Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (June 2010)
84 slides from Philip Morris International's investor day presentation, Jun 23, 2010
Slide 1: Investor Day – LA & Canada Region
Investor Day – LA & Canada Region Lausanne, June 23, 2010 James R. Mortensen President, Latin America & Canada Region Philip Morris International
Slide 2: Agenda
Agenda ● LA&C Region overview ● LA&C performance ● Regional strategies ● Key LA&C markets: highlights ● Conclusion ● Q&A 2
Slide 3: LA&C Region – Overview
LA&C Region – Overview 2009 ● 39 Markets ● Population: 600 mio ● Industry volume: 289 bio units ● PMI shipments: 104 bio units ● 14 PMI cigarette factories ● 12,000 + employees Factories Source: UN Department of Economics and Social Affairs (population) and PMI Financials 3
Slide 4: LA&C Region Contribution to 2009 PMI Results
LA&C Region Contribution to 2009 PMI Results Cigarette Shipment Volume LA&C 12% Adjusted Net Revenues Operating Companies Income(a) LA&C LA&C 8% 11% (a) Excludes one-time charges relating to the Colombian Cooperation Agreement in 2009 of $135 million Source: PMI Financials 4
Slide 5: Industry Volume
Industry Volume 2007- 2009 CAGR: -3.7% (billion units) 320 312 306 289 200 2007 2008 2009 Source: PMI estimates 5
Slide 6: Major Markets
Major Markets Industry Volume in 2009 (billion units) Brazil 95.4 Argentina 42.4 Mexico 42.4 Top 5 Markets Canada 29.6 ~ 227.4 billion units ~ 79% of Industry Volume Colombia 17.6 Chile 14.0 Venezuela 9.7 Top 10 Markets Peru 3.4 ~ 259.2 billion units ~ 90% of Industry Volume Ecuador 2.5 Costa Rica 2
Slide 7: Regional Market Shares
Regional Market Shares Market Leader by Country SoM in Top Five Markets – 2009 (%) 9.7 15.1 21.1 24.6 32.5 51.1 17.5 76.3 73.6 69.3 50.0 33.8 14.0 BRA CAN ARG MEX COL Regional Market Share – 2009 PMI Others 14% BAT PMI 36% Others BAT 50% Source: PMI estimates 7
Slide 8: Tobacco Production
Tobacco Production 2009 (kg millions) 962 Others 72 Argentina 135 Brazil 755 Tobacco Note: Others includes Colombia, Guatemala, Canada, Mexico, Dominican Republic, Ecuador, Paraguay, Chile Source: PMI estimates 8
Slide 9: Macro-Economic Environment (2009)
Macro-Economic Environment (2009) Real GDP Growth (%) Inflation Rate (%) 0.9 6.2 0.4 5.3 4.9 -0.2 4.2 -2.6 -6.5 0.3 MEX CAN ARG COL BRA MEX CAN ARG COL BRA Unemployment Rate (%) Population Growth (%) 13.0 1.3 1.3 1.1 1.0 8.7 0.9 8.3 8.1 5.5 108 34 40 45 193 mio mio mio mio mio MEX CAN ARG COL BRA ME
Slide 10: Agenda
Agenda ● LA&C Region overview ● LA&C performance ● Regional strategies ● Key LA&C markets: highlights ● Conclusion ● Q&A 10
Slide 11: LA&C Region Results
LA&C Region Results Shipment Volume (billion units) Market Share (%) 2007- 2009 CAGR: 7.8% 110 104 40 35.8 99 34.6 89 30.0 80 25 2007 2008 2009 2007 2008 2009 Net Revenues ($ million) Adjusted OCI ($ million)(a) 2007- 2009 CAGR: 16.1% 2007- 2009 CAGR: 22.7% 2,671 2700 900 801 2,328 647 532 1,981 150
Slide 12: LA&C Region Q1, 2010 Results
LA&C Region Q1, 2010 Results Shipment Volume Net Revenues Reported OCI (billion units) ($ million) ($ million) 693 217 24.0 +4.4% 25.0 +22.0% 568 +40.0% 155 Q1 2009 Q1 2010 Q1 2009 Q1 2010 Q1 2009 Q1 2010 Source: PMI Financials 12
Slide 13: Adjusted OCI Margin Evolution
Adjusted OCI Margin Evolution (%) 32 31.3 30.0 27.8 24 2008 2009 Q1 2010 Note: OCI Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes Source: PMI Financials 13
Slide 14: PMI Market Shares
