Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (June 2014)
64 slides from Philip Morris International's investor day presentation, Jun 27, 2014
Slide 1: Investor Day – EEMA Region
Investor Day – EEMA Region Lausanne, June 27, 2014 Miroslaw Zielinski President, Eastern Europe, Middle East & Africa Region & PMI Duty Free Philip Morris International
Slide 2: Video
Investor Day – EEMA Region Lausanne, June 27, 2014 Video (Approximately 90-second video)
Slide 3: Agenda
Agenda ● EEMA Overview and PMI Results ● Growth Opportunities ● Regional Strategic Priorities ● Closing Remarks ● Questions & Answers 3
Slide 4: EEMA Region: Key Facts
EEMA Region: Key Facts ● 94 markets ● 1.8 billion people ● 1.1 trillion cigarettes(a) ● 12,000+ PMI employees ● PMI results (2013): - Volume: 296.5 billion units - Share: 24.2%(a) - Adjusted OCI: $4.0 billion (a) Excluding duty free Source: Global Insight, PMI estimates and PMI Financials 4
Slide 5: EEMA Region: Recent Volume Pressure
EEMA Region: Recent Volume Pressure Industry Volume (units billion) 1,180 1,172 1,180 (3.9)% 1,134 2010 2011 2012 2013 Note: Excluding duty free Source: PMI estimates 5
Slide 6: EEMA Region: Adult Smokers Up-trading
EEMA Region: Adult Smokers Up-trading EEMA Industry Volume by Price Segment (units billion) CAGR (2010-2013): 1,180 1,172 1,180 1,134 Premium 189 198 213 210 3.6 % Mid 325 331 329 322 (0.3)% Low 666 643 638 602 (3.3)% 2010 2011 2012 2013 Note: Excluding duty free. Premium includes above premium, Low
Slide 7: EEMA Region: Market Share Growth Fueled by Premium Brands
EEMA Region: Market Share Growth Fueled by Premium Brands PMI Market Share (%) Variance (2013 vs. 2010): 24.0 24.2 +1.4pp PMI Total 22.8 23.2 Premium 9.0 9.4 +1.5pp 7.9 8.6 Brands Other Brands 2010 2011 2012 2013 Note: Excluding duty free. Premium includes above premium Source: PMI estimates 7
Slide 8: EEMA Region: Pricing
EEMA Region: Pricing Pricing Variance ($ million) Average 2010-2013: 767 605 527 466 271 2010 2011 2012 2013 Source: PMI Financials 8
Slide 9: EEMA Region: PMI Increasing Revenue Generation
EEMA Region: PMI Increasing Revenue Generation PMI Share of EEMA Industry EEMA Industry Net Revenue (%) Net Revenue Gain (2010-2013) +2pp 35 33 PMI 46% 2010 2013 Note: Based on 26 markets, covering 81% of EEMA 2013 volume, excluding duty free Source: PMI Financials and PMI estimates 9
Slide 10: EEMA Region: Strong Profitability Growth
EEMA Region: Strong Profitability Growth Shipment Volume Net Revenues Adjusted OCI Adjusted OCI Margin (units billion) ($ million) ($ million) (%) CAGR: +0.8% CAGR: +5.8% CAGR: +8.7% Change: +3.6pp CAGR: +7.8% (ex-currency) CAGR: +12.3% (ex-currency) Change: +5.6pp (ex-currency) 296.5 8,766 4,043 46
Slide 11: EEMA Region: Contribution to 2013 PMI Results
EEMA Region: Contribution to 2013 PMI Results Cigarette Shipment Volume Net Revenues Adjusted OCI 34% 28% 29% Source: PMI Financials 11
Slide 12: EEMA Region: First-Quarter Results
EEMA Region: First-Quarter Results Shipment Volume Net Revenues Adjusted OCI Adjusted OCI Margin (units billion) ($ million) ($ million) (%) -7.2% -1.7% -0.9% +0.3pp -3.0% (ex-inv. movements)(a) +4.5% (ex-currency) +7.7% (ex-currency) +1.4pp (ex-currency) 45.8 46.1 66.8 2,043 2,009 935 927 62.0 Q1,
Slide 13: EEMA Region: Two Distinct Growth Profiles
EEMA Region: Two Distinct Growth Profiles Emerging Europe & CIS Middle East & Africa Population Forecast Real GDP Forecast CAGR 2013-2020 CAGR 2013-2020 Emerging Europe & CIS 0.2% 3.7% Middle East & Africa 2.2% 4.6% World 1.1% 3.5% OECD 0.5% 2.4% Note: Emerging Europe includes Turkey. CIS stands for
Slide 14: Emerging Europe & CIS
Emerging Europe & CIS Emerging Europe & CIS Middle East & Africa 14
