Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (June 2010)
66 slides from Philip Morris International's investor day presentation, Jun 24, 2010
Slide 1: Investor Day – Operations
Investor Day – Operations Lausanne, June 24, 2010 Martin King Senior Vice President, Operations Philip Morris International
Slide 2: Agenda
Agenda ● Operations overview ● Cost focus ● Supply chain optimization ● Innovation and quality leadership ● Environment, Health & Safety programs ● People development ● Conclusions 2
Slide 3: Operations overview
PHILIP MORRIS INVESTOR bay INTERNATIONAL Operations overview
Slide 4: PMI operates cigarette and non-cigarette manufacturing facilities worldwide
PMI operates cigarette and non-cigarette manufacturing facilities worldwide • Production centers in 44 countries • 58 manufacturing facilities • 40 machine-made cigarette facilities • Cooperation with 30 TPMs and 37 TPOs Source: PMI 10-K 4
Slide 5: More than 50,000 people work in Operations
More than 50,000 people work in Operations 2009 headcount (employees 000) Product Development & Operations Center 1.0 Hand-made 19.8 30.1 Machine-made Source: PMI Operations Planning 5
Slide 6: More than 50,000 people work in Operations
More than 50,000 people work in Operations Machine-made variable 2009 headcount (employees 000) headcount (employees 000) 24 Product Development & Operations Center 1.0 23 22 2008 2009 2010 Hand-made 19.8 Fixed headcount (employees 000) 8.0 30.1 7.8 Machine-made 7.6 2008 2009 2010 Source: PMI Operat
Slide 7: Total cost of sales in 2009 was $9.0 billion
Total cost of sales in 2009 was $9.0 billion Others Leaf 37% 35% 28% Direct Materials Note: Other cost of sales includes fixed costs, variable labor costs, third party manufacturing costs, and shipping and distribution Source: PMI Operations Finance 7
Slide 8: Sales volume by type
Sales volume by type (billion units) +15% 883 882 859 14 18 840 10 33 31 814 10 33 9 31 17 77 765 61 94 3 43 56 31 745 742 755 760 740 731 2004 2005 2006 2007 2008 2009 Traditional Non-Traditional Hand-made OTP Volume includes TPMs Traditional format: Pack type: Box, Round Corner Box, Soft / Diamete
Slide 9: Sales volume by production source
Sales volume by production source (billion units) +15% 883 882 840 859 814 102 106 765 92 92 81 76 109 123 150 165 170 93 196 213 215 217 233 236 76 78 81 59 25 0 333 329 341 359 370 324 2004 2005 2006 2007 2008 2009 EU PM USA EEMA Asia LA&C Source: PMI Operations Finance 9
Slide 10: Cost focus
PHILIP MORRIS INVESTOR bay INTERNATIONAL Cost focus
Slide 11: Leaf and direct materials costs have increased
Leaf and direct materials costs have increased Cost of sales breakdown 31% 35% 35% 23% 26% 28% 46% 39% 37% Leaf Direct materials Other cost of sales 2007 2008 2009 Note: Other cost of sales includes fixed costs, variable labor costs, third party manufacturing costs, and shipping and distribution Sou
Slide 12: PMI leaf purchases by type
PMI leaf purchases by type 100% 8% 13% 31% % of kg Others Sun Cured 45% Oriental Burley Virginia 0% 2009 Note: figures exclude China Source: PMI Leaf 12
Slide 13: PMI leaf purchases by key origin
PMI leaf purchases by key origin >10% of total kg 5-10% of total kg < 5% of total kg Source: PMI Leaf 13
Slide 14: Leaf supply and demand
Leaf supply and demand Traded volumes (a) Supply Demand 2,500 2,300 Million kg packed 2,100 1,900 Oversupply Shortage 1,700 2004 2005 2006 2007 2008 2009 Note: Virginia, Burley and Oriental in million kilograms packed, excluding China (a) Supply = Production + Supplier inventories; Demand = Consumpt
Slide 15: Leaf purchase price
Leaf purchase price Leaf purchase price evolution 130% 121% 118% 120% 110% 100% 100% 90% 2007 2008 2009 Source: PMI Operations Finance 15
Slide 16: Leaf purchase price
Leaf purchase price Leaf purchase price evolution Impact of 2008 price increase on cost of sales (approx. $450 million) ($ million) 215 130% 179 121% 118% 120% 110% 100% 100% 40 13 90% 2007 2008 2009 2008 2009 2010E 2011E Usage % 9% 40% 48% 3% Source: PMI Operations Finance 16
