Philip Morris International Inc · NYSE:PM
Philip Morris International — Q2 2020 Earnings Presentation
56 slides from Philip Morris International's earnings presentation, Jul 21, 2020
Slide 1: Delivering a Smoke-Free Future: 2020 Second-Quarter Results
Exhibit 99.3 Delivering a Smoke-Free Future 2020 Second-Quarter Results July 21, 2020
Slide 2: Introduction
Introduction • A glossary of key terms and definitions, including the definition for reduced-risk products, or "RRPs," additional heated tobacco unit market data, as well as adjustments, other calculations and reconciliations to the most directly comparable U.S. GAAP measures are at the end of today
Slide 3: Forward-Looking and Cautionary Statements
Forward-Looking and Cautionary Statements • This presentation and related discussion contain projections of future results and other forward-looking statements. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. In the event that risks or uncertainties mater
Slide 4: Forward-Looking and Cautionary Statements (COVID-19)
Forward-Looking and Cautionary Statements (COVID-19) • The COVID-19 pandemic has created significant societal and economic disruption, and resulted in closures of stores, factories and offices, and restrictions on manufacturing, distribution and travel, all of which will adversely impact our busines
Slide 5: Supporting Our Employees and Communities Through the COVID Pandemic
Supporting Our Employees and Communities Through the COVID Pandemic • Our main focus remains the health and wellbeing of our employees, their families and the communities in which we operate • Implemented policies and measures to protect, support and reassure employees • Outstanding strength and spi
Slide 6: Robust Performance in Unprecedented Circumstances
Robust Performance in Unprecedented Circumstances • Very strong performance from IQOS, with an estimated 15.4 million users, and 24% growth in HTU volume vs. Q2, 2019: RRPs now account for 24% of total net revenues ⎼ • Industry volume recovery started in June and the beginning of July as confinement
Slide 7: Historic Milestone: FDA Authorizes Marketing of IQOS as a Modified Risk Tobacco Product
• First electronic nicotine product authorized as a Modified Risk Tobacco Product (MRTP) with reduced exposure message Historic • Demonstrates that IQOS is a fundamentally different tobacco product, and a better choice for adults who Milestone: would otherwise continue smoking • Decision validates P
Slide 8: PMI Reports 2019 ESG Performance in Its First Integrated Report
June 30, 2020 PMI Reports 2019 ESG Performance in DELIVERING A SMOKE-FREE FUTURE Its First Progress toward a world without cigarettes Integrated INTEGRATED REPORT 2019 Report Source: https://www.pmi.com/integrated-report-2019 8
Slide 9: H1, 2020: Strong Currency-Neutral Performance
H1, 2020: Strong Currency-Neutral Performance (Variance vs. PY) Net Revenues % (ex-currency, like-for-like) (0.5) Combustible Tobacco Pricing(a) % (like-for-like) 5.4 Adjusted OI Margin bps (ex-currency, like-for-like) +230 Adjusted Diluted EPS % (ex-currency, like-for-like) 8.0 (a) As a percentage
Slide 10: Q2, 2020: Better Than Expected in Challenging Quarter
Q2, 2020: Better Than Expected in Challenging Quarter (Variance vs. PY) Guidance (June 11) Actuals Net Revenues Around the high end % (ex-currency) of (8)% to (12)% (9.5) Adjusted OI Margin (ex-currency) Flat Toward upper end of Reported Diluted EPS $1.00 to $1.10 $1.25 (7.5)% Adjusted Diluted EPS $
Slide 11: Outlook: Uncertain Environment, Gradual Improvement
Outlook: Uncertain Environment, Gradual Improvement • Uncertainty remains in terms of: - Volatility and risk of virus resurgence Operating - Economic fallout Environment • Relative stability in some geographies, notably the EU Region • Continued low visibility in some other areas such as Indonesia,
