Philip Morris International Inc · NYSE:PM

Philip Morris International — Investor Day (June 2014)

30 slides from Philip Morris International's investor day presentation, Jun 27, 2014

  1. Slide 1: Investor Day Lausanne, June 27, 2014

    Investor Day Lausanne, June 27, 2014 Jacek Olczak Chief Financial Officer Philip Morris International

  2. Slide 2: Agenda

    Agenda ● 2014 EPS guidance ● Key drivers of future profit growth ● Reduced-Risk Products ● Cash flow and balance sheet management ● Returning cash to our shareholders ● Outlook for growth and conclusion Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potent

  3. Slide 3: 2014 EPS Guidance

    2014 EPS Guidance ● Revised reported diluted EPS guidance for 2014 is $4.87 to $4.97 at prevailing exchange rates, compared to $5.26 in 2013. This includes: - A pre-tax charge related to the contemplated decision to discontinue cigarette production in Bergen op Zoom, in the Netherlands, of approxima

  4. Slide 4: Key Drivers: Industry Volume Trends

    Key Drivers: Industry Volume Trends International Cigarette Industry Volume Decline Rate(a) 2013 2014 Forecast 2015 Forecast (1)% to (2)% (3)% (2)% to (3)% (a) Excluding China and the USA Source: PMI estimates and PMI forecasts 4

  5. Slide 5: Key Drivers: Market Share Momentum

    Key Drivers: Market Share Momentum Top 30 PMI OCI Markets(a) +1.3pp 37.0% 35.7% 2010 12mm May 2014 (a) Excluding duty free Source: PMI estimates 5

  6. Slide 6: Key Drivers: Market Share Momentum

    Key Drivers: Market Share Momentum Regional PMI Market Shares (%) EU EEMA Asia(a) LA&C +0.4pp +1.4pp +0.4pp +1.7pp 38.9 38.5 38.1 36.4 24.8 24.5 24.9 23.4 2010 12mm May 2010 12mm May 2010 12mm May 2010 12mm May 2014 2014 2014 2014 (a) Excluding China Note: Data based on historical view Source: PMI e

  7. Slide 7: Key Drivers: Adult Smokers Trading-Up to Premium Brands

    Key Drivers: Adult Smokers Trading-Up to Premium Brands Premium PMI Share of Market Share of Segment 12mm May 12mm May 2010 2014 Variance 2014 Argentina 35.7% 38.5% 2.8 pp 73.0% Brazil 22.2 27.1 4.9 34.5 Egypt 7.4 9.7 2.3 96.4 Indonesia 35.5 37.3 1.8 65.9 Mexico 61.3 61.4 0.1 91.2 Philippines 26.4 1

  8. Slide 8: Key Drivers: An Invigorated Marlboro

    Key Drivers: An Invigorated Marlboro Marlboro Market Shares (%) EU EEMA Asia(a) LA&C +0.5pp +0.8pp (0.1)pp +0.6pp 18.5 19.0 14.9 14.3 7.2 6.4 6.2 6.1 2010 12mm May 2010 12mm May 2010 12mm May 2010 12mm May 2014 2014 2014 2014 (a) Excluding China Source: PMI estimates 8

  9. Slide 9: Key Drivers: An Invigorated Marlboro

    Key Drivers: An Invigorated Marlboro

  10. Slide 10: Key Drivers: An Invigorated Marlboro

    Key Drivers: An Invigorated Marlboro Note: Pack designs are for illustrative purposes only

  11. Slide 11: Key Drivers: Pricing

    Key Drivers: Pricing Pricing Variance ($ million) Average 2008-2013 2,066 1,984 1,894 1,759 1,662 1,765 1,223 2008 2009 2010 2011 2012 2013 Source: PMI Financials 11

  12. Slide 12: Key Drivers: Rational and Reasonable Fiscal Environment

    Key Drivers: Rational and Reasonable Fiscal Environment ● Disruptive excise tax increases have become less frequent ● Improved excise tax structures: - Increase in relative importance of specific elements - Reinforced minimum excise taxes - Compensation for VAT increases - Elimination of discriminat

  13. Slide 13: Key Drivers: Margin Expansion Through Cost Savings and Productivity Improvements

    Key Drivers: Margin Expansion Through Cost Savings and Productivity Improvements Adjusted OCI Margins (%) (a) 46.0 45.4 44.1 42.3 41.4 41.7 2008 2009 2010 2011 2012 2013 (a) Excluding currency Source: PMI Financials 13

  14. Slide 14: Superior PMI Margins

    Superior PMI Margins 2013 Adjusted OCI Margin (%)(a) 46.0 34.5 24.7 PMI Tobacco Peer Compensation Survey Group Average Group Average Increase vs. 2008: 4.6pp 5.4pp 1.0pp (a) Excluding currency where data is available Note: PMI is not included in the Tobacco Peer Group and Compensation Survey Group a

  15. Slide 15: Outlook: A Return to Our Revenue and OCI Growth Algorithm

    Outlook: A Return to Our Revenue and OCI Growth Algorithm ● As of 2015, we target mid to long-term currency-neutral annual growth rates of 4% to 6% for net revenues and 6% to 8% for adjusted OCI: - An improved performance in challenging markets - Better volume trends - Improved product mix - Strong

  16. Slide 16: Reduced-Risk Products: Assessing the Potential

    Reduced-Risk Products: Assessing the Potential ● For the initial five years, the markets in scope for our launches represent consumption of about one trillion units ● Potential annual volume evaluated at 30-50 billion units ● Potential incremental margin estimated at $720 million to $1.2 billion per

