Philip Morris International Inc · NYSE:PM
Philip Morris International — Q4 2013 Earnings Presentation
38 slides from Philip Morris International's earnings presentation, Feb 6, 2014
Slide 1: 2013 Fourth-Quarter and Full-Year Results
2013 Fourth-Quarter and Full-Year Results February 6, 2014 Exhibit 99.3
Slide 2: Introduction
2 Introduction ● Unless otherwise stated, we will be talking about results for the fourth-quarter or full-year 2013 and comparing them to the same periods in 2012 ● References to PMI volumes are to PMI shipments ● Industry volume and market shares are the latest data available from a number of inter
Slide 3: Forward-Looking and Cautionary Statements
3 Forward-Looking and Cautionary Statements ● This presentation and related discussion contain forward-looking statements. Achievement of projected results is subject to risks, uncertainties and inaccurate assumptions, and PMI is identifying important factors that, individually or in the aggregate,
Slide 4: Strong Fourth-Quarter Financial Results
Strong Fourth-Quarter Financial Results 4 2.5% 12.7% 19.4% Net Revenues Adjusted OCI Adjusted Diluted EPS Growth (Q4, 2013 vs. Q4, 2012)(a) (a) Excluding currency Source: PMI Financials
Slide 5: Strong Fourth-Quarter Financial Results
Strong Fourth-Quarter Financial Results 5 2.6 22.5 7.4 34.9 EU EEMA Asia LA&C Adjusted OCI Growth (Q4, 2013 vs. Q4, 2012)(a) (a) Excluding currency Source: PMI Financials 40 20 10 0 (%)
Slide 6: Bridging Reported Diluted EPS to Adjusted Diluted EPS, excluding Currency
Bridging Reported Diluted EPS to Adjusted Diluted EPS, excluding Currency 6 0.10 0.04 0.34 5.26 5.40 5.74 Reported Diluted EPS Egypt Restructuring Charge Charges Disclosed Previously Adjusted Diluted EPS Currency Unfavorability Adjusted Diluted EPS, excl. Currency (a) Included in asset impairment an
Slide 7: Currency Volatility
● Currencies remain very volatile, especially in emerging markets ● At prevailing exchange rates, we project 71 cents unfavorable currency at EPS level in 2014 ● Emerging markets account for nearly 60% of this projected currency headwind ● We are currently hedged for approximately 60% of our forecas
Slide 8: 2014 Business Outlook and EPS Guidance
● Business fundamentals are robust ● Specific market challenges ● Increased investments behind Reduced-Risk Products and our conventional tobacco products ● Reported diluted EPS guidance for 2014 is $5.02 to $5.12 at prevailing exchange rates, compared to $5.26 in 2013 ● Excluding currency, our guid
Slide 9: Japan: Pricing and Market Share Challenge
Japan: Pricing and Market Share Challenge 9 Source: Tobacco Institute of Japan and PMI forecasts 12.4 12.1 12.4 11.8 27.7 26.7 27.7 25.9 2012 2013 2012 2013 PMI Market Share (%) FY Total PMI Marlboro Other Q4 ● Consumption tax increase from 5% to 8% in April. Related retail price pass-on of approxim
Slide 10: Philippines: Competitor Excise Tax Under-Reporting Remains Central Issue
13.3 12.5 13.1 H2 2012 H1 H2 ● We estimate that Mighty Corporation declares only about half its production for tax purposes ● Fiscal tax stamps planned in Q2, 2014 ● Retail price of Mighty brand increased to PHP 1.50/stick, but Marvels brand still sold at price lower than combination of excise tax a
Slide 11: Indonesia: Moderate Industry Volume Growth
4.8 5.2 4.7 5.1 13.8 14.4 13.8 14.5 3.3 4.4 3.8 4.8 12.3 11.1 12.7 10.6 35.6 36.1 36.2 35.7 2012 2013 2012 2013 5.2% 3.4% (6.6)% Premium Mid Source: PMI estimates and PMI forecasts ● Cigarette industry volume increased by 1.9% in 2013 to an estimated 308 billion units ● Economic slowdown and higher
Slide 12: EU Region: Reduction in Cigarette Industry Volume Decline
Note: Fine cut includes Make Your Own (MYO), MYO volume tobacco and Roll Your Own Source: PMI estimates and PMI forecasts EU Region: Reduction in Cigarette Industry Volume Decline Q1 Q2 Q4 Total Cigarette Industry Volume Decline (2013 vs. PY) Q3 (5.8)% (5.5)% (8.0)% (10.6)% 12 ● Illicit trade appear