Slide 12: FY, 2020: Expect Growth in Underlying Adjusted EPS
FY, 2020: Expect Growth in Underlying Adjusted EPS • Expect low-to-mid single digit adjusted diluted EPS growth, on a currency-neutral like-for-like basis: Forecast of 2% to 5% currency-neutral like-for-like growth reflects a range of $4.92 to $5.07, including estimated 31 cents currency headwind, a
Slide 13: H2, 2020: Gradual Underlying Improvement
H2, 2020: Gradual Underlying Improvement EPS Growth Expected to Skew to Q4 • Sequential underlying improvement in net revenues and adjusted EPS • Performance impacted by: Reversal of certain H1 effects Q3 Phasing of certain S,G&A investments ⎼ Timing of 2020 pricing in certain markets ⎼ • Adjusted⎼
Slide 14: Total PMI Shipment Volume
Total PMI Shipment Volume (billion units) 198.9 Change vs. PY 15.1 Total 170.1 (14.5)% HTUs 18.7 24.3 % 183.8 Cigarettes 151.4 (17.6)% Q2, 2019 Q2, 2020 Source: PMI Financials or estimates 14
Slide 15: Sequential Volume Recovery
Sequential Volume Recovery (billion units) Total PMI IMS Volume 63.9 65.0 Total 57.2 58.0 54.6 53.8 51.9 50.0 60.0 57.5 Cigarettes 51.7 51.7 48.8 48.3 46.1 45.0 7.0 6.3 6.4 5.8 5.8 HTUs 5.5 5.5 5.0 January February March April May June Note: Excluding China and the U.S. 2020 Source: PMI Financials o
Slide 16: HTUs Now Comprise Over 10% of Our Total Volume
HTUs Now Comprise Over 10% of Our Total Volume (as a % of PMI Total Shipment Volume) 10.3% 7.8% 5.3% 4.5% 0.9% —% 2015 2016 2017 2018 2019 H1, 2020 0.4 7.4 36.2 41.4 59.7 35.4 PMI HTU Shipment Volume (billion units) Source: PMI Financials or estimates 16
Slide 17: Increasing Weight of RRPs Driven by Strong Growth
Increasing Weight of RRPs Driven by Strong Growth (as a % of PMI Total Net Revenues) 22.9% % 24.1 18.7% in Q2, 2020 13.8% 12.7% 2.7% —% 0.2% 2014 2015 2016 2017 2018 2019 H1, 2020 $0.1 $0.7 $3.6 $4.1 $5.6 $3.2 RRP Net Revenues ($ in billions) Source: PMI Financials or estimates 17
Slide 18: PMI Total International Market Share
PMI Total International Market Share • Higher share in majority of EU markets, Japan and Russia 28.1% (0.4)pp • Lower share in Indonesia HTUs 28.0% +0.9pp Other • Negative market mix impact of Duty Free (a) including (0.6)pp Duty Free Cigarettes • IQOS cannibalization offset by impacts elsewhere Ind
Slide 19: Indonesia: 2020 Headwinds Exacerbated by COVID
Indonesia: 2020 Headwinds Exacerbated by COVID Industry Volume Share by Tax Tier % Change in Industry Volume vs. PY 4.6% (1.9)% 0.3% (6.8)% (22.1)% (ex-inventory movements) 50% Tier 1 80% 80% 79% 78% 75% 25% Below Tier 1 20% 20% 21% 22% 0% Q2 Q3 Q4 Q1 Q2 2019 2020 Source: PMI Financials or estimates
Slide 20: Indonesia: Addressing the Challenges
Indonesia: Addressing the Challenges • Ongoing initiatives to leverage our strong brand portfolio • The growth of the super-low segment will have a significant impact on government excise revenues this year • We concur with the public policy experts and economists that urge the government to create
Slide 21: Over 15 Million IQOS Users
Over 15 Million IQOS Users Total IQOS Users(a) (in millions) Estimated users who are in various 15.4 stages of conversion to IQOS(a) 14.6 HOME IS WHERE Estimated users who have stopped 13.6 smoking and switched to IQOS(a) THE SMOKE ISN'T 12.3 IQOS has no second hand 11.3 smoke and produces no fire 1
Slide 22: Third-Largest Tobacco 'Brand' in IQOS Markets
Third-Largest Tobacco ‘Brand’ in IQOS Markets Share in IQOS Markets (Q2, 2020)(a) 11.3% 6.3% 4.1% #3 Marlboro Winston PMI HTUs Rothmans L&M (cigarettes) (a) Reflects 56 markets where IQOS is available in key cities or nationwide at July 2, 2020. Excludes the U.S. Note: Reflects sales volume as a per
