Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (June 2012)
62 slides from Philip Morris International's investor day presentation, Jun 21, 2012
Slide 1: Investor Day
Investor Day Lausanne, June 21, 2012 André Calantzopoulos Chief Operating Officer Philip Morris International
Slide 2: Agenda
Agenda ● Industry Overview ● Competitive Landscape ● Fiscal & Regulatory Environment ● Regional Overview ● Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development ● Next Generation Products / MRTPs ● Key Takeaways 2
Slide 3: Tobacco Industry Retail Sales Value 2011
Tobacco Industry Retail Sales Value 2011 ($ billion) Total: $748 OTP USA 8% Cigarettes 12% International 56% Cigarettes(a) 24% China Cigarettes (a) Excluding duty free 3 Source: PMI estimates
Slide 4: Tobacco Industry Retail Sales Value 2011
Tobacco Industry Retail Sales Value 2011 ($ billion) Total: $598 International 56% Cigarettes(a) 24% China Cigarettes (a) Excluding duty free 4 Source: PMI estimates
Slide 5: World Cigarette Market
World Cigarette Market(a) Volume (units trillion) CAGR 5.5 0.7% 5.6 2.2 3.5% 2.4 2.1 0.4% 2.2 1.2 (4.1)% 1.0 2007 2011 China Non-OECD OECD (a) Excluding the U.S. and duty free 5 Source: PMI estimates
Slide 6: World Cigarette Market
World Cigarette Market(a) Volume (units trillion) Retail Value ($ billion) CAGR CAGR 0.7% 5.6 9.5% $598 5.5 182 $1.52 2.2 3.5% 2.4 $416 20.6% $0.78 86 138 $1.29 10.7% $0.87 92 2.1 0.4% 2.2 $3.89 238 4.0% 278 $5.37 1.2 (4.1)% 1.0 2007 2011 2007 2011 China Non-OECD OECD Avg. Retail Price/Pack(b) (a) E
Slide 7: Industry Price Segment Mix
Industry Price Segment Mix(a) Overall OECD Non-OECD Premium 24% 18% 19% 25% 35% 37% 28% 29% Mid 29% 29% 31% 26% 54% 52% Low 47% 46% 34% 37% 2007 2011 2007 2011 2007 2011 Volume 3.3 3.2 1.2 1.0 2.1 2.2 (units trillion) (a) Excluding the U.S., China and duty free 7 Source: PMI estimates
Slide 8: Industry Taste / Format Segment Dynamics
Industry Taste / Format Segment Dynamics(a) Low Tar(b) Slims(c) Menthol CAGR: <1% CAGR: 14% CAGR: 1% (units billion) (units billion) (units billion) 1,500 1,305 1,327 400 400 306 184 184 193 0 0 0 2007 2011 2007 2011 2007 2011 2011 PMI Share of 31.9% 27.9% 50.8% Segment (a) Excluding the U.S., China
Slide 9: Agenda
Agenda ● Industry Overview ● Competitive Landscape ● Fiscal & Regulatory Environment ● Regional Overview ● Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development ● Next Generation Products / MRTPs ● Key Takeaways 9
Slide 10: Key Competitor Shares 2011
Key Competitor Shares 2011 International Market(a) International Market excl. China Others PMI Others PMI 14.1% 16.0% 24.8% 28.1% 12.4% BAT 8.9% IMT 43.0% 9.4% 21.7% JT 16.5% 5.1% China IMT BAT JT (a) Excluding the U.S. Note: Cigarette volumes are on a calendar year basis, except for IMT, which repo
Slide 11: Key Competitor Shares 2011: Top OECD & Non-OECD Markets
Key Competitor Shares 2011: Top 10 OECD & Non-OECD Markets(a) Top 10 OECD Markets Top 10 Non-OECD Markets Others PMI IMT 9.2% PMI 12.0% 25.8% Others 35.9% 38.0% 17.2% BAT 19.8% 25.7% 11.9% BAT 4.5% IMT JT JT (a) Reflects the top ten OECD and non-OECD markets ranked by 2011 industry volume, excluding
Slide 12: Top Cigarette Markets 2011
Top 10 Cigarette Markets 2011(a) (units billion) OECD Markets Non-OECD Markets Japan 195 Russia 375 Turkey 91 Indonesia 294 Korea 90 India 111 Italy 85 Philippines 97 Germany 84 Brazil 93 Spain 61 Ukraine 86 Poland 56 Bangladesh 82 France 54 Vietnam 81 UK 43 Egypt 80 Mexico 34 Pakistan 63 (a) Based
Slide 13: PMI Leadership in Top Markets
PMI Leadership in Top Markets(a) Share of Market 2011 PMI Ranking: #1 #2 OECD (%) 75 72 47 53 36 35 41 31 31 20 7 0 Japan Turkey Korea Italy Germ. Spain Poland France UK Mexico Non-OECD (%) 100 75 94 90 50 32 37 26 31 14 16 <1 2 <1 0 Russia Indon. India Phil. Brazil Ukraine Vietnam Egypt Bangl. Paki