PMI Market Shares SoM (%) in Top Five Markets – Q1, 2010 vs. Q1, 2009 +0.9pp +0.4pp (2.8)pp 74.5 +0.2pp 69.6 48.3 34.1 +0.6pp 13.4 ARG MEX COL CAN BRA Source: PMI estimates 14
Slide 15: Agenda
Agenda ● LA&C region overview ● LA&C performance ● Regional strategies ● Key LA&C markets: highlights ● Conclusion ● Q&A 15
Slide 16: Regional Strategies
Regional Strategies ● Strengthen portfolio ● Enhance profitability through pricing ● Promote reasonable regulation and excise taxation ● Pursue business development opportunities 16
Slide 17: Marlboro Market Shares
Marlboro Market Shares Share of Market (%) 2009 2007 Variance (pp) Mexico 48.2 47.7 0.5 Argentina 23.3 21.6 1.7 Brazil 6.9 6.0 0.9 Colombia 4.0 3.9 0.1 Source: PMI estimates and A.C. Nielsen 17
Slide 18: Regional Strategies
Regional Strategies ● Strengthen portfolio by addressing consumer preferences in taste, image, innovation and affordability: - Reinforce Marlboro positioning 18
Slide 19: Marlboro Red or Flavor Line
Marlboro Red or Flavor Line ● Reinforce quality promise through Marlboro Red pack upgrade: - Modernized while retaining core equity 19
Slide 20: Marlboro Red or Flavor Line
Marlboro Red or Flavor Line ● Introduce innovative offers, such as Marlboro Filter Plus 20
Slide 21: Marlboro Gold Line
Marlboro Gold Line ● Marlboro Gold Original conversion in Mexico 21
Slide 22: Marlboro Gold Original – Consumer Research (Mexico City)
Marlboro Gold Original – Consumer Research (Mexico City) Is a high quality brand 100% Has a strong flavor 90% Has a smooth flavor 80% 70% Is masculine 60% Is a trustworthy brand 50% 40% 30% Is feminine 20% Is original 10% Is innovative Is a brand for people like you Is modern / updated Is for very c
Slide 23: Marlboro Gold Line
Marlboro Gold Line ● Marlboro Gold Original conversion in Mexico ● Introduce innovative offers in the Gold family: - Marlboro Gold Touch - Marlboro Gold Advance 23
Slide 24: Marlboro Fresh Initiatives
Marlboro Fresh Initiatives 24
Slide 25: Regional Strategies
Regional Strategies ● Strengthen portfolio by addressing consumer preferences: in taste, image, innovation and affordability: - Reinforce Marlboro positioning - Continue to support local heritage brands 25
Slide 26: Delicados
Delicados (%) Share of Mexican Market 15 11.6 11.9 10.1 8.8 0 2007 2008 2009 Q1 2010 Source: PMI estimates 26
Slide 27: Local Heritage Brands
Local Heritage Brands Guatemala Dominican Republic Adds modernity while retaining heritage 27
Slide 28: Regional Strategies
Regional Strategies ● Strengthen portfolio by addressing consumer preferences in taste, image, innovation and affordability: - Reinforce Marlboro positioning - Continue to support local heritage brands - Further develop PMI’s international portfolio in the Region 28
Slide 29: Further Develop International Brand Portfolio
Further Develop International Brand Portfolio Mexico, Canada and Argentina Premium and Above 29
Slide 30: Further Develop International Brand Portfolio
Further Develop International Brand Portfolio Mexico, Canada and Argentina Premium and Above Mid-Price Argentina, Ecuador and Mexico 30
Slide 31: Further Develop International Brand Portfolio
Further Develop International Brand Portfolio Mexico, Canada and Argentina Premium and Above Mid-Price Argentina, Ecuador and Mexico Low-Price Canada and Argentina 31
Slide 32: International Brands – L&M Kretek
International Brands – L&M Kretek 32
Slide 33: Pricing