Slide 23: EU Region: Record IQOS User Growth in Q2, 2020
EU Region: Record IQOS User Growth in Q2, 2020 Total IQOS Users(a) (in millions, approx.) 4.3 2.6 +0.5 million (vs. Q1, 2020) Q2 Q3 Q4 Q1 Q2 2019 2020 (a) See Glossary for definition Source: PMI Financials or estimates, IQOS user panels and PMI Market Research 23
Slide 24: EU Region: Continued HEETS Share Growth
EU Region: Continued HEETS Share Growth Adjusted 2.4% 4.1% SoM(a) 3.9% +1.5pp 2.4% Q2, 2019 Q2, 2020 Sequential Performance (vs. Q1, 2020) Adjusted SoM: +0.3pp(a) Adjusted IMS Volume: +5%(a) (a) Excluding the estimated impact of consumer pantry loading Source: PMI Financials or estimates 24
Slide 25: Russia: Continued HEETS Share Growth
Russia: Continued HEETS Share Growth 5.9% +3.0pp 2.9% Q2, 2019 Q2, 2020 Sequential Performance (vs. Q1, 2020) SoM: (0.6)pp IMS Volume: +11.9% Source: PMI Financials or estimates 25
Slide 26: Japan: Continued PMI HTU Share Growth
Japan: Continued PMI HTU Share Growth Adjusted 16.5% 18.5% Total Tobacco SoM(a) 20.0% +3.4pp 16.6% Q2, 2019 Q2, 2020 Sequential Performance (vs. Q1, 2020) Adjusted Total Tobacco SoM: +0.7pp(a) Adjusted IMS Volume: +4.9%(a) (a) Excluding the impact of estimated trade inventory movements, and includin
Slide 27: Geographic Expansion of IQOS Continues
Geographic Expansion of IQOS Continues Market Launches 57 2015 (7) Markets 2016 (13) Worldwide(a) 2017 (18) 2018 (6) 2019 (8) 2020 (5) (a) Status at July 2, 2020 Note: Reflects markets where IQOS is available in key cities or nationwide. Reflects date of initial geographic expansion beyond pilot lau
Slide 28: Strong Growth Prospects
Strong Growth Prospects • Growing weight and profitability of RRPs • Historic milestone of Modified Risk Tobacco Product authorization for IQOS • Industry volume recovery has started • Strong cost and margin focus while continuing to invest in RRPs • Strong balance sheet and unwavering commitment to
Slide 29: Questions & Answers
Delivering a Smoke-Free Future 2020 Second-Quarter Results Questions & Answers Have you downloaded the PMI Investor Relations App yet? iOS Download Android Download The free IR App is available to download at the Apple App Store for iOS devices and at Google Play for Android mobile devices Or go to:
Slide 30: Delivering a Smoke-Free Future: 2020 Second-Quarter Results
Delivering a Smoke-Free Future 2020 Second-Quarter Results July 21, 2020
Slide 31: Glossary of Key Terms and Definitions, Appendix, and Reconciliation of Non-GAAP Measures
Glossary of Key Terms and Definitions, Appendix, and Reconciliation of Non-GAAP Measures 31
Slide 32: Glossary: General Terms
Glossary: General Terms • "PMI" refers to Philip Morris International Inc. and its subsidiaries • Until March 28, 2008, PMI was a wholly owned subsidiary of Altria Group, Inc. ("Altria"). Since that time the company has been independent and is listed on the New York Stock Exchange (ticker symbol "PM
Slide 33: Glossary: General Terms (cont.)
Glossary: General Terms (cont.) • "EU" is defined as the European Union Region • "EE" is defined as the Eastern Europe Region • "ME&A" is defined as the Middle East & Africa Region and includes PMI's duty free business • "S&SA" is defined as the South & Southeast Asia Region • "EA&A" is defined as t
Slide 34: Glossary: Financial Terms
Glossary: Financial Terms • Net revenues related to combustible products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. PMI recognizes revenue when contro
Slide 35: Glossary: Reduced-Risk Products
Glossary: Reduced-Risk Products • "Reduced-risk products," or "RRPs," is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continuing smoking. PMI has a range of RRPs in variou
Slide 36: Glossary: Reduced-Risk Products (cont.)