Slide 14: PMI Geographically Balanced
PMI Geographically Balanced 2011 Share of Market by Region(a) EU EEMA ASIA LA&C PMI 38% 23% 26% 36% BAT 20% 22% 16% 49% JT 17% 23% 12% 4% IMT 21% 12% 3% 0% Others 4% 20% 43% 11% 745 billion units (a) Excluding the U.S., China and duty free 14 Source: PMI estimates
Slide 15: PMI Premium Price Segment Leadership
PMI Premium Price Segment Leadership 2011 Price Segment Volume by Competitor(a) PMI BAT JT IMT 11% 16% 10% 29% 26% 23% 42% 16% Premium 55% 33% 41% 23% 31% 47% 22% Mid 20% 68% 57% 48% 43% 48% 36% 30% Low 25% OECD Non- OECD Non- OECD Non- OECD Non- OECD OECD OECD OECD Volume % 43% 57% 32% 68% 47% 53%
Slide 16: Agenda
Agenda ● Industry Overview ● Competitive Landscape ● Fiscal & Regulatory Environment ● Regional Overview ● Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development ● Next Generation Products / MRTPs ● Key Takeaways 16
Slide 17: Rational Excise Tax Environment
Rational Excise Tax Environment ● Most governments recognize that, over the longer term, the optimization of their revenues is fostered by: - Reasonable, regular excise tax increases - Predominantly specific excise tax structures - Use of minimum excise taxes and other mechanisms to limit consumptio
Slide 18: Improving Excise Tax Structures
Improving Excise Tax Structures ● A number of markets have implemented more favorable tax structures over the past few years: - Increased specific-to-total tax ratios - Notable recent examples include Brazil, France and Spain ● Provides greater predictability for government revenues ● Narrows price
Slide 19: Tax Structures and Price Increase Productivity in PMI's Top 30 Volume Markets
25 50 75 0 100 0 25 50 75 100 80 Turkey Turkey France 10 16 France Spain Spain Italy Italy Source: Internal PMI Estimates Greece Greece 73 72 72 71 70 Pakistan Pakistan Argentina Argentina Thailand 66 65 Thailand 18 18 19 17 20 22 Mexico Mexico Serbia Serbia Poland Poland Egypt Egypt Hungary 52 50 5
Slide 20: PMI Operates Successfully in Strictly Regulated Markets
PMI Operates Successfully in Strictly Regulated Markets ● Many of our markets have introduced: - Extensive public smoking restrictions - Advertising bans (e.g., billboards, print media, television and radio) - Graphic health warnings - Limitations on the use of "descriptors" ● We generally support t
Slide 21: PMI Opposes Extreme Regulatory Measures
PMI Opposes Extreme Regulatory Measures ● Some governments have sought to enact measures that are extreme in nature and are not based on rational scientific principles, such as: - Plain packaging - Health warnings covering most of the pack - Display bans - Bans on the use of all ingredients ● There
Slide 22: Agenda
Agenda ● Industry Overview ● Competitive Landscape ● Fiscal & Regulatory Environment ● Regional Overview ● Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development ● Next Generation Products / MRTPs ● Key Takeaways 22
Slide 23: Asia Now Largest Volume Contributor to PMI
Asia Now Largest Volume Contributor to PMI PMI Volume Contribution by Region 2007 2011 LA&C LA&C Asia 11% 11% 25% Asia 34% 34% EEMA 32% EEMA 30% 23% EU EU 23 Source: PMI Financials
Slide 24: Financial Growth Across All Regions
Financial Growth Across All Regions ($ billion) Net Revenues 2007 2011 10.7 8.8 9.2 7.9 6.3 5.6 3.3 2.0 EU EEMA Asia LA&C CAGR(a) 0.2% 8.6% 13.3% 13.9% Adjusted OCI 4.3 4.6 4.9 3.3 2.4 1.8 0.5 1.0 EU EEMA Asia LA&C CAGR(a) 1.3% 13.9% 21.0% 19.8% (a) Excluding currency 24 Source: PMI Financials
Slide 25: Agenda
