Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (June 2014)
30 slides from Philip Morris International's investor day presentation, Jun 26, 2014
Slide 1: Investor Day, Lausanne, June 26, 2014
Investor Day Lausanne, June 26, 2014 André Calantzopoulos Chief Executive Officer Philip Morris International
Slide 2: PMI Strategies for Growth
PMI Strategies for Growth ● Reinforce our position in profitable adult consumer segments ● Drive growth of our leading brand portfolio through enhanced consumer understanding, innovation and a new commercial approach ● Expand geographically ● Obtain a fair and reasonable fiscal and regulatory enviro
Slide 3: Agenda
Agenda ● 2014 EPS guidance update ● Growth algorithm and drivers ● Significant RRPs upside potential ● Commitment to high, sustainable return of cash to shareholders Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and pop
Slide 4: PMI Results (2008-2013)
PMI Results (2008-2013) PMI Industry Share of Cigarette Net Adjusted Adjusted Volume Market Volume Revenues OCI Diluted EPS 2012 – 2013 (3.0)% (0.6)pp (5.1)% 1.9% 3.4% 10.0% 2008 – 2013 (1.8)% 0.8 pp 0.2 % 5.0% 7.6% 13.3% Mid to Long-Term Currency-Neutral 1% 4% to 6% 6% to 8% 10% to 12% Annual Growt
Slide 5: PMI Results (2008-2013): Regional Perspective
PMI Results (2008-2013): Regional Perspective 2008-2013 CAGR Shipment Volume(a) Net Revenues(b) Adjusted OCI(b) EU (5.3)% (0.1)% 0.4% Asia 6.1 8.8 14.8 EEMA (0.5) 6.8 10.7 LA&C (0.4) 7.3 12.1 Total 0.2 5.0 7.6 (a) Represents cigarette volume only (b) Excluding currency and acquisitions Source: PMI F
Slide 6: 2014 Reported EPS Guidance
2014 Reported EPS Guidance ● Revised PMI 2014 reported diluted EPS guidance is at $4.87 to $4.97, versus $5.26 in 2013 ● On an adjusted basis, diluted EPS are projected to increase within a range of 6% to 8% versus our adjusted diluted EPS of $5.40 in 2013, reflecting: - a $0.01 per share charge rec
Slide 7: 2014 EPS Guidance Factors
2014 EPS Guidance Factors ● Currency headwinds ● Total market declines in the EU ● Specific market challenges in Asia: - The Philippines - Japan - Indonesia - Australia ● Cost management initiatives ● Investments in the development and commercialization of RRPs Note: Excluding currency. Reduced-Risk
Slide 8: Near to Mid-Term Algorithm
Near to Mid-Term Algorithm ● Organic volume declines of 0% to 1% ● Currency-neutral net revenue targets of 4% to 6% ● Currency-neutral adjusted OCI growth targets of 6% to 8%, including continued investments in RRPs ● Currency-neutral adjusted diluted EPS growth targets of 8% to 10%, with share repu
Slide 9: Growth Drivers
Growth Drivers ● Combustible business drivers: - Total industry volume declines moderating to 1% to 2% by 2015 - Continuing market share gains leading to PMI’s annual volume of flat to down 1% based on: • Well-diversified geographic footprint • Over-indexation to more attractive industry segments •
Slide 10: Growth Drivers
Growth Drivers ● Reduced-Risk Products: - Meeting adult consumers needs - Securing robust regulatory and fiscal frameworks for development, assessment and commercialization - Maintaining leading edge in innovation and product development ● Productivity improvements and cost management ● Superior org
Slide 11: Volume Breakdown: Cigarettes Industry Volume Trends
Volume Breakdown: Cigarettes Industry Volume Trends Cigarettes Industry Volume Dynamics % of 2013 % of 2013 CAGR Variance 2015+ Market Groups PMI Volume(a) Industry Volume(a) 2008 – 2012 2012 – 2013 Outlook EU 22% 16% (4.3)% (7.5)% (3)-(5)% Other OECD 19 16 (3.7) (2.6) (2)-(4) Russia 10 11 (1.9) (7.
Slide 12: Leading and Growing Segment Shares
Leading and Growing Segment Shares 2013 PMI Cigarette Industry Segment Shares (%) Growth vs. 2008: 0.5pp +3.9pp(b) +41.2pp +1.7pp +2.7pp 50.8 46.5 41.2 32.2 31.0 PMI Share of Total Cigarette Industry: 28.0% Premium (a) Menthol Capsules Low Tar Slims Vs. Industry Segment Trend vs. 2008: (1.0)% 0.1% 9
Slide 13: PMI Market Share Growth
PMI Market Share Growth PMI OECD PMI Non-OECD (excl. the Philippines) Share of Market (%) Share of Market (%)(a) Average growth per year: +0.4pp Average growth per year: +0.3pp 36.3 34.4 Other 11.8 11.5 Brands 21.9 20.5 Other Selected 11.2 12.1 Brands 22.9 International 24.5 Brands Selected 9.3 Inte
Slide 14: Opportunities in the Fight Against Illicit Trade
Opportunities in the Fight Against Illicit Trade Counterfeit Counterfeit, Contraband and Illicit White Consumption 2% in the EU Member States in 2013 (units billion) Under- % of Total Declared 8.6% 11.1% 10.5% Consumption 1.6 3.6 3.4 Counterfeit 21% "Illicit Whites" 41%(a) 47.0 35.6 Contraband 36% 5
Slide 15: Main Competitor Cigarette Shares by Region
Main Competitor Cigarette Shares by Region 2013 Regional Market Shares (%) EU EEMA Asia LA&C Total PMI 39% 24% 25% 38% 28% BAT 20% 22% 16% 51% 22% JT 18% 23% 13% 4% 17% IMT 19% 11% 3% ̶ 8% Others 4% 20% 43% 7% 25% 775 billion units Note: Excluding China, the USA and duty free Source: PMI estimates.