Glossary: Reduced-Risk Products (cont.) • "Predominant IQOS Users" is defined as the estimated number of Legal Age (minimum 18 years) IQOS users that used PMI HTUs units for between 70% and 95% of their daily tobacco consumption over the past seven days • "Situational IQOS Users" is defined as the e
Slide 37: Glossary: IQOS in the United States
Glossary: IQOS in the United States • On April 30, 2019, the U.S. Food and Drug Administration (FDA) announced that the marketing of a version of IQOS, PMI's heat-not-burn product, together with its heated tobacco units (the term PMI uses to refer to heated tobacco consumables), is appropriate for t
Slide 38: 2020: EPS Guidance Full-Year
2020: EPS Guidance Full-Year ($/share) Adjusted 2020 Forecast 2019 Growth Reported Diluted EPS $4.84≥ to $4.99 $4.61 - Tax items (0.04) - Asset impairment and exit costs 0.04 0.23 - Canadian tobacco litigation-related expense 0.09 - Loss on deconsolidation of RBH 0.12 - Russia excise and VAT audit c
Slide 39: Select Key Market Highlights for Q2, 2020
Select Key Market Highlights for Q2, 2020 • Industry total market: +6% Germany • Total PMI shipments: +7% • Total PMI SoM: +0.4pp to 38.9%, driven by HEETS (+0.9pp to 2.0%) • Industry total market: -4% Russia • Total PMI shipments: +1% • Total PMI SoM: +2.8pp to 32.4%, driven by HTUs and stable shar
Slide 40: EU Region: HEETS SoM Performance in Select Markets
EU Region: HEETS SoM Performance in Select Markets Growth Growth Growth Q2, 2020 vs. PY Q2, 2020 vs. PY Q2, 2020 vs. PY Croatia 4.6% +1.2pp Italy 7.7% +3.1pp Romania 2.8% +0.6pp Czech Slovak Latvia Republic 9.6 +3.9 10.5 +5.9 Republic 8.7 +1.5 Germany 2.0 +0.9 Lithuania 19.0 +6.9 Slovenia 4.6 +1.6 G
Slide 41: Korea: Sequential Share Performance
Korea: Sequential Share Performance HEETS SoM 7.0% 6.3% 6.4% 6.7% 6.4% Adjusted(a) 7.3% 6.2% 6.3% 6.6% 6.6% Q2 Q3 Q4 Q1 Q2 2019 2020 (a) Excluding the impact of estimated trade inventory movements Source: PMI Financials or estimates 41
Slide 42: HTU Offtake Shares in Key Cities
HTU Offtake Shares in Key Cities PMI (Q2, 2020) Change vs. PY +5.1pp +2.5pp — pp +4.1pp +2.1pp +3.0pp +2.2pp +0.9pp +3.6pp 17.8% 15.6% 15.3% 8.5% 10.5% 9.5% 6.7% 2.9% 2.1% Athens Bratislava Bucharest Kiev Kuala L. Lisbon London Madrid Milan +5.2pp +2.4pp +3.0pp +5.5pp (0.3)pp +2.7pp +9.4pp +5.0pp +2
Slide 43: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS (Quarter)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency, and Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS, excluding Currency (Unaudited) Quarters Ended June 30, 2020 20
Slide 44: Net Revenues by Product Category and Adjustments (Quarter)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Quarters Ended Net Excluding Curren
Slide 45: Reconciliation of Operating Income to Adjusted Operating Income (Quarter)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Income to Adjusted Operating Income, excluding Currency and Acquisitions ($ in millions) / (Unaudited) Adjusted Adjusted Operating Excluding Asset Adjusted Operating Income Asset Adjuste
Slide 46: Reconciliation of Adjusted Operating Income Margin (Quarter)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Adjusted Operating Income Margin, excluding Currency and Acquisitions ($ in millions) / (Unaudited) Adjusted Adjusted Adjusted Adjusted Adjusted Net Operating Adjusted Operating Net Operating Adju
Slide 47: Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS (Six Months)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency, and Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS, excluding Currency (Unaudited) Six Months Ended June 30, 2020
Slide 48: Net Revenues by Product Category and Adjustments (Six Months)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Six Months Ended Net Excluding Curr
Slide 49: Reconciliation of Operating Income to Adjusted Operating Income (Six Months)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Income to Adjusted Operating Income, excluding Currency and Acquisitions ($ in millions) / (Unaudited) Adjusted Adjusted Operating Asset Excluding Asset Adjusted Operating Income Adjuste
Slide 50: Reconciliation of Adjusted Operating Income Margin (Six Months)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Adjusted Operating Income Margin, excluding Currency and Acquisitions ($ in millions) / (Unaudited) Adjusted Adjusted Adjusted Adjusted Adjusted Net Operating Adjusted Operating Net Operating Adju
Slide 51: Adjustments for the Impact of RBH, excluding Currency
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of RBH, excluding Currency ($ in millions, except per share data) / (Unaudited) Six Months Ended June 30, 2020 2019 % Change Net Revenues $ 13,804 $ 14,450 (4.5)% Net Revenues attributabl
Slide 52: Reconciliation of Reported Diluted EPS to Pro Forma Adjusted Diluted EPS
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Pro Forma Adjusted Diluted EPS (Unaudited) Quarter Quarter Six Months Quarter Nine Months Quarter Year Ended Ended Ended Ended Ended Ended Ended Mar 31, Jun 30, Jun 30, Sep
Slide 53: Net Revenues by Product Category (Year Ended 2019)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Years Ended Net Excluding Currency
Slide 54: Net Revenues by Product Category (Year Ended 2017)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Years Ended Net Excluding Currency
Slide 55: Net Revenues by Product Category (Year Ended 2016)
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions ($ in millions) / (Unaudited) Net Net Revenues Excluding Net Revenues Years Ended Net Excluding Currency
Slide 56: Delivering a Smoke-Free Future: 2020 Second-Quarter Results
Delivering a Smoke-Free Future 2020 Second-Quarter Results July 21, 2020
Philip Morris International — Q2 2020 Earnings Presentation on 6ix