Agenda ● Industry Overview ● Competitive Landscape ● Fiscal & Regulatory Environment ● Regional Overview ● Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development ● Next Generation Products / MRTPs ● Key Takeaways 25
Slide 26: Evolving Commercial Landscape
Evolving Commercial Landscape ● Proliferation of brands, intensifying competition and increasing innovation adding to portfolio complexity ● More demanding adult smokers require more effective communication ● Regulatory restrictions: - Limited consumer communication opportunities - Additional time a
Slide 27: Enhanced Commercial Approach
Enhanced Commercial Approach ● Increased retention of our current adult smokers ● Improved success rate of new product introductions ● Longer and simultaneous support of key brands ● Innovative consumer touch points ● Increased focus, simplification and use of common platforms 27
Slide 28: Agenda
Agenda ● Industry Overview ● Competitive Landscape ● Fiscal & Regulatory Environment ● Regional Overview ● Opportunities: - Commerical Organization - Reduction of Illicit Trade - Business Development ● Next Generation Products / MRTPs ● Key Takeaways 28
Slide 29: Illicit Trade: Main Categories
Illicit Trade: Main Categories ● Counterfeit: Cigarettes that have been manufactured without the permission of the trademark owner ● Contraband: Cigarettes that enter or are sold in a market in violation of fiscal/customs laws, e.g., without paying import duties, excise tax and/or VAT ● Illicit Whit
Slide 30: Illicit Trade: An Opportunity, Not Only a Risk
Illicit Trade: An Opportunity, Not Only a Risk ● Estimated volume of some 600 billion units, or about 10% of global consumption ● High illicit trade incidence notably in: Brazil India South Africa Canada Ireland Turkey Egypt Malaysia UAE France Norway Uruguay Germany Pakistan Vietnam 30 Source: PMI
Slide 31: Illicit Trade: An Opportunity, Not Only a Risk
Illicit Trade: An Opportunity, Not Only a Risk ● Estimated volume of some 600 billion units, or about 10% of global consumption ● High illicit trade incidence notably in: Brazil India South Africa Canada Ireland Turkey Egypt Malaysia UAE France Norway Uruguay Germany Pakistan Vietnam ● A 50% reducti
Slide 32: Illicit Trade: Solutions
Illicit Trade: Solutions ● Governments becoming more aware of issue and its adverse consequences ● PMI has a sizable, dedicated team in place to help combat illicit trade ● Three-year cooperation agreement with Interpol: - Information gathering & sharing - Increase awareness of consumers and governm
Slide 33: Agenda
Agenda ● Industry Overview ● Competitive Landscape ● Fiscal & Regulatory Environment ● Regional Overview ● Opportunities: - Commerical Organization - Reduction of Illicit Trade - Business Development ● Next Generation Products / MRTPs ● Key Takeaways 33
Slide 34: Opportunities for Geographic Expansion
Opportunities for Geographic Expansion 2011 Share of Market(a) Main Geographic Opportunities (units billion) JT 111 IMT International Manufacturers 16.5% 82 81 80 8.9% 54 BAT 21.7% 24.8% Other 110 56 55 59 36 35 30 12 28.1% 28 PMI India Bangl. Vietnam Egypt Iran Thai. Taiwan PMI SoM (%) <1 <1 2 16 -
Slide 35: China
China 2011 Industry Volume(a) ● 2.4 trillion unit market: 5.6 trillion units - PMI share: <0.1% ● Controlled by state monopoly, the CNTC: - Most profitable company in China China 43% ● PMI developing excellent relationship with the CNTC: - Marlboro in China - International joint venture - Other stra
Slide 36: Agenda
Agenda ● Industry Overview ● Competitive Landscape ● Fiscal & Regulatory Environment ● Regional Overview ● Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development ● Next Generation Products / MRTPs ● Key Takeaways 36