Pricing ● Strong portfolio provides pricing opportunities ● Price increases in the last 12 months in our top five markets Net Revenues 800 ($ million) 693 $125 or 22% 49 Pricing 600 568 400 Q1 2009 Q1 2010 Source: PMI Financials 33
Slide 34: Tobacco Taxation
Tobacco Taxation ● Tobacco often seen as “easy” source of incremental revenue ● Key objective is to discourage unreasonable tax increases while supporting equitable tax structures: - Raise awareness of adverse consequences (e.g., anticipated tax revenues are not realized due to increase in illicit t
Slide 35: LA&C Excise Tax Structures
LA&C Excise Tax Structures ● Recent developments towards specific / mixed / MET structures 2008 Current Specific / Mixed / Minimum Excise Tax Ad-Valorem 35
Slide 36: Business Development
Business Development Colombia: Coltabaco acquisition in 2005; Continue to pursue acquisition of Protabaco Dominican Republic: Restructuring of business in 2006 Aruba / Curacao: 2007 acquisition Mexico: Increased equity in 2007; Imperial Tobacco license agreement in 2010 Canada: Rothmans Inc. acquisi
Slide 37: Colombia – Protabaco Acquisition
Colombia – Protabaco Acquisition ● Initial decision: Superintendent of Industry and Commerce did not approve PMI’s application as proposed ● Seek reconsideration 37
Slide 38: Agenda
Agenda ● LA&C region overview ● PM LA&C performance ● Regional strategies ● Key LA&C markets: highlights ● Conclusion ● Q&A 38
Slide 39: Mexico – Market Profile
Mexico – Market Profile Share of Market (%) 80 69.3 PMI 64.3 29.4 24.6 BAT 6.3 6.1 Other 0 2007 2008 2009 2009 Key Brands ● Industry volume: 42.4 billion units -3.5% YoY ● Large premium share 48.2% 11.6% 5.7% Source: PMI estimates and PMI Financials 39
Slide 40: Marlboro Fresh Line
Marlboro Fresh Line Fresh Black Freeze Ice Xpress ● Menthol thread in filter ● Menthol thread in filter ● Menthol capsule in filter ● Refreshing taste ● High cooling sensation ● On demand extra cooling sensations 40
Slide 41: Mexico – Menthol Share of Market
Mexico – Menthol Share of Market (%) 10 6.6 5 4.5 0 Jan-07 Dec-09 Source: PMI estimates 41
Slide 42: Mexico – PMI Share of Menthol Segment
Mexico – PMI Share of Menthol Segment (%) 100 90 83.5 80 70.2 70 60 50 Jan-07 Dec-09 Source: PMI estimates 42
Slide 43: Mexico – Key Initiatives
Mexico – Key Initiatives ● Complement portfolio with licensed brands West in mid- price and Davidoff in premium ● Enhance consumer engagement platforms ● Maintain existing mixed excise tax structure 43
Slide 44: Argentina – Market Profile
Argentina – Market Profile Share of Market (%) 80 69.0 73.6 PMI 24.0 21.1 BAT 7.0 5.3 Other 0 2007 2008 2009 Key Brands 2009 ● Industry volume: 42.4 billion units -2.4% YoY 36.8% 23.3% 4.2% Source: PMI estimates and PMI Financials 44
Slide 45: Argentina – Key Priorities
Argentina – Key Priorities ● Energize Marlboro Flavor Line 45
Slide 46: Argentina – Marlboro Red Pack Upgrade
Argentina – Marlboro Red Pack Upgrade Creative Executions 46
Slide 47: Argentina – Key Priorities
Argentina – Key Priorities ● Energize Marlboro Flavor line ● Strengthen the Philip Morris brand’s leadership position in the mid-price segment 47
Slide 48: Argentina – Philip Morris Brand
Argentina – Philip Morris Brand ● Market leader with 50% of LA (min 18) – 24 smoker share ● Strong interaction with Marlboro Source: PMI Market Research (GCTS) 48
Slide 49: Argentina – Key Priorities
