Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (September 2016)
44 slides from Philip Morris International's investor day presentation, Sep 29, 2016
Slide 1: Investor Day, Lausanne, September 29, 2016
Investor Day Lausanne, September 29, 2016 André Calantzopoulos Chief Executive Officer
Slide 2: PMI Strategic Priorities
PMI Strategic Priorities ● Leverage the strengths of our existing business to continue leading the combustible product category and deliver against our current growth algorithm ● RRPs to ultimately replace cigarettes to the benefit of all stakeholders. PMI undisputed leadership of new category: - RR
Slide 3: Agenda
Agenda ● 2016 EPS Guidance Update ● Growth Algorithm and Drivers: - Combustible Portfolio - RRPs Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes 3
Slide 4: PMI Results (2010 – 2015)
PMI Results (2010 – 2015) 2010 – 2014 2014 – 2015 2010 – 2015 Total Industry Volume (1.8)% (2.4)% (1.9)% PMI SoM +0.3pp +0.2pp +0.5pp PMI Cigarette Volume (1.2)% (1.0)% (1.2)% Net Revenues 4.6 % 5.8 % 4.9 % Adjusted OCI 6.3 % 6.6 % 6.3 % Adjusted Diluted EPS 12.5% 12.0% 12.4% Note: Industry volume e
Slide 5: 2016 EPS Guidance
2016 EPS Guidance ● Revised PMI 2016 reported diluted EPS guidance is $4.53 to $4.58, versus prior guidance of $4.45 to $4.55 provided July 19, 2016: - Implies an increase of approximately 10.5% to 11.5% versus 2015 EPS of $4.42, excluding an unfavorable currency impact of approximately 35 cents at
Slide 6: Growth Algorithm
Growth Algorithm ● Current growth algorithm to remain unchanged until 2018: - Organic volume flat to -1% - Currency-neutral net revenues growth targets of 4% to 6% - Currency-neutral adjusted OCI growth targets of 6% to 8% - Currency-neutral adjusted diluted EPS growth targets of 8% to 10% ● Targets
Slide 7: Excellent Combustible Fundamentals
Excellent Combustible Fundamentals ● Improving cigarette industry volume/mix trend ● Broad and balanced geographic footprint with expansion opportunities ● Market share growth momentum ● Superior brand portfolio, led by Marlboro ● Strong pricing power ● Limited cost increases ● Highly motivated and
Slide 8: Cigarettes Industry Volume Trend Detail and Outlook
Cigarettes Industry Volume Trend Detail and Outlook Cigarettes Industry Volume Dynamics % of 2015 % of 2015 CAGR Variance H1 Variance 2017+ Market Group PMI Volume Industry Volume 2010 – 2014 2014 – 2015 2015 – 2016 Outlook EU(a) 24% 18% (4.9)% (0.8)% 0.4% (2)-(3)% Korea 2 2 (0.7) (23.6) 20.9 (1)-(2
Slide 9: Cigarettes Industry Volume Trend Mix
Cigarettes Industry Volume Trend Mix 2015 PMI Net Revenues ($ / thousand) 39.1 PMI Total Cigarettes Industry Volume Dynamics $29.6 23.2 CAGR Variance 2017+ Geography 2010 – 2014 2014 – 2015 Outlook OECD Non-OECD Total OECD (4.0)% (2.6)% (2.0)-(3.0)% 2015 PMI SoM, % 36.9% Total Non-OECD (0.7)% (2.5)%
Slide 10: PMI Cigarette Market Share Growth
PMI Cigarette Market Share Growth PMI OECD PMI Non-OECD (excl. the Philippines) Share of Market (%) Share of Market (%)(a) Average growth per year: +0.4pp Average growth per year: +0.3pp 36.9 35.1 Other Brands 10.5 11.8 22.4 20.8 Other Selected 11.7 12.2 Brands 23.3 International 26.4 Brands Selecte
Slide 11: Leading and Growing Segment Shares
Leading and Growing Segment Shares 2015 PMI Cigarette Industry Segment Shares (%) Growth vs. 2010: +1.7pp +0.8pp +1.7pp +6.1pp 51.5 34.2 33.4 32.9 PMI Share of Total Cigarette Industry: 28.7% Premium (a) Menthol / Capsules (b) Low Tar (c) Slims (d) vs. Industry Segment Trend vs. 2010: (1.5)% 6.2% (0
Slide 12: Balanced Geographic Footprint: Main Competitor Cigarette Shares by Region