Slide 37: PMI's NGP Objectives
PMI’s NGP Objectives ● Products acceptable to adult smokers of conventional cigarettes: - Taste and sensory experience - Ritual ● Robust scientific evidence of risk reduction: - Individual risk - Reduced risk to the population - Best practice systems ● Appropriate regulation for development, assessm
Slide 38: Our Position on Risk Reduction in Products
Our Position on Risk Reduction in Products ● Modifying conventional cigarettes unlikely to be effective in providing material health benefits ● Elimination of combustion most promising path to risk reduction: - Tobacco heating - Other innovative systems 38
Slide 39: Alternatives to Cigarette Products: Smokeless Category
Alternatives to Cigarette Products: Smokeless Category ● Swedish Snus: Epidemiology could qualify it as reduced risk ● Swedish Match – PM International Joint Venture: - Progressive geographic expansion - Nicotine delivery slower than in cigarettes - Different ritual and taste; slow adoption as expec
Slide 40: Alternatives to Cigarette Products: e-cigarettes
Alternatives to Cigarette Products: e-cigarettes ● Nicotine-containing aerosol ● Relatively poor sensory experience and weak nicotine- delivery profile ● Reliability and safety issues ● Commercialized without regulatory approvals ● Increased consumer awareness and regulatory scrutiny 40
Slide 41: Blood Nicotine Level Comparison
Blood Nicotine Level Comparison Cigarette E‐cigarettes 25 Nicotine Venous Blood Concentration 20 15 (ng/mL) 10 5 0 0 10 20 30 40 50 Time (minutes) Note: Illustrative comparison; corrected for baseline nicotine Source: Vansickel AR, Cobb CO, Weaver MF, Eissenberg TE (2010). A clinical laboratory mode
Slide 42: PMI's Three Product Platforms
PMI’s Three Product Platforms(a) Platform 1 (a) The products described are subject to ongoing development and therefore the descriptions are illustrative and do not necessarily represent the 42 latest stages of product development
Slide 43: PMI's Three Product Platforms
PMI’s Three Product Platforms(a) Platform 1 Platform 2 (a) The products described are subject to ongoing development and therefore the descriptions are illustrative and do not necessarily represent the 43 latest stages of product development
Slide 44: PMI's Three Product Platforms
PMI’s Three Product Platforms(a) Platform 1 Platform 2 Platform 3 (a) The products described are subject to ongoing development and therefore the descriptions are illustrative and do not necessarily represent the 44 latest stages of product development
Slide 45: NGP Risk Assessment: A Two-Pronged Approach
NGP Risk Assessment: A Two-Pronged Approach ● Reduction in the risk of disease for the adult smoker: - Pre-clinical and clinical studies ● Impact on the population as a whole: - Initiation - Cessation - Relapse of smokers who have quit - Switching rates, risk understanding and potential for unintend
Slide 46: NGP Risk Assessment: Population
NGP Risk Assessment: Population ● Behavioral, clinical and econometric assessments ● Useful part of evidence used to substantiate individual risk ● Further validation following post-market surveillance 46
Slide 47: Cessation as a Benchmark to Substantiate Risk Reduction
Cessation as a Benchmark to Substantiate Risk Reduction ● The health risks of smoking and the reversal of risks after quitting smoking are well established From Epidemiology Point of Intervention Disease Risk Time ● “[T]he closer risks and exposures from the MRTP are to cessation products, the more
Slide 48: PMI's Assessment Strategy
PMI’s Assessment Strategy Total Quality Design and Control Principles 48
Slide 49: PMI's Assessment Strategy