Slide 17: Cumulative leaf impact on income statement
Cumulative leaf impact on income statement Cumulative effect of leaf price increases on the 2008-2010 income statement ($ million) 611 409 171 2008 2009 2010E Source: PMI Finance 17
Slide 18: Leaf strategy
Leaf strategy ● Secure availability of volumes, predictability of prices and quality ● Optimize inventory management ● Promote sustainability in the leaf supply chain 18
Slide 19: Leaf vertical integration in Brazil
Leaf vertical integration in Brazil ● On June 21, 2010, PMI announced separate agreements with Alliance One and Universal Leaf to vertically integrate leaf sourcing in Brazil ● New operation will provide approximately 50% of our purchases in Brazil and 10% of PMI’s global leaf requirements ● Agreeme
Slide 20: Leaf vertical integration in Brazil: Key Objectives
Leaf vertical integration in Brazil Key Objectives ● Better alignment of the crop to our demand ● Better control on product quality and integrity ● Cost efficiency, predictability and transparency ● Greater impact on the sustainability of the leaf supply chain 20
Slide 21: Key direct materials categories
Key direct materials categories ● 2009 spend: approximately $2.5 billion ● Three categories represent 77% Fine Paper Flexibles (16%) (12%) Others Acetate Tow (11%) (22%) Printed Board & Paper (39%) Source: PMI Procurement 21
Slide 22: Challenges in direct materials procurement
Challenges in direct materials procurement ● Growing portfolio complexity ● Reduced Cigarette Ignition Propensity (“RCIP”) cigarette paper ● Relatively tight capacity in some categories 22
Slide 23: Direct materials strategy
Direct materials strategy ● Cost competitiveness and predictability ● Supplier relationship management ● Access to innovation 23
Slide 24: We are delivering our productivity target
We are delivering our productivity target Forecast cumulative gross cost savings (2008-2010) ($ million) 1,550 850 450 250 Manufacturing G&A + EU Total productivity Other program Source: PMI Finance 24
Slide 25: Rational product structure choice by segment
Rational product structure choice by segment Brand positioning Premium Mid Value Cost of materials Formats availability + - Features availability 25
Slide 26: Manufacturing productivity initiatives
Manufacturing productivity initiatives 850 ($ million) 178 Other initiatives 60 Manufacturing performance 120 Footprint/sourcing optimization Factory closures 194 US production in-sourcing Specification/Blend 298 rationalization 2008-2010 Source: PMI Finance 26
Slide 27: Equipment performance evolution
Equipment performance evolution 66% 64% 62% 60% 58% 2005 2006 2007 2008 2009 2010 YTD Note: 2010 YTD include results through April 2010 Source: PMI Operations Planning 27
Slide 28: Supply chain optimization
PHILIP MORRIS INVESTOR bay INTERNATIONAL Supply chain optimization
Slide 29: Develop an integrated and agile supply chain
Develop an integrated and agile supply chain Goal ● Contribute through inventory reduction to PMI’s $750 million to $1 billion improvement in working capital between 2010 and 2012 Strategy ● Create visibility and transparency across the supply chain ● Integrate, collaborate and synchronize with supp
Slide 30: Operations' contribution to working capital improvements through inventory reduction
Operations’ contribution to working capital improvements through inventory reduction Year-end inventory duration 120% 115% 110% 105% 100% 100% 95% 90% Leaf (months) 85% Finished Goods (days) 80% 2008 2009 2010 2011 2012 Source: PMI Operations Finance 30
Slide 31: SCIPIO: Key to reducing finished goods' inventories
SCIPIO: Key to reducing finished goods’ inventories ● System that provides visibility on finished goods inventories and links demand and supply planning ● Already rolled out in seven factories and 40 markets (260 billion units) ● Plan to extend to 29 factories (721 billion units) by 2012 Source: PMI
Slide 32: PMI is investing smarter
