72% 74% 92% 98% 99% Commercial expenditure (Marketing) (smoke-free/total) 8% 15% 39% 60% 71% 76% Net revenues(b) (smoke-free/total) 0.2% 2.7%
Slide 32: Select 2025 Aspirational Goals: Environment & Social
Select 2025 Aspirational Goals: Environment & Social Operating With Excellence Caring for the People We Work With Protecting the Environment Net Zero 100% Achievement of carbon neutrality of PMI’s direct >90% Youth access prevention 100% Percentage of PMI’s portfolio Percentage of contracted operati
Slide 33: Select 2025 Aspirational Goals: Product
Select 2025 Aspirational Goals: Product INNOVATING FOR BETTER PRODUCTS >50% Net revenues smoke-free/total ≥$1 billion Revenue coming from beyond Nicotine business >40m Number of adult smokers >20m Number of adult smokers in globally who switch to PMI non-OECD countries who switch smoke-free products
Slide 34: Conclusion: Rapidly Becoming a Fast-growing and Increasingly Profitable Majority Smoke-Free Company
Conclusion: Rapidly Becoming a Fast-growing and Increasingly Profitable Majority Smoke-Free Company IQOS strong growth, together with price excellence and cost efficiency will deliver in the coming years: + Improved volume dynamics + Fast-growing revenues + Enhanced profitability + Strong profit and
Slide 35: The Next Growth Phase
2021 Delivering a Smoke-Free Future INVESTOR DAY The Next Growth Phase Break 11:35 – 11:45 ET iOS Download Android Download Have you downloaded the new PMI Investor Relations App yet? The free IR App is available to download at the Apple App Store for iOS devices and at Google Play for Android mobil
Slide 36: The Next Growth Phase
2021 Delivering a Smoke-Free Future INVESTOR DAY The Next Growth Phase Questions & Answers 11:45 – 1:15pm ET iOS Download Android Download Have you downloaded the new PMI Investor Relations App yet? The free IR App is available to download at the Apple App Store for iOS devices and at Google Play fo
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