Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (February 2021)
38 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 André Calantzopoulos, Chief Executive Officer Philip Morris International February 10, 2021
Slide 2: 5 Years of Progress on our Smoke-Free Transformation
5 Years of Progress on our Smoke-Free Transformation $6.8 billion in Smoke-Free Net Revenues 24% of total PMI Note: Full-year 2020 Source: PMI Financials or estimates 2
Slide 3: 5 Years of Progress on our Smoke-Free Transformation
5 Years of Progress on our Smoke-Free Transformation 17.6 Launched in million IQOS users, of which 64 markets 12.7 with 80% segment share; focus on million have switched and responsible marketing stopped smoking practices Note: As of December 31, 2020 Source: PMI Financials or estimates 3
Slide 4: 5 Years of Progress on our Smoke-Free Transformation
5 Years of Progress on our Smoke-Free Transformation IQOS the world’s #1 #1 Smoke-free brand position #5 in Combustibles(a) Nicotine brand (a) Measured by market share excl. China and the U.S. Note: As of December 31, 2020 Source: PMI Financials or estimates 4
Slide 5: 5 Years of Progress on our Smoke-Free Transformation
5 Years of Progress on our Smoke-Free Transformation ESG leadership & Pioneering role in tobacco harm reduction 5
Slide 6: Years of Strong Financial Performance Despite Challenges
5 Years of Strong Financial Performance Despite Challenges ‘15- ‘20 organic CAGR of 4.3% Net Revenues $8.1 9.8% EPS billion of RRP investments Total dividends (‘16-’20) (cumulative since 2008) $34bn Source: PMI Financials or estimates. Investments reflect research, product and commercial development
Slide 7: The Next Growth Phase: Key Questions
The Next Growth Phase: Key Questions • Smoke-free category growth outlook; including the obstacles and enablers • Maintaining PMI’s leadership in smoke- free products • Category economics and profitability • Combustibles: strategy and outlook • Capital structure and shareholder returns • Sustainabil
Slide 8: The Next Growth Phase: Our Priorities
The Next Growth Phase: Our Priorities • Aim to reach over 50% of Net Revenues from smoke-free products by 2025 • Sustainable long-term growth nicotine business model which will advance harm reduction and reward shareholders; RRPs still at a very early stage • Driving a new phase of category developm
Slide 9: Growth Targets for 2021-23
Growth Targets for 2021-23 2021–23 Net Revenue Organic Growth CAGR >5% OI Margin Average Annual Organic ≥150bp Increase Adjusted Diluted EPS Organic CAGR >9% Annual HTU Shipment Volumes (in billion)(a) 140-160 Smoke-free % of Net Revenue(a) ~40% Gross Cost Efficiencies ~$2bn (a) By 2023 Note: Growth
Slide 10: The Nicotine Transition to Smoke-Free
The Nicotine Transition to Smoke-Free 2017-19 2020 2021-23 Total Nicotine Industry ~(2)% ~(5)% ~(1)-(2)% Volume Growth CAGR(a) Nicotine Industry by category 2017 2020 2023 Combustible(b) 97% 94% 90% Smoke-Free(c) 3% 6% 10% Heat-not-Burn 1% 3% 7% (a) Includes cigarettes, other tobacco products (OTP),
Slide 11: The Nicotine Industry in 2020
The Nicotine Industry in 2020 Retail Value Cigarettes and OTP(a) Heat-not-Burn E-Vapor 4.5% Nicotine Over the next 5 years we expect retail 1.6% Pouches value CAGRs of approximately: Total (0.1%) Retail • 4% for the total industry Value ~$450 • 25%+ for heat-not-burn billion • 10-15% for e-vapor 94%
Slide 12: The Opportunity for IQOS Remains Vast
The Opportunity for IQOS Remains Vast Legal Age Nicotine Consumers PMI HTU share of … ~10% 6% 3% Var vs. PY +3% +2% +1% ~600m 2.5 trillion units ~1.2 ~250m ~800 trillion 76 billion units 17.6m ~150m billion units units IQOS Users Addressable Addressable Total PMI HTU IQOS’s 64%(a) IQOS Markets Inter
Slide 13: RRPs Are a Different Business
RRPs Are a Different Business • Higher complexity: ⎼ Product: No-combustion, aerosolization, sensory, electronics ⎼ Build new brand equity ⎼ Life sciences: substantiation, pre and post market ⎼ Manufacturing and supply chain ⎼ New consumer journey and route-to-market ⎼ High upfront investment for me
Slide 14: IQOS Portfolio Philosophy: Consistent Approach
