Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (June 2014)
57 slides from Philip Morris International's investor day presentation, Jun 26, 2014
Slide 1: Investor Day – EU Region
Investor Day – EU Region Lausanne, June 26, 2014 Drago Azinovic President, European Union Region Philip Morris International
Slide 2: Agenda
Agenda ● Strong Business Fundamentals ● Strategies for Growth ● Key Markets ● Concluding Remarks ● Questions and Answers 2
Slide 3: EU Region: Region Overview
EU Region: Region Overview Current EU Region = EU Area + Non EU Markets 2013 – EU Markets belonging to EEMA Region Cigarettes Cigarette Industry (units billion) 482 PMI Cigarette SoM 38.5% Other Tobacco Products ("OTP") OTP Industry (units billion eq.) 163 Fine Cut Industry (units billion eq.) 142 P
Slide 4: Improving Economic Outlook and Growing Consumer Confidence
Improving Economic Outlook and Growing Consumer Confidence EU Macro-Economic Indicators 2009 2010 2011 2012 2013 2014 2015 2016 10.9% 10.8% 10.5% 10.5% 10.1% 9.7% 9.7% 3.0 9.0% 25.0 2.0% 1.7% 1.7% 1.7% 2.0 1.5% 15.0 1.0 0.1% 5.0 0.0 6 -1.0 (0.3)% -5.0 -2.0 Unemployment -15.0 Real GDP Variance -3.0 R
Slide 5: Moderation in Cigarette Industry Volume Decline
Moderation in Cigarette Industry Volume Decline EU Cigarette Industry Volume Decline vs. PY and Unemployment Rates (%) 10.9% 10.9% 10.8% (b) 10.5% Unemployment 10.5% 9.7% 9.7% Rate 2013 YTD May 2010 2011 2012 2013 H1 H2 2014 6 Cigarette Industry Decline Rate (4.5) (4.3) (4.4) (6.1) (5.7) (7.5) (a) A
Slide 6: Market Leader and Strong Share Growth Momentum
Market Leader and Strong Share Growth Momentum Others PMI Share of EU Region Cigarette Market (%) 39.2 JT 38.8 38.9 PMI 38.5 38.5 38.2 38.0 38.5% BAT IMT Share of EU Region Cigarette Market (2013) 2008 2009 2010 2011 2012 2013 Q1 2014 Source: PMI estimates based on historical view 6
Slide 7: Growing Market Share in the Top Six Markets
Growing Market Share in the Top Six Markets 2012 2013 PMI Cigarette Market Shares (%) +0.6pp +0.4pp +0.1pp +0.2pp +0.7pp +0.6pp 20 55 53.0 53.1 39.6 40.2 35.8 36.2 36.4 36.6 +1.0pp 31.2 30.5 25 10 6.7 7.3 00 France Germany Italy Poland Spain UK Source: PMI estimates based on historical view 7
Slide 8: EU Region: Contribution to 2013 PMI Results
EU Region: Contribution to 2013 PMI Results 21% 28% 30% Cigarette Shipment Volume Net Revenues Adjusted OCI Source: PMI Financials 8
Slide 9: EU Region: Financial Results 2010-2013
EU Region: Financial Results 2010-2013 Shipment Volume Net Revenues Adjusted OCI (units billion) ($ million) ($ million) CAGR: -6.0% CAGR: -0.8% CAGR: -0.7% CAGR: -0.5% (ex-currency) CAGR: -0.6% (ex-currency) 8,811 8,596 4,338 4,251 223.0 185.1 2010 2013 2010 2013 2010 2013 Source: PMI Financials 9
Slide 10: EU Region: Positive Performance in Q1, 2014
EU Region: Positive Performance in Q1, 2014 Shipment Volume Net Revenues Adjusted OCI (units billion) ($ million) ($ million) -2.9% +2.2% +4.3% -0.4% (ex-currency) +1.3% (ex-currency) 2,013 978 1,970 938 43.0 41.7 Q1, 2013 Q1, 2014 Q1, 2013 Q1, 2014 Q1, 2013 Q1, 2014 Source: PMI Financials 10
Slide 11: EU Region: Target and Strategies
EU Region: Target and Strategies Target: ● Annual average mid to long-term low single-digit adjusted OCI growth (ex-currency) Strategies for Growth: ● Continue to grow our superior brand portfolio ● Reinforce the fight against illicit trade ● Protect ability to differentiate products ● Advocate for
Slide 12: Strategies for Growth: Superior brand portfolio
Strategies for Growth ● Continue to grow our superior brand portfolio 12