Argentina – Key Priorities ● Energize Marlboro Flavor line ● Maintain Philip Morris’ leadership position in the mid-price segment ● Excise tax reforms: - Minimum Excise Tax implemented in February 2009 - Ultra low-price mainstream brands increased prices by 62% - Marlboro price gap to lowest price b
Slide 50: Canada – Market Profile
Canada – Market Profile Share of Market (%) 52.6 51.1 BAT 55 32.2 33.8 PMI 13.3 14.1 JTI 0 2007 2008 2009 Key Brands 2009 ● Industry volume: 29.6 billion units 3.4% YoY 10.7% 5.7% 5.5% Source: PMI estimates and PMI Financials 50
Slide 51: Canada – Key Priorities
Canada – Key Priorities ● Develop stronger presence in the premium segment by supporting Belmont and Benson & Hedges 51
Slide 52: Canada – Premium Strategy
Canada – Premium Strategy ● Grow share of premium through focus and innovative offerings around differentiated drive brands: Belmont Benson & Hedges Smooth taste and down The international brand. The to earth image ultimate in sophistication 52
Slide 53: Canada – Key Priorities
Canada – Key Priorities ● Develop stronger presence in the premium segment by supporting Belmont and Benson & Hedges ● Use Next to compete in the growing low-price segment 53
Slide 54: Canada – Key Priorities
Canada – Key Priorities ● Develop stronger presence in the premium segment by supporting Belmont and Benson & Hedges ● Use Next to compete in the growing low-price segment ● Continue to support government’s efforts in the fight against illicit trade Unbranded “Baggies” 54
Slide 55: Colombia – Market Profile
Colombia – Market Profile Share of Market (%) 60 51.0 50.0 PMI 28.1 30.6 PT 20.1 17.6 BAT 10 2007 2008 2009 Key Brands 2009 ● Industry Volume: 17.6 billion units -2.8% YoY 22.4% 6.8% 3.1% Source: PMI estimates, Nielsen Reports, and PMI Financials 55
Slide 56: Colombia – Key Initiatives
Colombia – Key Initiatives ● Caribe price competitive ● Pack upgrades for our two largest brands, Boston and Green 56
Slide 57: Colombia – Key Initiatives
Colombia – Key Initiatives ● We have successfully launched Marlboro Ice Xpress 57
Slide 58: Colombia – Key Initiatives
Colombia – Key Initiatives ● Caribe price competitive ● Pack upgrades for our two largest brands, Boston & Green ● We have successfully launched Marlboro Ice Xpress ● Put in place a seasoned management team 58
Slide 59: Brazil – Market Profile
Brazil – Market Profile Share of Market (%) 80 76.3 BAT 71.8 15.9 14.0 PMI 12.3 9.7 Other 0 2007 2008 2009 Key Brands 2009 ● Industry volume: 95.4 billion units -9.5% YoY 6.9% 2.2% 2.1% Source: PMI estimates and PMI Financials 59
Slide 60: Brazil – Marlboro Red Pack Revamp
Brazil – Marlboro Red Pack Revamp 60
Slide 61: Brazil – L&M Vibe
Brazil —L&M Vibe PHILIP MORRIS INTERNATIONAL ESTE PRODUTO CONTEM MAIS DE 4,700 SUBSTANCIAS . °| TOXICAS, E NICOTINA QUE CAUSA _ DEPENDENCIA FISICA OU PSIQUICA. NAO EXISTEM NIVEIS SEGUROS PARA CONSUMO "| DESTAS SUBSTANCIAS. FUMAGA TOXICA (O Ministiro 6a Sade adveca Respirar a fumaca deste produto cau
Slide 62: Brazil – L&M Black Label
LM TOTAL HARMONIA EM SABOR ESTE PRODUTO CONTEM MAIS DE 4,700 SUBSTANCIAS TOXICAS, E NICOTINA QUE CAUSA _ DEPENDENCIA FISICA OU PSIQUICA. NAO EXISTEM NIVEIS SEGUROS PARA CONSUMO ” | DESTAS SUBSTANCIAS. 0800 61 1997
Slide 63: Brazil – Shelton
ESTE PRODUTO CONTEM MAIS DE 4.700 SUBSTANCIAS TOXICAS, E NICOTINA QUE CAUSA DEPENDENCIA FISICA OU PSIQUICA. NAO EXISTEM NIVEIS A evolucao da elegancia: ; “TESUSSIESTNGHS. __FUMACA TOXICA NOVA EMBALAGEM, MESMO SABOR.