Slide 13: EU Region: Strong Share Growth Momentum
38.0 38.5 18.6 19.0 6.6 6.8 3.8 4.0 1.7 2.0 Source: PMI estimates EU Region: Strong Share Growth Momentum EU Region Cigarette Market Shares (%) +0.5pp 13 +0.4pp 2012 2013 Marlboro PMI 2012 2013 2012 2013 2012 2013 2012 2013 +0.2pp L&M +0.2pp Chesterfield +0.3pp Philip Morris
Slide 14: EU Region: Strong Share Growth Momentum
Source: PMI estimates 39.6 35.8 53.0 36.4 30.5 6.7 40.2 36.2 53.1 36.6 31.2 7.3 0 20 France Germany Italy Poland Spain UK EU Region: Strong Share Growth Momentum 2012 2013 PMI Cigarette Market Shares (%) +0.1pp +0.2pp +0.7pp +0.6pp +0.4pp +0.6pp 55 25 10 14
Slide 15: Russia: Profitability Growth Despite Volume Decline
Russia: Profitability Growth Despite Volume Decline 15 ● Profitability expanded in 2013 despite an estimated 7.6% cigarette industry volume decline ● High single-digit profit growth expected again in 2014 even though we forecast industry volume decline of 9% to 11% Note: MRSP stands for Maximum Reta
Slide 16: Turkey: PMI Gaining Share in Premium and Mid
Source: PMI estimates, PMI forecasts and Nielsen Turkey: PMI Gaining Share in Premium and Mid 16 ● Trade loading at the end of 2012 and an increase in illicit trade resulted in an estimated 7.6% decline in cigarette industry volume in 2013 ● Underlying cigarette industry volume expected to stabilize
Slide 17: Latin America & Canada Region: Strong Results
Source: PMI estimates 75.6% 15.7% 37.2% 51.0% 73.5% Argentina Brazil Canada Colombia Mexico Latin America & Canada Region: Strong Results PMI Market Shares (2013) +0.7pp +0.9pp +0.3pp +0.5pp ─ pp 17
Slide 18: Market Share Momentum: Top OCI Markets
Market Share Momentum: Top 30 OCI Markets 18 PMI Market Share(a) 34.4% 34.9% 2012 2013 (a) Excluding the Philippines and duty free Source: PMI Financials and PMI estimates
Slide 19: Market Share Momentum: Marlboro Market Shares
Market Share Momentum: Marlboro Market Shares 2011 2012 2013 EU 18.4% 18.6% 19.0% EEMA 6.8% 7.0% 7.1% Asia(a) 5.1% 5.2% 5.3% LA&C 14.0% 14.6% 15.0% (a) Excluding China and the Philippines Source: PMI estimates 19
Slide 20: International Cigarette Industry Volume: Slight Moderation in Decline Forecast for 2014
International Cigarette Industry Volume: Slight Moderation in Decline Forecast for 2014 Cigarette Industry Volume (units trillion) 2012 2013 2014F International Markets excl. China 3.2 (3.1) 3.0 Variance (3.0)% (2.0)% ─ (3.0)% Note: All data exclude the USA Source: PMI estimates and PMI forecasts 20
Slide 21: Pricing: Key Driver of Increased Profitability
Pricing: Key Driver of Increased Profitability 21 ● 2013 pricing variance reflects the timing of tax-driven price increases and unusually large gains due to inventory movements, most notably in the Philippines ● In Q1, 2014, we expect these gains to be lower and consequently this quarter’s EPS growt
Slide 22: Margin Improvements Driven by Pricing and Productivity Gains
Margin Improvements Driven by Pricing and Productivity Gains 22 Adjusted OCI Margin (a) Excluding currency Source: PMI Financials 45.4% 46.0% 2012 2013 (a)
Slide 23: Business Development: Accretive to Earnings in 2014
Source: PMI Financials and PMI forecasts Business Development: Accretive to Earnings in 2014 23 ● Remaining 20% shareholding in Mexico ● 49% participation in Arab Investors-TA ● 20% shareholding in our Russian distributor, Megapolis ● Business restructuring in Egypt ● Expected net EPS impact of appr
Slide 24: Free Cash Flow: Double-Digit Increase in 2013 excluding Currency
Free Cash Flow: Double-Digit Increase in 2013 excluding Currency 24 8,935 420 8,365 9,355 2012 2013 Note: Free cash flow is defined as net cash provided by operating activities less capital expenditures Source: PMI Financials ($ million) +11.8% Currency