  17. Slide 17: Reduced-Risk Products: Assessing the Potential

    Reduced-Risk Products: Assessing the Potential 2014 2015 2016 2017 iQOS City Tests National Geographic Expansion Final Phase of Platform 2 Clinical Trials City Tests National Development Platform 4 Altria / Nicocigs Geographic Expansion (current generation) Platforms 3 and 4 Product Development Comm

  18. Slide 18: Free Cash Flow: Key Drivers

    Free Cash Flow: Key Drivers Free Cash Flow ($ billion) Variance: CAGR: 5.5% ($ billion) 8.9 Net Earnings 2.3 Currency (0.4) 6.8 Working Capital (0.2) Others, net 0.4 Total 2.1 2008 2013 Source: PMI Financials 18

  19. Slide 19: Free Cash Flow as a % of Net Revenues (2008 – March 31, 2014)

    Free Cash Flow as a % of Net Revenues (2008 – March 31, 2014) Compensation Survey Group Tobacco Peer Group PMI 28.1% Pfizer 27.1% PMI 28.1% Roche 26.0% BAT 25.5% BAT 25.5% GlaxoSmithKline 20.1% Novartis 20.0% Johnson & Johnson 19.8% Lorillard 25.0% Coca-Cola 16.9% Diageo 16.8% Altria 20.9% McDonald'

  20. Slide 20: Credit Rating, Earnings and Debt

    Credit Rating, Earnings and Debt Net Debt to EBITDA ($ billion, except ratios) 2.0 Net Debt to EBITDA Ratio 1.7 27.9 Net Debt 25.5 1.3 1.3 1.2 1.1 19.9 0.9 16.0 13.9 14.8 10.4 2008 2009 2010 2011 2012 2013 Q1, 2014 Note: EBITDA calculation method changed in 2013 and amounts restated back to 2008 to

  21. Slide 21: Debt Financing at Increasingly Attractive Terms

    Debt Financing at Increasingly Attractive Terms Weighted-Average Coupon Weighted-Average Time to Maturity of Total Bond Portfolio (%) of Total Long-Term Debt (years) 5.4 10.8 10.1 10.3 4.8 4.2 8.2 3.8 3.4 7.0 2010 2011 2012 2013 2014 2010 2011 2012 2013 2014 Forecast Forecast Note: Weighted-average

  22. Slide 22: Very Well-Laddered Bond Portfolio

    Very Well-Laddered Bond Portfolio ($ billion) Bond Maturity Profile as of May 31, 2014 3.5 3.0 CHF 2.5 CHF CHF CHF 2.0 CHF EUR EUR EUR 1.5 USD EUR USD USD 1.0 EUR USD CHF USD USD EUR USD USD 0.5 USD EUR USD USD USD EUR EUR EUR USD USD USD USD USD USD 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 20

  23. Slide 23: Focused Use of Cash Flow to Enhance Shareholder Returns

    Focused Use of Cash Flow to Enhance Shareholder Returns 2008-2013 Free Cash Flow: Net Debt Issuance and Other: $49.6 billion $18.6 billion Cash Available: $68.2 billion Strategic Business Dividends(a): Share Repurchases: Development Initiatives: $29.7 billion $33.9 billion $4.6 billion 7% 43% 50% (a

  24. Slide 24: Returning Cash to Our Shareholders: Dividend Pay-Out Target Ratio of 65%

    Returning Cash to Our Shareholders: Dividend Pay-Out Target Ratio of 65% Dividend Pay-Out Average 69% 2008-2013 68% 62% 63% 58% 63% 56% 2008 2009 2010 2011 2012 2013 Note: 2008 annualized rate is based on a quarterly dividend of $0.46 per common share, declared June 18, 2008 Source: PMI Financials 2

  25. Slide 25: Returning Cash to Our Shareholders: Dividend Increase and Yield

    Returning Cash to Our Shareholders: Dividend Increase and Yield Dividend Growth: Compensation Survey Group Dividend Yield: Compensation Survey Group (2008 – June 24, 2014) (June 24, 2014) McDonald's 116.0% Vodafone 5.8% PMI 104.3% GlaxoSmithKline 5.0% Imperial Tobacco 81.3% Imperial Tobacco 4.5% BAT

  26. Slide 26: Returning Cash to Our Shareholders: Substantial Share Repurchase Programs

    Returning Cash to Our Shareholders: Substantial Share Repurchase Programs PMI Share Repurchase Programs (2008 – Q1, 2014) 35.1 571.6 27.1 Cumulative Amount Shares Shares Outstanding at Spin ($ billion) (million) (%) Note: The outstanding PMI shares at the time of the spin were 2,109 million Source:

  27. Slide 27: From OCI to EPS: Key Considerations and Outlook

    From OCI to EPS: Key Considerations and Outlook ● Fully committed to our share repurchase program. Target spending of $4 billion in 2014 and approximately $2-3 billion a year in 2015 and 2016 ● Investments required to support the commercialization of RRPs ● For 2015 and 2016, we target a growth in c

  28. Slide 28: PMI Outlook is Very Promising

    PMI Outlook is Very Promising ● Superior brand portfolio, led by an invigorated Marlboro ● Optimized global footprint and infrastructure ● Sustainable strong pricing power based on our brands ● Limited cost increases and significant productivity improvement opportunities ● Best-in-class R&D capabili

  29. Slide 29: Investor Day Lausanne, June 27, 2014

    Investor Day Lausanne, June 27, 2014

  30. Slide 30: Reconciliation of non-GAAP measures included in this presentation

    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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