Slide 16: Balanced Pricing
Balanced Pricing Pricing Contribution OECD / Non-OECD(a) Pricing Contribution by Region (2008 - 2013) (2008 - 2013) LA&C Asia 14% 33% OECD 45% 22% EU 55% Non-OECD 31% Average Annual Pricing: $1.8 billion Average Pricing as % of EEMA Net Revenues (2008 - 2013): 6.7%(b) (a) The split of pricing contri
Slide 17: Sustainable Pricing
Sustainable Pricing Big Mac Price vs. PMI Retail Selling Price (USD) Average Price for a Big Mac Average PMI RSP CAGR: 3% CAGR: 4% $0.41 $3.51 $0.49 $3.22 $3.10 $2.73 2009 2013 2009 2013 Note: CAGR includes currency impact. PMI RSP refers to PMI weighted-average cigarettes RSP per 20 cigarettes pack
Slide 18: Improving Tax Structures
Improving Tax Structures Specific to Total Tax Ratio(a) Average Yield on PMI Portion of Price Increase(a) +4pp 56% 52% +15pp 50% 35% 2008 2014 2008 2014 (a) Calculated on PMI Top 30 OCI markets. Calculations based on Marlboro / Premium segment Note: Average Price Productivity and Specific to Total T
Slide 19: A Manageable Regulatory Environment
A Manageable Regulatory Environment ● Delivering share growth and solid financial results in highly-regulated markets ● Continuing to advocate for evidence-based tobacco regulation without negative consequences ● Vigorously opposing unreasonable and ineffective regulatory proposals 19
Slide 20: Plain Packaging
Plain Packaging ● Plain packaging violates international trade laws and intellectual property rights ● Studies demonstrate ineffectiveness of plain packaging "experiment" ● In Australia, no evidence of changes in underlying consumption trends: - Flat legal market with an increase in the OTP segment
Slide 21: Business Development to Enhance Total Shareholder Returns
Business Development to Enhance Total Shareholder Returns ● Remaining 20% shareholding in Mexico ● Algeria investment via 49% participation in Arab Investors-TA ● 20% shareholding in our Russian distributor, Megapolis Mexico ● Business restructuring in Egypt Russia 21
Slide 22: RRPs Opportunity
RRPs Opportunity ● Commercialization on track for 2014: - Platform 1 in city test phase - E-vapor products in the EU: - Acquisition of UK-based Nicocigs Limited Heated Tobacco Products Nicotine Containing Products Platform 1 Platform 2 Platform 3 Platform 4 Generation 1 Ready for Product Development
Slide 23: RRPs Opportunity: New Business Model
RRPs Opportunity: New Business Model ● Continuous improvement of our existing product platforms ● Deeper innovation pipeline ● Shorter product life cycles ● New manufacturing and supply chain capabilities ● State-of-the-art R&D and clinical testing capabilities ● Combination of partnerships and M&A
Slide 24: RRPs Opportunity
RRPs Opportunity ● Opportunity to meet multiple objectives with appropriate tax structure: - Recognize historical investment in development and initial manufacturing start-up costs - Attractive proposition to adult smokers ● Incremental investment in 2014, 2015 and 2016 ● Potential additional margin
Slide 25: Adjusted Diluted EPS Growth vs. Selected FMCG Companies
Average for Two Fiscal Periods 2012 and 2013 Adjusted Diluted EPS Growth vs. Selected FMCG Companies 12% 11% 11% 10% 10% 9% 9% 9% 8% 7% 5% 4% 2% 2% 1% 1% Note: FMCG stands for Fast-Moving Consumer Goods. Compensation Survey Peer group excludes Johnson & Johnson and Vodafone due to a lack of financia
Slide 26: Attractive Dividend Yield vs. Key Benchmarks
Attractive Dividend Yield vs. Key Benchmarks 5-Year Historical Average(a) Current (b) PMI Dividend Yield 4.2% 4.2% Proxy Peer Dividend Yield 4.0% 3.4% Spread vs. PMI Div. Yield 19 bps 85 bps 10-Year US Treasury 2.6% 2.6% Spread vs. PMI Div. Yield 155 bps 162 bps (a) Average with weekly data points (
Slide 27: Drivers of Adjusted OCI to Adjusted Diluted EPS and Total Shareholder Returns
Drivers of Adjusted OCI to Adjusted Diluted EPS and Total Shareholder Returns Dividends & Share Buybacks as % of Market Cap 10% 9.0% 7.5% 6.2% 5.7% 5% 0% Compensation Survey Group Tobacco Peers PMI PMI 2014 YTD Note: Five-year period 2009-2013. PMI 2014 performance computed based on 2014 YTD average
Slide 28: Summary
Summary ● Favorable industry dynamics relative to most other FMCG industries despite volume pressures: - Pricing power - Input cost stability - High margins ● Ability to secure moderate share growth and fair share of pricing drives top-line ● Cost containment increases operating leverage and adjuste
Slide 29: Investor Day – Day One
Investor Day – Day One Lausanne, June 26, 2014
Slide 30: Reconciliation of non-GAAP measures
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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