PMI is investing smarter 2007 2008 2009 Capital expenditures ($ million) 1,072 1,099 715 Capex to Depreciation 1.5 1.4 0.9 Source: PMI Operations Finance 32
Slide 33: Innovation and quality leadership
Innovation and quality leadership
Slide 34: Innovation efforts have increased
Innovation efforts have increased Number of innovations and new product launches +53% 700 610 494 400 2007 2008 2009 Source: PMI Product Development 34
Slide 35: Product Development organization
Product Development organization ● Organized in 10 clusters close to the markets ● Focus on consumer preferences ● New scientific group focused on conventional cigarettes 35
Slide 36: PMI is delivering innovation in packaging…
PMI is delivering innovation in packaging… Marlboro Filter Plus Virginia Uno 20s Super Slims Marlboro New Architecture Source: PMI Product Development 36
Slide 37: …in cigarettes and in filters
…in cigarettes and in filters Tobacco Plug Triple Filters Colored Menthol Threads Recessed Filter Capsules in filters Source: PMI Product Development 37
Slide 38: MEME CIGARETTE
MEME CIGARETTE Faites-vous aider pour arréter de fumer, téléphonez au 0825-309-310 (0,15 EUR/min)
Slide 39: Slide 39
Slide 40: PMI outperforms competition in manufacturing quality
PMI outperforms competition in manufacturing quality Market Visual Quality Index 36 markets 44 markets surveyed surveyed 100% 41% 50% 25% 52% 25% 5% 2% Aug-04 Aug-09 PMI wins 100% of the comparison vs. competition PMI outperforms competition in more than 50% of products benchmarked PMI is statistica
Slide 41: Environment, Health and Safety programs
Environment, Health and Safety programs
Slide 42: 2009 Headline EHS performance
2009 Headline EHS performance Lost Time Injury rate Fleet injury rate (#/200,000 hrs) (#/mio KM) 1.0 0,5 0.8 SAFETY 0.6 0,4 0.4 0,3 0.2 0.0 0,2 2006 2007 2008 2009 2006 2007 2008 2009 Factory levels Recycling rate (2003=100%) (%) 110% ENVIRONMENT 75% 100% 90% 70% 80% 70% 65% 2003 2004 2005 2006 2007
Slide 43: People development
PHILIP MORRIS INVESTOR bay INTERNATIONAL People development
Slide 44: Operations Performance and Engagement: OPEN
Operations Performance and Engagement: OPEN ORGANISATIONAL CAPABILITY ENGAGING ENVIRONMENT ADDRESS COMPLEXITY ELIMINATE WASTE Organization Processes Reward Business units Lean processes Monetary Ownership Tools Non‐monetary Accountability Trainings 44
Slide 45: Conclusions
PHILIP MORRIS INVESTOR bay INTERNATIONAL Conclusions
Slide 46: Key takeaways
Key takeaways ● We will work to maintain cost leadership in our industry ● We will reduce our inventories and increase the integration of our supply chain ● We will continue to innovate our products and deliver the best quality ● We will continuously develop and engage our people to address our chal
Slide 47: Questions & Answers
Investor Day – Operations Lausanne, June 24, 2010 Questions & Answers
Slide 48: 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 49: 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 50: 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 51: 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 52: 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 53: 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 54: 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 55: 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 56: 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 57: 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 58: 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 59: 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 60: 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 61: 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 62: 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 63: 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 64: 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 65: 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 66: Investor Day – Operations
Investor Day – Operations Lausanne, June 24, 2010
Philip Morris International — Investor Day (June 2010) on 6ix