Slide 13: Consolidated and Growing Portfolio
Consolidated and Growing Portfolio Top 4 Brands Share of EU Region Cigarette Market Shares (%) PMI EU Region Cigarette Volume (2013) Marlboro L&M Chesterfield Philip Morris +0.4pp +0.2pp +0.1pp +0.2pp 19.0 18.6 6.7 6.9 84% 4.3 4.4 1.8 2.0 2012 2013 2012 2013 2012 2013 2012 2013 Source: PMI estimates
Slide 14: 2013 Share of Cigarettes: PMI Portfolio of Leading Brands
2013 Share of Cigarettes: PMI Portfolio of Leading Brands EU Region Cigarette Market Shares (2013) PMI Competition 19.0% 13.3% Philip Morris 11.5% 10.2% Benson & Hedges Marlboro Chesterfield Viceroy 7.3% Winston Lucky Strike West Gauloises L&M Camel Pall Mall JPS JT BAT IMT Top 3 Brands Source: PMI
Slide 15: Marlboro: Strengthening its Leading Position in the Premium Segment
Marlboro: Strengthening its Leading Position in the Premium Segment Premium Share of Market (%)(a) 32.3 31.4 31.6 32.0 31.2 2010 2011 2012 2013 Q1 2014 Marlboro Share of Premium (%)(a) 57.4 55.7 56.0 54.9 55.3 2010 2011 2012 2013 Q1 2014 (a) Includes above premium Source: PMI estimates 15
Slide 16: Marlboro: Strong Growth Momentum in Top Six Markets
Marlboro: Strong Growth Momentum in Top Six Markets 2012 2013 PMI Cigarette Market Shares (%) +0.4pp (0.1)pp +0.7pp +0.5pp +0.2pp +0.5pp ̶ pp 20 30 25.4 25.9 24.8 24.7 22.0 21.3 18.6 19.0 14.3 14.8 11.3 11.5 10 8 6.1 6.1 00 EU EU Region Region France Germany Italy Poland Spain UK Source: PMI estimat
Slide 17: New Marlboro Red
New Marlboro Red ● 5 city tests in 3 markets (France, Germany and Italy) since January 2014 ● Promising results: - Retention of 100% of Marlboro Red adult smokers in all 3 markets - Increased brand preference amongst Legal Age (minimum 18) ̶ 24 years old and female adult smokers ● National roll-outs
Slide 18: Marlboro: Leading Innovation
Marlboro: Leading Innovation Note: Translation from French: "Change the taste at anytime". Translation from Czech: "Double charge of fresh taste; 2 capsules, your choice"
Slide 19: Marlboro: Price-Banding
Marlboro: Price-Banding King Size Pocket Touch Maxi Marlboro EU Region Cigarette SoM (%) Total Marlboro 19.4 19.0 18.5 Marlboro Marginal Contribution (per 000)(b) (Indexed with Base Year 2010) 114 110 105 "Price-Banded" Formats(a) 100 3.7 2.3 1.3 2007 2008 2009 2010 2011 2012 2013 2010 2011 2012 201
Slide 20: Below-Premium Segment: Growing Share
Below-Premium Segment: Growing Share PMI Share of Below-Premium (%)(a) 26.0 25.7 25.9 26.2 25.1 Other PMI L&M 17.1 18.5 Chesterfield & 14.5 15.5 Philip Morris 13.5 2010 2011 2012 2013 Q1 2014 (a) Includes mid, low and super-low price products Source: PMI estimates based on historical view 20
Slide 21: L&M: Industry Leader in the Below-Premium Segment
L&M: Industry Leader in the Below-Premium Segment L&M Share of Below-Premium (%) Q1, 2013 Q1, 2014 +0.4pp +1.1pp +0.2pp +1.6pp +0.8pp +2.2pp 31.5 29.3 23.4 24.5 20.5 18.9 18.2 19.0 9.7 10.1 5.0 5.2 EU Region Belgium France Germany Poland Slovakia Note: Translation from German: "Then and Today" Sourc
Slide 22: Chesterfield: Expanding its Reach
Chesterfield: Expanding its Reach Generating strong growth through: Chesterfield Share of Below-Premium (%) ● Unique positioning ● Relevant innovation 7.1 ● Geographic expansion ● Portfolio optimization 5.9 5.1 4.6 4.1 2010 2011 2012 2013 Q1 2014 Source: PMI estimates based on historical view 22
Slide 23: Philip Morris: Strengthening Our Below-Premium Portfolio
