Philip Morris International Inc · NYSE:PM
Philip Morris International — Q4 2014 Earnings Presentation
42 slides from Philip Morris International's earnings presentation, Feb 5, 2015
Slide 1: 2014 Fourth-Quarter and Full-Year Results
2014 Fourth-Quarter and Full-Year Results February 5, 2015 Exhibit 99.3
Slide 2: Introduction
2 Introduction ● Unless otherwise stated, we will be talking about results for the fourth-quarter and full-year 2014 and comparing them to the same periods in 2013 ● A glossary of terms, data tables showing adjustments to net revenues and OCI, for currency and acquisitions, asset impairment, exit an
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: 2014 Results: Exceeded Our Guidance in an Investment Year
4 (a) As provided in November 2014 (b) Excluding currency Source: PMI Financials ● Substantial progress in addressing specific challenges in key markets ● Successfully invested behind a number of strategic initiatives: - Pilot launches of iQOS - Roll-out of Marlboro 2.0 Architecture - Optimization o
Slide 5: Q4, 2014: Challenging Quarter as Anticipated
5 Q4, 2014: Challenging Quarter as Anticipated ● Results below our exceptionally strong performance in Q4, 2013: - Pattern of expenses and timing of key investments skewed towards Q4, 2014 ● Organic cigarette volume declined by 3.8% ● Net revenues increased by 1.1%, excluding currency and acquisitio
Slide 6: 2015 EPS Guidance
6 (a) Also excluding acquisitions Source: PMI Financials and PMI forecasts 2015 EPS Guidance ● Strong business fundamentals driving confidence in our 2015 currency-neutral annual growth targets: - 4% to 6% in net revenues(a) - 6% to 8% in adjusted OCI(a) ● Reported diluted EPS guidance for 2015 is $
Slide 7: Impact of Currency on 2015 EPS Guidance
7 ● $1.15 of unfavorable currency in our 2015 guidance, at prevailing exchange rates, is due primarily to: - Russian Ruble: 42% - Euro: 13% - Japanese Yen: 11% - Indonesian Rupiah: 5% ● We have currently hedged approximately 60% of our 2015 forecast sales to Japan, which, at prevailing exchange rate
Slide 8: EU Region: Moderation in Cigarette Industry Volume Decline
8 EU Region: Moderation in Cigarette Industry Volume Decline Source: PMI estimates and PMI forecasts ● Subdued performance of the e- vapor category ● Less out-switching to fine cut products ● Reduction in illicit trade in several markets ● Lower-than-historical average pricing, mainly in Italy ● For
Slide 9: EU Region: Strong Share Growth Momentum
9 Source: PMI estimates 1.9 1.8 1.0 0.9 0.8 0.4 0.3 Poland Italy EU Region Spain France Germany UK EU Region: Strong Share Growth Momentum 2014 PMI Cigarette Market Share Growth vs. PY (pp) 40.1% 54.9% 39.8% 32.1% 41.0% 36.6% 7.6% Market Shares
Slide 10: EU Region: Strong Share Growth Momentum
10 EU Region: Strong Share Growth Momentum Cigarette Market Shares (%) 19.0 19.3 2013 2014 6.9 7.1 2013 2014 4.4 5.5 2013 2014 Marlboro L&M Chesterfield +0.2pp +1.1pp +0.3pp Source: PMI estimates
Slide 11: EU Region: Target Return to Profit Growth in 2015
11 EU Region: Target Return to Profit Growth in 2015 ● Target low single-digit adjusted OCI growth target, excluding currency and acquisitions, in 2015 ● Rational excise tax environment ● Leading brand portfolio ● Recent cigarette price increases in key markets such as Italy, Poland and Spain Source
Slide 12: Italy: Improved Excise Tax Structure
12 Italy: Improved Excise Tax Structure ● New excise tax structure for cigarettes and RRPs effective as of January 2015 ● PMI cigarette market share grew by 1.8 points to 54.9% in 2014 ● In January, we increased cigarette prices by EUR 0.20/pack across our portfolio 25.9 25.2 25.9 25.1 3.5 9.2 3.4 1
Slide 13: Japan: Market Share Successfully Stabilized
13 Note: Translation from Japanese: "Crush the Conventions of Menthol! Marlboro Fusion Blast. Exotic Fresh. World First Taste" Source: Tobacco Institute of Japan and PMI forecasts Japan: Market Share Successfully Stabilized ● Market share stabilized at 25.9% in 2014, driven by: - Be Marlboro marketi
Slide 14: Indonesia: Sequential Share Growth in 2014
14 Note: Whites stands for non-kretek cigarettes Source: PMI estimates and PMI forecasts 5.3 5.2 5.1 5.0 21.0 21.7 22.4 22.7 8.3 7.8 7.7 7.6 34.6 34.7 35.2 35.3 Q1 Q2 Q3 Q4 Indonesia: Sequential Share Growth in 2014 ● Cigarette industry volume grew by 1.9% in 2014 to 314 billion units ● Sequential s