IQOS Portfolio Philosophy: Consistent Approach • Establish the best technology for high conversion and fastest growth: Heat-not-burn • Establish the category reference brand: IQOS • Build trust and capability to convert adult smokers • Establish public health credentials of the product • Invest up-f
Slide 15: Portfolio Philosophy: Heat-not-Burn
Portfolio Philosophy: Heat-not-Burn • Heat-not-burn: Over the mid-term we may need 2-3 technologies and respective consumable offers to cover the full spectrum of consumer price segments • Innovation pace: ⎼ Aerosolization engine changes every 4-5 years – IQOS ILUMA ⎼ User experience / interface imp
Slide 16: Portfolio Philosophy: E-vapor & Multi-Category
Portfolio Philosophy: E-vapor & Multi-Category E-Vapor • IQOS VEEV device and consumables with premium positioning • E-vapor focus is different: Build differentiation in existing category and user loyalty, rather than primarily building new category • Audiences: Adult smokers, exclusive e-vapor user
Slide 17: IQOS Economics: Significant Profit Growth
IQOS Economics: Significant Profit Growth • We aim to approximately double our HTU volumes by 2023 • Significant expansion in net revenue per unit • IQOS price productivity significantly above cigarettes • Limited further manufacturing investments: ⎼ Existing production capacity up to 150bn HTUs, ea
Slide 18: IQOS VEEV Economics
IQOS VEEV Economics • Fixed investments limited; already have IQOS commercial platform • Majority of costs are variable / volume-related • Differentiated experience under IQOS brand • Premium positioning, targeting higher conversion and brand loyalty • Premium e-vapor gross margins approximately 1.6
Slide 19: Why Tobacco Harm Reduction Makes Sense
Why Tobacco Harm Reduction Makes Sense • Current fiscal and regulatory measures are not accelerating cessation • Second Pillar of Harm Reduction is required, applied in many other industries • Scientifically-substantiated products can switch consumers out of cigarettes much faster than restrictive m
Slide 20: The Positive Public Health Impact of RRPs
The Positive Public Health Impact of RRPs • Nicotine is not the real problem – Combustion is: ⎼ Nicotine is addictive, but does not directly cause disease ⎼ Certain NGOs propagate confusion on nicotine leading to consumer misunderstanding 20
Slide 21: The Positive Public Health Impact of RRPs
The Positive Public Health Impact of RRPs • Nicotine is not the real problem – Combustion is: ⎼ Nicotine is addictive, but does not directly cause disease ⎼ Certain NGOs propagate confusion on nicotine leading to consumer misunderstanding “Nicotine, though not benign, is not directly responsible for
Slide 22: The Positive Public Health Impact of RRPs
The Positive Public Health Impact of RRPs • Nicotine is not the real problem – Combustion is: ⎼ Nicotine is addictive, but does not directly cause disease ⎼ Certain NGOs propagate confusion on nicotine leading to consumer misunderstanding “Nicotine, though not benign, is not directly responsible for
Slide 23: Acceleration in Decline of Combustible Category in Japan
Acceleration in Decline of Combustible Category in Japan Combustible Industry Change (in %) 2013 2014 2015 2016 2017 2018 2019 2020 (2.0) (3.4) (2.1) (4.6) (6.3) (7.9) (12.9) (11.8) Heat-not-Burn Category Share of Total Market (in %) 22.7 25.8 20.6 11.7 - - 0.1 2.9 2013 2014 2015 2016 2017 2018 2019
Slide 24: Japan: COPD Exacerbation Hospital Admissions Trending Down
Japan: COPD Exacerbation Hospital Admissions Trending Down COPD Exacerbation Hospitalization Rate Over Time MDV Hospital Records Post-HTP $0.00 5 National Launch Pre-HTP $0.00 4 Prediction from Pre-HTP data (per 10,000 Hospitalizations) COPD Exacerbation Rate $0.00 3 $0.00 2 (a) (50)% $0.00 1 $0.00
Slide 25: Why There is Opposition
Why There is Opposition • Dogmatic opposition fosters confusion of both consumers and regulators: ⎼ Ideology, politics and retribution ⎼ Legitimate concerns on unintended consequences (youth nicotine use) ⎼ Lavishly-funded special interest groups ⎼ NGOs afraid to lose their funding or be stigmatized
Slide 26: Differentiated Regulation Key Enabler for Acceleration of Category
Differentiated Regulation Key Enabler for Acceleration of Category by Fully Switching Smokers • Smoke-free products make perfect sense for public health; absence of combustion is a fundamental criteria • Consumer confidence, knowledge, elimination of confusion • Responsible industry practices • Acce