Philip Morris: Strengthening Our Below-Premium Portfolio Philip Morris Share of Below-Premium (%) Q1, 2013 Q1, 2014 +0.3pp +1.3pp +0.9pp +12.2pp +10.3pp +3.3pp 17.3 10.9 5.1 4.2 3.1 2.0 2.2 1.0 1.3 0.7 0.6 0.9 EU EU Region Region Hungary Italy Latvia Lithuania Slovakia Note: Translation from Italian
Slide 24: Capturing Significant Share of Fine Cut Volume Growth
Capturing Significant Share of Fine Cut Volume Growth Fine Cut Industry Volume (units billion) CAGR 2010-2013 141 142 4.5% 133 124 Cigarette 47 56 61 19.1% 36 PMI Trademarks 46% Non-Cigarette 88 86 85 81 (2.8)% Trademarks PMI Share of Fine Cut Volume Growth 2010 2011 2012 2013 (2013 vs. 2010) Source
Slide 25: Leveraging our Superior Brand Portfolio to Grow Fine Cut Share
Leveraging our Superior Brand Portfolio to Grow Fine Cut Share EU Region PMI Fine Cut Share of Market (%) 15.2 14.6 13.4 Other PMI 12.1 10.1 3.4 L&M 2.5 2.3 3.6 Chesterfield 3.6 2.3 3.5 2.0 2.1 3.6 4.1 Marlboro 0.4 1.8 2.5 0.6 2010 2011 2012 2013 Q1, 2014 Source: PMI estimates based on historical vi
Slide 26: Leveraging Our Commercial Approach
Leveraging Our Commercial Approach ● Increased autonomy of field force team ● Better capture Regional / local opportunities ● Faster adaptation to market changes ● Better support to new product introductions ● Increased leverage of adult smoker touch points ● National roll-outs to be mostly complete
Slide 27: Strategies for Growth: Fight Against Illicit Trade
Strategies for Growth ● Reinforce the fight against illicit trade: - Financial and human resources significantly increased - Working with policy makers and law enforcement agencies - Cooperation agreement with INTERPOL Note: INTERPOL stands for The International Criminal Police Organization 27
Slide 28: Illicit Trade: Decline in 2013
Illicit Trade: Decline in 2013 Illicit Trade Volume in the 28 European Member States (units billion)(a) 64.2 65.3 65.7 61.1 58.6 Intra-EU 45.4 Inflow from 41.9 43.6 44.1 37.3 non-EU 2009 2010 2011 2012 2013 (a) Illicit trade volume is including Counterfeit, Contraband and Illicit White Consumption i
Slide 29: Support for Effective Law Enforcement Action – Italy
Support for Effective Law Enforcement Action – Italy In 2013, Government enforcement actions resulted in: ● Approx. 250 people arrested ● Over 4,400 smugglers charged ● Over 115 million cigarettes seized ● Approx. 100 vehicles seized ● 23 illegal warehouses closed ● Several illegal retailers closed
Slide 30: Regulatory Environment: EU TPD
Regulatory Environment: EU TPD ● New EU TPD entered into force on May 19, 2014, and will have to be transposed by all EU Member States by May 20, 2016 ● Main provisions include: - 65% graphic health warning label (front & back) - Prohibition of cigarettes and RYO tobacco with "characterizing flavors
Slide 31: Strategies for Growth: Reasonable Excise Tax Environment
Strategies for Growth ● Advocate for reasonable excise tax environment: - Regular, reasonable increases - High proportion of specific elements in excise tax structure - Multi-year tax plans - Gradual harmonization of taxation between cigarettes and other tobacco categories ● Addressing government ob
Slide 32: No Excessive Tax Increases Between January 2010 and April 2014
No Excessive Tax Increases Between January 2010 and April 2014 Marlboro Excise Tax Yield (EUR/000)(a) 5% 160.6 5% 148.4 3% 152.3 6% 140.9 132.7 January 2010 January 2011 January 2012 January 2013 April 2014 (a) Weighted average by total cigarette market volume in 2013, for EU Member States plus Swit
Slide 33: Gradual Improvement of Excise Tax Structures