Balanced Geographic Footprint: Main Competitor Cigarette Shares by Region 2015 Regional Market Shares (%) EU EEMA Asia LA&C Total PMI 38% 26% 25% 39% 29% BAT 20% 22% 17% 48% 22% JT 18% 21% 12% 3% 16% IMB 17% 9% 2% ̶ 7% Others 7% 22% 44% 10% 26% 784 billion units Note: Excluding China and the U.S. So
Slide 13: Strong Favorable Pricing Variances
Strong Favorable Pricing Variances Annual Pricing Variance as a % of PY Net Revenues Average (2010-2015) 7.0% 6.9% 6.6% 6.6% 6.4% 6.1% ~6% of Net 5.7% Revenues(a) 2010 2011 2012 2013 2014 2015 2016 Forecast (a) Average net revenues 2010-2015, excluding excise tax Source: PMI Financials or estimates
Slide 14: Balanced Pricing
Balanced Pricing Pricing Contribution OECD / Non-OECD(a) Pricing Contribution by Region (2010 – 2015) (2010 – 2015) LA&C Asia 18% 29% 41% OECD 59% EU 19% Non-OECD 34% EEMA (a) The split of pricing contribution excludes duty free Note: Excluding China, the U.S. pricing variances for the period 2010 t
Slide 15: Average PMI Retail Sales Price per Pack (2010 – 2015)
Average PMI Retail Sales Price per Pack (2010 – 2015) PMI Average Retail Sales Price Evolution ($ / pack) Taxes and Trade Margin CAGR(a) 2010 – 2015 Net Revenues $4.95 5.0% CAGR(a) 2010 – 2015 $3.00 6.3% 84% 5.2% CAGR(a) 2010 – 2015 80% 6.3% $1.46 15.5% 67% 17.7% 20% 6.3% 16% 3.9% 33% 11.6% Total PM
Slide 16: Cost Evolution
Cost Evolution ● Anticipating total cost increases of approximately 1% for 2016 - Net expense reductions and productivity in excess of $300 million on combustible business - More than offset by higher incremental costs for RRPs ● Maintaining target of total cost increases of 1% to 3% going forward -
Slide 17: Current OCI Growth Algorithm and Sensitivities
Current OCI Growth Algorithm and Sensitivities 2.0% 6.0 - 8.0% OCI Impact(b) 4.0 - 6.0% 6.0 - 6.5% $ % Sensitivity million Growth (2.0)-(2.5)% Industry 0.5 - 1.0% 0.5% / (0.5%) $100 0.9% Volume Cigarette SoM / Other Pricing Net Operating OCI SoM 0.1pp / (0.1pp) 70 0.6 Industry Revenues Leverage Volu
Slide 18: Business Model Evolution
Business Model Evolution Parameter Combustible Products Long-term outlook based on societal trends, Total Industry Volumes demographics and pricing / taxation Regulation Well-defined, relatively clear trajectory Taxation / Trade Margins Generally predictable and structurally stable Straightforward c
Slide 19: Business Model Evolution
Business Model Evolution Parameter Combustible Products RRPs Long-term outlook based on societal trends, Speed of conversion difficult to predict, but Total Industry Volumes demographics and pricing / taxation exponential upside potential New and emerging territory, with potential to Regulation Well
Slide 20: Reduced-Risk Products: Key Topics
Reduced-Risk Products: Key Topics ● Harm Reduction and Regulation Principles ● Portfolio Approach ● Commercialization Update ● Actions Required to Accelerate Conversion ● Underlying Economics ● Strategic and Organizational Implications Note: Reduced-Risk Products ("RRPs") is the term the company use
Slide 21: Harm Reduction: Illustrative Disease Risk Reduction Impact of RRPs
Harm Reduction: Illustrative Disease Risk Reduction Impact of RRPs vs. Current Regulatory Approach Conventional Cigarettes Risk of Disease 10 20 30 40 50 60 70 80 90 100 Age, Years Current and Projected smoking population under current regulatory regimes Note: Reduced-Risk Products ("RRPs") is the t
Slide 22: Harm Reduction: Illustrative Disease Risk Reduction Impact of RRPs
Harm Reduction: Illustrative Disease Risk Reduction Impact of RRPs vs. Current Regulatory Approach Conventional Cigarettes Health Benefit under Risk of Disease WHO ideal scenario 10 20 30 40 50 60 70 80 90 100 Age, Years Current and Projected WHO impact under smoking population under “ideal” regulat