Slide 27: Preventing Unintended Use of Smoke-Free Products
Preventing Unintended Use of Smoke-Free Products is Fundamental to Building a Sustainable Business • Responsible marketing practices: we sell only to legal-age smokers • Age verification for all transactions through our own assets, physical and online • Age limits for purchase and point-of-sale enfo
Slide 28: Driving Change Through Stakeholder Engagement
Driving Change Through Stakeholder Engagement • Our key stakeholder constituencies and an evidence-based discussion are fundamental to maximizing harm reduction • Engaging with civil society, regulators, NGOs, consumer organizations to drive measures which can accelerate the shift to smoke-free prod
Slide 29: Combustibles: Philosophy and Outlook
Combustibles: Philosophy and Outlook • Combustible portfolio sufficiently-invested; small possible incrementality given COVID-related impacts: ⎼ Focus on price gap management ⎼ Grow share of low-price segment ⎼ Continue progress on SKU consolidation, fewer & better new product launches • Assume nega
Slide 30: Excise Structures Becoming More Specific Over Time
Excise Structures Becoming More Specific Over Time Specific vs. Ad Valorem Average Excise Tax Components, Jan ‘21(a) • Broadly rational 2021 excise outlook 18% • Governments enacting more specific tax structures Ad Valorem 45% over time; benefits of revenue predictability and effectiveness 82% • Pri
Slide 31: Strengthening Our Organization For The Next Growth Phase
Strengthening Our Organization For The Next Growth Phase • New Skills: ⎼ Senior management team: Enriched with 45% external talent in last 3 years ⎼ Over 20% of senior leaders and executives are new expert hires; technology, consumer, digital and life sciences • New Ways of Working: ⎼ Project-based,
Slide 32: Why We Will Continue to Lead the Smoke-Free Category
Why We Will Continue to Lead the Smoke-Free Category • Internal Innovation, supplemented by partnerships • First mover advantage & highest brand equity • Existing user base and commercial engine to continue acquisition • Natural share gains from at least maintaining share in RRPs PMI International S
Slide 33: Going Beyond Nicotine to Drive Additional Growth
Going Beyond Nicotine to Drive Additional Growth • We are already becoming a different company with our transformation into a majority smoke-free business • Our expertise in life sciences, inhalation technology, natural ingredients, commercial deployment and ability to change consumer behavior can t
Slide 34: Beyond Nicotine: Initial Areas of Focus
Beyond Nicotine: Initial Areas of Focus Addressable Market Example areas of (Initial focus areas) opportunity 2025 Sleep Aid Botanicals $29bn Energy & Focus Calm & Control Respiratory Acute conditions Drug $36bn Delivery Side-effect reduction TOTAL $65bn Source: PMI Estimates 34
Slide 35: Sustainability at PMI
Sustainability at PMI - Defined Corporate Purpose: Statement of Purpose issued by Board of Directors - Rigorous Materiality: Establish sustainability priorities Transforming for a sustainable smoke-free - 2025 Roadmap with KPIs future - Annual Integrated reporting Source: 2019 Integrated Report 35
Slide 36: First Strategic Pillar: Innovating For Better Products
First Strategic Pillar: Innovating For Better Products (1) Developing better / LESS HARMFUL ALTERNATIVES to cigarettes (2) Broaden ACCESS for adult smokers to smoke-free products that are scientifically substantiated (3) Purposefully working to PHASE OUT CIGARETTES (4) Developing products that go BE
Slide 37: Smoke-Free Future is Within Reach
Smoke-Free Future is Within Reach • With the right regulatory frameworks, dialogue and support from civil society, we believe cigarette sales can end within 10 to 15 years in many countries • We are becoming a different company with our transformation into a majority smoke-free business, aiming for
Slide 38: The Next Growth Phase
2021 Delivering a Smoke-Free Future INVESTOR DAY The Next Growth Phase Break 09:25 – 09:35 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
Philip Morris International — Investor Day (February 2021) on 6ix