Gradual Improvement of Excise Tax Structures Specific Excise-to-Total Tax Ratio on Cigarettes Weighted Average for the EU(a) 35.3% 28.7% January 2010 April 2014 (a) Weighted average by total cigarette market volume in 2013, for EU Member States plus Switzerland, excluding Bulgaria, Croatia, Romania
Slide 34: Price Gap Reductions
Price Gap Reductions January 1, 2010 April 1, 2014 France Germany Italy Spain Poland France Germany Italy Spain Poland Premium 9% 10% 16% 17% 20% 8% 8% 20% 12% 14% Low-Price Source: PMI affiliates 34
Slide 35: Gradual Harmonization of Fine Cut and Cigarette Taxation
Gradual Harmonization of Fine Cut and Cigarette Taxation Excise Tax Yield Ratio: Lowest-Priced Fine Cut/Lowest-Priced Cigarettes(a) 53.3% 50.3% 44.2% 45.2% 39.2% January 2010 January 2011 January 2012 January 2013 April 2014 (a) Weighted average by total cigarette market volume in 2013, for EU Membe
Slide 36: Strategies for Growth: Margin Improvements
Strategies for Growth ● Leverage opportunities for margin improvements 36
Slide 37: Growing Adjusted OCI Margin
Growing Adjusted OCI Margin EU Region: 2013 Adjusted OCI Margin +0.4pp (a) 49.6% 49.2% 2012 2013 (a) Ex-currency Source: PMI Financials 37
Slide 38: Sustainable Pricing Environment
Sustainable Pricing Environment Pricing Variance ($ million) 475 Average 2010-2013 391 348 378 298 2010 2011 2012 2013 Source: PMI Financials 38
Slide 39: Cost and Productivity Initiatives
Cost and Productivity Initiatives Total Cost Base (Indexed with Base Year 2010) ● On-going initiatives: - Consultation process on proposal to discontinue cigarette production in 104 104 Bergen op Zoom (Netherlands) 100 101 - Portfolio rationalization - Process improvements 2010 2011 2012 2013 Note:
Slide 40: Strategies for Growth: Reduced-Risk Products
Strategies for Growth: Reduced-Risk Products ● Platform 1: - City test in Italy as of Q4, 2014 - National expansion in 2015 - Building manufacturing capacity in Bologna (Italy) to produce up to 30 billion units by the end of 2016 ● Platform 4: - Nicocigs Limited - Framework agreement with Altria Not
Slide 41: Strategies for Growth: Geographic Expansion in the UK
Strategies for Growth: Geographic Expansion in the UK ● The UK is one of the largest profit PMI Cigarette Market Shares (2013) pools in EU 38.5% ● PMI’s growth potential constrained by current business model ● Own sales and distribution capability will enable: - Increased focus and brand support - P
Slide 42: Four Key Markets in the EU Region
Four Key Markets in the EU Region 42
Slide 43: Spain: Cigarette Industry Volume Decline Moderating
Spain: Cigarette Industry Volume Decline Moderating (units billion) Cigarettes Fine Cut Variance Variance 2013 vs. PY YTD May, 2014 vs. PY 63.8 58.5 (8.3)% 24.3 22.5 (7.4)% 53.7 47.7 (11.1)% 19.5 18.5 (5.2)% 10.1 10.8 6.9% 4.8 4.0 (16.6)% 2012 2013 YTD May YTD May 2013 2014 Source: PMI estimates 43
Slide 44: Spain: Fiscal Framework Gradually Improving
Spain: Fiscal Framework Gradually Improving Price Gap Premium to Super-Low Super-Low to Fine Cut 50% Cheapest cigarette vs. 46% brand in the market Industry WAP Fine Cut Cheapest cigarette vs. brand in the market 22% 17% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012 2013 Source: Boletín Oficial del Estado, Logista,
Slide 45: Spain: Growing Share Led by Marlboro
Spain: Growing Share Led by Marlboro PMI Share of Cigarette Market (%) 30.9 30.5 31.2 31.2 Other PMI 14.7 14.3 14.8 15.1 Marlboro 2011 2012 2013 Q1 2014 Source: PMI estimates 45
Slide 46: Spain: Strong Share Growth in Fine Cut