Slide 23: Harm Reduction: Illustrative Disease Risk Reduction Impact of RRPs
Harm Reduction: Illustrative Disease Risk Reduction Impact of RRPs vs. Current Regulatory Approach Conventional Cigarettes Health Benefit under Risk of Disease WHO ideal scenario 10 20 30 40 50 60 70 80 90 100 Age, Years Current and Projected WHO impact under Time of Cessation smoking population und
Slide 24: Harm Reduction: Illustrative Disease Risk Reduction Impact of RRPs
Harm Reduction: Illustrative Disease Risk Reduction Impact of RRPs vs. Current Regulatory Approach Conventional Cigarettes Health Benefit under Risk of Disease WHO ideal scenario Additional Health Benefit due to full adoption of RRPs 10 20 30 40 50 60 70 80 90 100 Age, Years Current and Projected WH
Slide 25: RRPs: Population Harm Reduction Factors
RRPs: Population Harm Reduction Factors ● We recognize change in population harm is a multi-dimensional equation: ● Pre-market studies allow us to estimate these with varying degrees of confidence, but robust post-market surveillance will be needed to confirm the overall impact: - Post-market survei
Slide 26: Harm Reduction: Illustrative Individual Risk Drivers
Harm Reduction: Illustrative Individual Risk Drivers A B D E G C F Reduction in Exposure 0% 100% Conventional Never A B iQOS C E-Vapor D P3 E NRT F Cessation G Cigarettes Smoked E-Vapor NRT / (current Conventional Cessation versions) iQOS Cigarettes Probability of Adoption by Current Smokers 0% 100%
Slide 27: RRP Portfolio Approach to Maximize Conversion
RRP Portfolio Approach to Maximize Conversion and Leverage Efficiencies and Economies of Scale Platforms / Attributes P1 P2 P3 P4 Tobacco-containing Yes Yes No No Electronic / Heat Source Electronic Carbon Tip Electronic Non-electronic Ritual Comparability Medium High Low Low Taste Satisfaction Medi
Slide 28: RRP Portfolio Approach to Maximize Conversion
RRP Portfolio Approach to Maximize Conversion and Leverage Efficiencies and Economies of Scale Platforms / Linkages P1 P2 P3 P4 Common Branding Common Primary Process Shared tobacco processing / equipment Common Electronic Heating Device (mid-term goal) Common Digital Platforms / Ecosystems Note: Re
Slide 29: RRPs: iQOS Commercialization Progress
RRPs: iQOS Commercialization Progress ● Nearly 1 million adult smokers have been converted to iQOS to-date Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes Sourc
Slide 30: RRPs: iQOS Commercialization Progress
RRPs: iQOS Commercialization Progress ● Nearly 1 million adult smokers have been converted to iQOS to-date ● Conversion rates are increasing due to enhanced consumer communication and engagement: - Consumer understanding and initial commitment to the product are critical - Requires appropriate forum
Slide 31: RRPs: iQOS Commercialization Progress
RRPs: iQOS Commercialization Progress ● Nearly 1 million adult smokers have been converted to iQOS to-date ● Conversion rates are increasing due to enhanced consumer communication and engagement: - Consumer understanding and initial commitment to the product are critical - Requires appropriate forum
Slide 32: RRPs: iQOS Commercialization Progress
RRPs: iQOS Commercialization Progress ● Nearly 1 million adult smokers have been converted to iQOS to-date ● Conversion rates are increasing due to enhanced consumer communication and engagement: - Consumer understanding and initial commitment to the product are critical - Requires appropriate forum
Slide 33: RRPs: iQOS Commercialization Progress