Slide 15: Philippines: Higher Prices and Resilient Consumption
15 Note: Stick price points represent recommended retail selling price or estimates. Pack designs are for illustrative purposes only Source: PMI estimates Philippines: Higher Prices and Resilient Consumption January 2014 October 2014 December 2014 Current 3.00 2.00 1.50 1.25 1.25 3.00 3.00 2.00 2.00
Slide 16: Korea: Disruptive 2015 Excise Tax Increase
16 1,324 2,914 Previous Current Note: 20 cigarettes per pack Source: PMI forecasts Korea: Disruptive 2015 Excise Tax Increase ● Total excise tax increase of 120% as of January 1, 2015 ● Increased prices of Marlboro and Parliament by KRW 1,800/pack, or approximately 67% ● Forecast 2015 underlying cig
Slide 17: Russia: Exceptional Performance in 2014
17 Note: MRSP stands for Maximum Retail Selling Price Source: Nielsen, PMI estimates, PMI Financials and PMI forecasts 6.5 7.5 3.4 3.7 2.8 3.1 26.1 27.1 2013 2014 Russia: Exceptional Performance in 2014 ● Share up by 1.0 point to 27.1% in 2014: - Strong performances of Parliament, L&M and Bond Stree
Slide 18: Marlboro: Regional Market Share Momentum
18 Marlboro: Regional Market Share Momentum (a) Excluding China Source: PMI estimates 19.0 19.3 2013 2014 Marlboro Market Shares (%) 6.1 6.1 2013 2014 7.2 7.5 2013 2014 15.0 15.0 2013 2014 ̶ pp +0.3pp ̶ pp +0.3pp EU Asia(a) EEMA LA&C
Slide 19: Strong Performance of Parliament, Chesterfield and L&M in 2014
19 Note: Excluding China. Translation from Polish: "Now in Multiple Formats". Translation form German: "Foreign & Friends" Source: PMI Financials ● Parliament cigarette volume grew by 5.6% to 47.2 billion units ● Chesterfield cigarette volume grew by 22.6% to 42.1 billion units ● L&M cigarette volum
Slide 20: Robust Pricing In Line With Historical Annual Average
20 Source: PMI Financials and PMI forecasts 1.8 1.9 2008-2013 Average 2014 Robust Pricing In Line With Historical Annual Average ● Pricing variance of $1.9 billion in 2014, in line with our historical annual average, driven by the EEMA and Latin America & Canada Regions ● We have implemented or anno
Slide 21: Productivity and Cost Savings Programs
21 Productivity and Cost Savings Programs ● In 2014, we exceeded our $300 million annual gross productivity and cost savings target ● In 2015, we expect the total company cost base to grow by approximately 1%, excluding RRPs and currency, thanks to our ongoing productivity and cost savings programs
Slide 22: RRPs: Promising Initial Performance of iQOS
22 RRPs: Promising Initial Performance of iQOS ● Introduced in November 2014 in Nagoya, Japan, and Milan, Italy ● Both adult smoker and trade responses are very positive ● Performance is in line with, or exceeds, key indicators that we established Note: Reduced-Risk Products ("RRPs") is the term we
Slide 23: RRPs: iQOS Pilot Launch in Japan
23 RRPs: iQOS Pilot Launch in Japan ● Total iQOS device sales are well-ahead of projections and growing steadily every week ● Awareness currently estimated at approximately 34% amongst adult smokers ● Adult smoker profiles are on target iQOS Kit JPY 6,980 Marlboro HeatSticks JPY 460/pack Note: Reduc
Slide 24: RRPs: iQOS Pilot Launch in Italy
24 RRPs: iQOS Pilot Launch in Italy ● As expected, iQOS device penetration slower due to a limited selling channel and marketing restrictions ● Awareness currently estimated at approximately 16% amongst adult smokers iQOS Kit EUR 70 Marlboro HeatSticks EUR 5/pack Milan Note: Reduced-Risk Products ("
Slide 25: RRPs: 2015 Outlook for iQOS
25 RRPs: 2015 Outlook for iQOS ● Commencing national expansion in Japan and Italy, as well as pilot or national launches in other markets, later this year ● Launches will be supported by a new release of iQOS that incorporates feedback from the pilot markets and features a variety of colors and text
Slide 26: We Continued to Generously Reward Our Shareholders in 2014
26 We Continued to Generously Reward Our Shareholders in 2014 ● Increased our dividend by 6.4% last September to $4.00 per share on an annualized basis: - Represents total increase since 2008 of approximately 117% - Equates to dividend yield of 5.0% as of last Friday’s closing share price ● Paid $6.