Slide 25: Rewarding Our Shareholders: Very Significant Dividend Increases
Rewarding Our Shareholders: Very Significant Dividend Increases 25 +17.4% +7.4% +10.3% +20.3% +10.4% +10.6% $1.84 $3.76 2008 Aug Sept Sept Sept Sept Sept 2013 +104.3% 2008 2009 2010 2011 2012 2013 1.7% 1.9% 2.0% 2.7% 2.8% 3.0% 3.0% 3.1% 3.1% 3.4% 3.4% 3.4% 3.9% 4.7% 4.8% 4.9% 4.9% 5.2% Mondelēz Baye
Slide 26: Rewarding Our Shareholders: Share Repurchases
● $6.0 billion spent in 2013 to repurchase 67.2 million shares ● Over $2 billion spent on business development opportunities in 2013 ● Significant unfavorable impact of currency projected on reported results in 2014 ● Approaching the high end of the ratios supporting our credit rating ● $4.0 billion
Slide 27: Investments to Accelerate Commercialization of Reduced-Risk Products
● Pilot plant and new manufacturing facility with capacity of up to 30 billion units to be completed by end 2015. Associated capital expenditures of up to €500 million ● Clinical trials to be completed during 2014 ● On-going perception and behavioral studies ● Packaging and labeling being prepared i
Slide 28: Conclusion: 2014, an Important Development Year
Source: PMI forecasts ● Increased investments behind conventional and Reduced- Risk Products ● Improving outlook for Philippines and EU Region ● Japan remains a significant challenge ● Robust fundamentals and good market share momentum ● Business development projects adding to our profitability ● Cu
Slide 29: Questions & Answers
Questions & Answers 2013 Fourth-Quarter and Full-Year Results
Slide 30: Reconciliation: Adjustments for Currency and Acquisitions, Quarters
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Quarters Ended December 31, ($ in millions) (Unaudited) 30 Reported Net Revenues Less Excise Taxes Reported Net Revenues excluding Excise Taxes Less C
Slide 31: Reconciliation of Reported OCI to Adjusted OCI, Quarters
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income & Reconciliation of Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions For the Quarters Ende
Slide 32: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS, Quarters
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 December 31, (Unaudited) 32 2013 2012 % Change Reported Diluted EPS 1.24$ 1.25$ (0.
Slide 33: Reconciliation of Reported Diluted EPS excluding Currency, Quarters
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Quarters Ended December 31, (Unaudited) 33 2013 2012 % Change Reported Diluted EPS 1.24$ 1.25$ (0.8)% Less: Currency impact
Slide 34: Reconciliation: Adjustments for Currency and Acquisitions, Years
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) 34 Reported Net Revenues Less Excise Taxes Reported Net Revenues excluding Excise Taxes Less Curr
Slide 35: Reconciliation of Reported OCI to Adjusted OCI, Years
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income & Reconciliation of Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions For the Years Ended D
Slide 36: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS, Years
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) 36 2013 2012 % Change Reported Diluted EPS 5.26$ 5.17$ 1.7% A
Slide 37: Reconciliation of Reported Diluted EPS excluding Currency, Years
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Years Ended December 31, (Unaudited) 37 2013 2012 % Change Reported Diluted EPS 5.26$ 5.17$ 1.7% Less: Currency impact (0.3
Slide 38: Reconciliation of Operating Cash Flow to Free Cash Flow
(a) Operating Cash Flow PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures 38 Reconciliation of Operating Cash Flow to Free Cash Flow and Free Cash Flow, excluding Currency For the Quarters and Years Ended December 31, ($ in millions) (Unaudited) For the Quarters E
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