RRPs: iQOS Commercialization Progress ● Nearly 1 million adult smokers have been converted to iQOS to-date ● Conversion rates are increasing due to enhanced consumer communication and engagement: - Consumer understanding and initial commitment to the product are critical - Requires appropriate forum
Slide 34: iQOS Manufacturing Capacity to Support Expansion
RRPs: iQOS Commercialization Progress – Manufacturing Capacity to Support Expansion ● Manufacturing capacity expanding to address current constraints and future surges: - To be able to produce at least 32 billion HeatSticks units during 2017 with year-end installed capacity of 50 billion units - Abi
Slide 35: RRPs: iQOS Commercialization Progress (Cont'd)
RRPs: iQOS Commercialization Progress (Cont’d) ● Outside of Japan, other launch markets Illustrative Growth Trajectories showing equally promising results: RRP SoM - Conversion rates Scenario 1 - Device penetration Scenario 2 Scenario 3 - HeatSticks offtake trends ● Initial adoption necessarily line
Slide 36: RRPs: Accelerating Consumer Conversion to iQOS
RRPs: Accelerating Consumer Conversion to iQOS ● Committed to achieving wide-spread conversion to RRPs Note: Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking cigarettes Source: P
Slide 37: RRPs: Accelerating Consumer Conversion to iQOS
RRPs: Accelerating Consumer Conversion to iQOS ● Committed to achieving wide-spread conversion to RRPs ● Regulators and other stakeholders have a critical role to play: - Establishing regulatory and fiscal frameworks based on the principle of harm reduction - Consumer Demand Drivers (e.g., reduced e
Slide 38: RRPs: Accelerating Consumer Conversion to iQOS
RRPs: Accelerating Consumer Conversion to iQOS ● Committed to achieving wide-spread conversion to RRPs ● Regulators and other stakeholders have a critical role to play: - Establishing regulatory and fiscal frameworks based on the principle of harm reduction - Consumer Demand Drivers (e.g., reduced e
Slide 39: RRPs: Regulatory Submissions
RRPs: Regulatory Submissions ● On-track for FDA submissions: - Modified Risk Tobacco Product Application (MRTPA) later this year - Premarket Tobacco Product Application (PMTA) in early 2017 ● Tobacco Product Directive (TPD) submissions in a number of EU markets completed ● Focus on obtaining regulat
Slide 40: RRPs: iQOS Underlying Financial Drivers
RRPs: iQOS Underlying Financial Drivers ● Favorable unit net revenues for HeatSticks: 2016 Forecast - Up-trading potential, especially initially RRP Cost Composition - Reasonable ratio of own consumers vs. competitors Other Costs - Tax classification R&D ● HeatSticks production cost broadly in-line
Slide 41: iQOS HeatSticks – Incremental Net Revenues Potential
RRPs: iQOS HeatSticks – Incremental Net Revenues Potential Net Revenues ($ million per billion units)(a) Cigarettes HeatSticks with SoM uplift(b) PMI Average PMI Average PMI Premium Pricing Cigarette Pricing Cigarette Pricing $66 $57 +$30 +$21 $36 Cannibalization Rate (%): ̶ 40% 40% % Increase vs. B
Slide 42: RRPs: Strategic and Organizational Implications
RRPs: Strategic and Organizational Implications ● Ongoing success in RRPs will continue to require new ways of working and adjustments to our business model ● We will increasingly shift resources from our conventional business to RRPs over time, mindful that conventional represents over 100% of our
Slide 43: Investor Day, Lausanne, September 29, 2016
Investor Day Lausanne, September 29, 2016
Slide 44: Reconciliations of non-GAAP measures
Reconciliations of non-GAAP measures included in this presentation to the most comparable GAAP measures are provided on our website at: www.pmi.com/2016InvestorDay/RecSlides Glossary of Terms: www.pmi.com/2016InvestorDay/Glossary
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