Slide 27: Rewarding Our Shareholders: 2015 Target
27 Rewarding Our Shareholders: 2015 Target ● Currently operating in a debt level corridor that is close to the maximum that would still allow us to maintain our single-A credit rating ● Aim to return around 100% of our free cash flow to our shareholders ● Remain committed to managing our cash flow p
Slide 28: Conclusion: Confidence in Business Outlook Entering 2015
28 (a) Also excluding acquisitions Source: PMI Financials, PMI estimates and PMI forecasts Conclusion: Confidence in Business Outlook Entering 2015 ● Delivered a solid currency-neutral performance in 2014 ● Strong fundamentals and positive momentum, despite significant currency headwind ● Leading br
Slide 29: Questions & Answers
2014 Fourth-Quarter and Full-Year Results Questions & Answers
Slide 30: Glossary and Reconciliation of Non-GAAP Measures
Glossary and Reconciliation of Non-GAAP Measures
Slide 31: Glossary: General Terms
31 Glossary: General Terms ● PMI stands for 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 "
Slide 32: Glossary: Financial Terms
32 Glossary: Financial Terms ● Net revenues exclude excise taxes ● Adjusted OCI is defined as reported OCI adjusted for asset impairment, exit and other costs ● EPS stands for Earnings per Share ● Free cash flow is defined as net cash provided by operating activities less capital expenditures ● Oper
Slide 33: Glossary: Industry/Market Terms
33 Glossary: Industry/Market Terms ● EEMA refers to the Eastern Europe, Middle East & Africa Region ● EU refers to the European Union Region ● LA&C refers to the Latin America & Canada Region ● Fine cut includes Make-Your-Own (MYO), MYO volume tobacco and Roll-Your- Own (RYO) ● Illicit trade refers
Slide 34: Glossary: Reduced-Risk Products
34 Glossary: Reduced-Risk Products ● E-vapor products are products that generate nicotine containing aerosols without combustion ● HeatStick tobacco sticks are novel patented tobacco products specifically designed by PMI for use with PMI’s iQOS system. The tobacco in the HeatStick is heated by our i
Slide 35: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS (Full Year)
35 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) 2014 2013 % Change Reported Diluted EPS 4.76$ 5.26$ (9.5)%
Slide 36: Reconciliation of Reported Diluted EPS, excluding Currency (Full Year)
36 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) 2014 2013 % Change Reported Diluted EPS 4.76$ 5.26$ (9.5)% Less: Currency impact (0
Slide 37: Adjustments for the Impact of Currency and Acquisitions
37 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) Reported Net Revenues Less Excise Taxes Reported Net Revenues excluding Excise Taxes Less C
Slide 38: Reconciliation of Reported to Adjusted Operating Companies Income
38 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 E
Slide 39: Reconciliation of Diluted EPS to Adjusted Diluted EPS (Q4 2014)
39 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) 2014 2013 % Change Reported Diluted EPS 1.03$ 1.24$ (16
Slide 40: Reconciliation of Reported Diluted EPS, excluding Currency (Q4 2014)
40 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) 2014 2013 % Change Reported Diluted EPS 1.03$ 1.24$ (16.9)% Less: Currency impac
Slide 41: Reconciliation of Diluted EPS to Adjusted Diluted EPS (Q4 2013)
41 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) 2013 2012 % Change Reported Diluted EPS 1.24$ 1.25$ (0.
Slide 42: 2014 Fourth-Quarter and Full-Year Results
2014 Fourth-Quarter and Full-Year Results February 5, 2015
Philip Morris International — Q4 2014 Earnings Presentation on 6ix