PMI’s Assessment Strategy State-of-the-Art Toxicological Assessment Potential to Standard Toxicological Reduce Risk Assessment Aerosol Chemistry and Physics Potential to Reduce Exposure Total Quality Design and Control Principles 49
Slide 50: Heating versus Combustion Simplifies Chemistry
Heating versus Combustion Simplifies Chemistry Conventional Cigarette PMI NGP 50 Note: Study using Platform 2
Slide 51: Reductions in Atheromatic Plaque Growth in NGP Exposed ApoE-/-
Reductions in Atheromatic Plaque Growth in NGP Exposed ApoE-/- vs. Conventional Cigarette 3.5 % Aortic Arch Covered by Plaque 3.0 2.5 2.0 1.5 1.0 0.5 0.0 CC Exposure CC 3 Months CC 3 Months for 6 Months Cessation 3 Months NGP 3 Months Switching to NGP is similar to cessation for plaque growth 51 Not
Slide 52: PMI's Assessment Strategy
PMI’s Assessment Strategy Consumer Perception and Behavior Assessment Reduced Exposure Clinical Trials & Risk (Short-Term & Long-Term) State-of-the-Art Toxicological Assessment Potential to Standard Toxicological Reduce Risk Assessment Aerosol Chemistry and Physics Potential to Reduce Exposure Total
Slide 53: PMI's Assessment Strategy
PMI’s Assessment Strategy Post-Market Studies & Surveillance Reduced Population Harm Consumer Perception and Behavior Assessment Reduced Exposure Clinical Trials & Risk (Short-Term & Long-Term) State-of-the-Art Toxicological Assessment Potential to Standard Toxicological Reduce Risk Assessment Aeros
Slide 54: U.S. Law Defines a Different Category
U.S. Law Defines a Different Category FDA REGULATION Tobacco Pharma Conventional Nicotine Tobacco MRTPs Replacement Products Therapies (NRTs) Standards for Pre-market Approval Legislative recognition of tobacco risk reduction 54
Slide 55: The FDA has Issued Draft Guidance
The FDA has Issued Draft Guidance ● Non-binding ● MRTPs may be valuable tools in promoting public health ● Generally in line with PMI’s assessment approach ● Does not establish required levels of evidence ● Continued consultation necessary for more detailed guidance 55
Slide 56: PMI has Begun Engaging Regulators
PMI has Begun Engaging Regulators ● U.S. FDA: - Written submissions (February 2012) and comments to Draft Guidance (June 2012) - Positive meeting (May 2012) - Detailed subject matter meetings to follow ● European Union ● Asia 56
Slide 57: Planning for Commercialization
Planning for Commercialization ● Construction of large-scale greenfield manufacturing facility: - Site selection under evaluation - Equipment derived primarily from conventional machinery - Strong potential for optimization as technology matures - Larger initial footprint and capital investment - Re
Slide 58: NGP Expected Timeline
NGP Expected Timeline ● Significant progress on NGPs ● Manufacturing facility ready in 2015 / 2016 ● Product commercialization planned for 2016 / 2017 58
Slide 59: Agenda
Agenda ● Industry Overview ● Competitive Landscape ● Fiscal & Regulatory Environment ● Regional Overview ● Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development ● Next Generation Products / MRTPs ● Key Takeaways 59
Slide 60: Key Takeaways
Key Takeaways ● Continued organic growth: - Innovation in brands, consumer engagement and commercial approach - Sustainable pricing - Evolving tax structures - Reduction of illicit trade ● NGPs represent a potential paradigm shift: - Product commercialization planned for 2016 / 2017 60
Slide 61: Questions & Answers
Investor Day Lausanne, June 21, 2012 Questions & Answers
Slide 62: Reconciliations of non-GAAP measures
Reconciliations of non-GAAP measures included in this presentation to the most comparable GAAP measures are provided on our website at: www.pmi.com/2012InvestorDay/RecSlides
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