Slide 64: Conclusion
Conclusion ● Strong 2009 ● Continued momentum through the Q1, 2010 ● Strong portfolio in LA&C with room to grow ● Pricing potential remains intact ● Optimistic about our future business prospects in LA&C 64
Slide 65: Questions & Answers
Investor Day – LA & Canada Region Lausanne, June 23, 2010 Questions & Answers
Slide 66: Forward-Looking and Cautionary Statements
Forward-Looking and Cautionary Statements This presentation and related discussion contain statements that, to the extent they do not relate strictly to historical or current facts, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Su
Slide 67: Glossary of Terms
Glossary of Terms ● References to PMI volumes refer to shipment volume, unless otherwise stated ● Industry volume and market shares are from a number of internal and external sources ● Organic volume refers to volume excluding acquisitions ● Net revenues exclude excise taxes ● Operating Companies In
Slide 68: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Quarters Ended March 31, ($ in millions) (Unaudited) % Change in Reported Net 2010 2009 Revenues excluding Excise Taxes Reported Net Reported Net Reve
Slide 69: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income, excluding Currency and Acquisitions For the Quarters Ended March 31, ($ in millions) (Unaudited) % Change in Adjusted Op
Slide 70: Reconciliation of Non-GAAP Measures
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 March 31, (Unaudited) 2010 2009 % Change Reported Diluted EPS $ 0.90 $ 0.74 21.6% L
Slide 71: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Cash Flow to Free Cash Flow and Free Cash Flow, excluding Currency Reconciliation of Operating Cash Flow to Operating Cash Flow, excluding Currency For the Quarters Ended March 31, ($ in
Slide 72: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income, excluding Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Adjusted Op
Slide 73: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Reported Net 2009 2008 Revenues excluding Excise Taxes Reported Reported Net Reported Net
Slide 74: Reconciliation of Non-GAAP Measures
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) 2009 2008 % Change Reported Diluted EPS $ 3.24 $ 3.31 (2.1)%
Slide 75: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income, excluding Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Adjusted Op
Slide 76: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Reported Net Revenues 2008 2007 excluding Excise Taxes Reported Net Reported Net Reported
Slide 77: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income, excluding Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Adjusted Op
Slide 78: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Reported Net Revenues 2007 2006 excluding Excise Taxes Reported Reported Net Reported Net
Slide 79: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Reported Net Revenues 2006 2005 excluding Excise Taxes Reported Reported Net Reported Net
Slide 80: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Reported Net Revenues 2005 2004 excluding Excise Taxes Reported Reported Net Reported Net
Slide 81: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Calculation of Total Debt to EBITDA and Net Debt to EBITDA Ratios ($ in millions, except ratios) (Unaudited) For the Year Ended March 31, December 31, 2010 2009 April ~ December January ~ March 12 months 2009 2010
Slide 82: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Calculation of Total Debt to EBITDA and Net Debt to EBITDA Ratios ($ in millions, except ratios) (Unaudited) March 31, 2008 April ~ December January ~ March 12 months 2007 2008 rolling Earnings before income taxes
Slide 83: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Income to Reported Operating Companies Income Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income For the Years Ended December 31, ($ in
Slide 84: Investor Day – LA & Canada Region
Investor Day – LA & Canada Region Lausanne, June 23, 2010
Philip Morris International — Investor Day (June 2010) on 6ix