Spain: Strong Share Growth in Fine Cut PMI Share of Fine Cut Market (%) 15.7 13.8 11.8 10.6 8.5 5.0 2009 2010 2011 2012 2013 Q1 2014 Note: Translation: "Your same Chesterfield now with an aligned design for the whole family." Source: PMI estimates 46
Slide 47: Italy: Cigarette Industry Trends Improving
Italy: Cigarette Industry Trends Improving (units billion) Cigarettes Fine Cut Variance Variance 2013 vs. PY YTD May, 2014 vs. PY 84.9 80.0 (5.8)% 32.0 32.1 0.1% 78.7 74.0 (6.0)% 29.6 29.7 0.2% 6.2 6.0 (3.6)% 2.4 2.4 (1.3)% 2012 2013 YTD May YTD May 2013 2014 Source: PMI estimates 47
Slide 48: Italy: Growing Super-Low Segment Due to Ineffective Tax Structure
Italy: Growing Super-Low Segment Due to Ineffective Tax Structure Total Market by Price Segment (%) PMI Share of Super-Low Price Segment (%) 34.7 Premium 34.2 15.6 Mid 13.2 44.3 Low 43.3 46.7 Super-Low +6.3pp 3.0 9.3 1.4 Q4, 2013 Q1, 2014 Q4, 2013 Q1, 2014 Source: PMI estimates based on historical v
Slide 49: Italy: Strong Marlboro Share
Italy: Strong Marlboro Share PMI Share of Cigarette Market (%) 53.1 53.0 53.1 53.0 Other PMI 25.0 25.4 25.9 25.6 Marlboro 2011 2012 2013 Q1, 2014 Source: PMI estimates 49
Slide 50: France: Sharp Total Industry Volume Decline
France: Sharp Total Industry Volume Decline (units billion) Cigarettes Fine Cut Variance Variance 2013 vs. PY YTD May, 2014 vs. PY 64.9 61.4 (5.3)% 25.7 23.7 (8.0)% 51.5 47.5 (7.6)% 19.8 18.3 (8.3)% 13.4 13.9 3.6% 5.9 5.4 (7.0)% 2012 2013 YTD May YTD May 2013 2014 Source: PMI estimates 50
Slide 51: France: Growing with Strong Brand Portfolio
France: Growing with Strong Brand Portfolio PMI Share of Cigarette Market (%) 40.5 40.2 41.0 39.6 Other PMI 8.2 8.3 9.1 9.4 Philip Morris 25.7 24.8 24.7 25.0 Marlboro 2011 2012 2013 Q1, 2014 Source: PMI estimates 51
Slide 52: France: Gaining Share in Fine Cut
France: Gaining Share in Fine Cut PMI Share of Fine Cut Market (%) 27.0 25.2 26.0 24.3 Other PMI 1.5 1.9 L&M 0.3 5.7 6.3 5.7 Philip Morris 5.5 5.6 6.8 6.7 6.4 Marlboro 10.5 10.1 10.3 10.2 Interval 2011 2012 2013 Q1, 2014 Source: PMI estimates 52
Slide 53: Germany: Cigarette Industry Volume Improving
Germany: Cigarette Industry Volume Improving (units billion) Cigarettes Fine Cut Variance Variance 2013 vs. PY YTD May, 2014 vs. PY 124.8 121.3 (2.8)% 48.9 48.9 (0.1)% 83.4 79.7 (4.6)% 31.9 32.1 0.7% 41.4 41.6 0.7% 17.0 16.8 (1.5)% 2012 2013 YTD May YTD May 2013 2014 Source: PMI estimates 53
Slide 54: Germany: Continuous Share Growth in the Cigarette Market
Germany: Continuous Share Growth in the Cigarette Market PMI Share of Cigarettes Market (%) 35.9 35.8 36.2 36.9 Other 10.9 11.7 L&M 10.4 10.5 21.4 21.3 22.0 22.0 Marlboro 2011 2012 2013 Q1, 2014 Note: Translation: "& is always more than OR" Source: PMI estimates 54
Slide 55: Conclusion: EU Region
Conclusion: EU Region ● Strong business fundamentals: - Undisputed market leadership - Superior brand portfolio - Sustainable pricing power - Reasonable excise tax environment - Cost and productivity Initiatives ● Gradually improving macro-economic environment ● Target to deliver annual average low
Slide 56: Questions & Answers
Investor Day – EU Region Lausanne, June 26, 2014 Questions & Answers
Slide 57: Reconciliation of non-GAAP measures
Reconciliation of non-GAAP measures included in this presentation to the most comparable GAAP measures are provided on our website at: www.pmi.com/2014InvestorDay/RecSlides Glossary of Terms: www.pmi.com/2014InvestorDay/Glossary
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