Slide 15: Emerging Europe & CIS: Industry Volume Trend
Emerging Europe & CIS: Industry Volume Trend Industry Volume (units billion) CAGR: (3.0)% 760 (40) (18) (8) 694 2010 Russia Ukraine Other 2013 Source: PMI estimates 15
Slide 16: Emerging Europe & CIS: Growth Drivers
Emerging Europe & CIS: Growth Drivers PMI Share in Emerging Europe & CIS (%) ● Pricing opportunities +1.3pp 28.7 PMI Total 27.4 ● Up-trading environment ● PMI organic share momentum Premium 7.3 +1.1pp 8.4 Brands driven by premium brands Other Brands 2010 2013 Note: Excluding duty free. Premium inclu
Slide 17: Emerging Europe & CIS: Growth Drivers
Emerging Europe & CIS: Growth Drivers PMI Share in Emerging Europe & CIS (%) ● Pricing opportunities +1.3pp 28.7 PMI Total 27.4 ● Up-trading environment ● PMI organic share momentum Premium 7.3 +1.1pp 8.4 Brands driven by premium brands ● One market share point gain estimated to yield incremental ne
Slide 18: Middle East & Africa
Middle East & Africa Emerging Europe & CIS Middle East & Africa 18
Slide 19: Middle East & Africa: Up-Trading in a Growing Industry
Middle East & Africa: Up-Trading in a Growing Industry Middle East & Africa Industry Volume (units billion) CAGR (2013 vs. 2008) CAGR: 1.8% 440 402 85 6.4% Premium 63 123 0.8% Mid 118 Low 221 232 1.0% 2008 2013 Note: Excluding duty free Source: PMI estimates 19
Slide 20: Middle East & Africa: Further Volume Growth Opportunity
Middle East & Africa: Further Volume Growth Opportunity Middle East & Africa Market Shares (%) PMI 13.0 +4.2pp 17.2 International 46.1 Competitors 45.0 Local 40.9 37.8 Competitors 2008 2013 Note: Excluding duty free Source: PMI estimates 20
Slide 21: Geographic Expansion in Africa
Geographic Expansion in Africa Significant PMI Presence (2013 Total Tobacco Market Share > 15%) 2008 2013 Note: Market shares include OTP segment Source: PMI estimates 21
Slide 22: EEMA Region: Growth Outlook
EEMA Region: Growth Outlook ● PMI continues to outpace competition ● Pricing and mix opportunities in both geographic areas ● Emerging Europe & CIS: - Improved industry volume outlook - Improving mix and premium segment growth momentum ● Middle East & Africa: - Industry volume growth - Substantial s
Slide 23: Regional Strategic Priorities
Regional Strategic Priorities ● Further strengthen our balanced portfolio ● Advocate for reasonable fiscal and regulatory frameworks ● Counter illicit trade ● Enhance our position in the markets ● Seize mid to long-term growth opportunities 23
Slide 24: EEMA Region: Superior PMI Positioning and Balanced Portfolio
EEMA Region: Superior PMI Positioning and Balanced Portfolio 2013 Volume by Price Segment (%) Key PMI Brands Premium 14 Premium ● Marlboro – # 1 in segment 41 ● Parliament – # 3 and fastest growing in 30 segment Mid Mid ● L&M – # 2 brand in segment 23 ● Chesterfield – # 4 brand 56 Low Low ● Bond Str
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Slide 26: Marlboro Continues to Grow in EEMA
Marlboro Continues to Grow in EEMA Marlboro Market Share (%) Growth (Q1, 2014 vs. 2010) 7.3 0.9pp 7.1 7.0 6.8 6.4 1.1 0.4pp 1.0 1.0 0.8 Line 0.7 Extensions 0.5pp Core 2010 2011 2012 2013 Q1, 2014 Source: PMI estimates 26
Slide 27: Capitalizing on Marlboro's Premiumness
Capitalizing on Marlboro’s Premiumness 3mm Marlboro Market Share in Saudi Arabia (%) 21.8 21.9 19.3 March March March 2012 2013 2014 Source: PMI estimates 27
Slide 28: Marlboro: Increasing Relevance in the Smooth Taste Segment
Marlboro: Increasing Relevance in the Smooth Taste Segment LA (min.18)-24 Smoker Profile in Serbia (%) 40.0 15.0 Gold 100s Advance XL Marlboro Market Share in Serbia (%) 11.4 10.0 2012 2013 Note: Translation from Serbian: "Less Odor" Source: PMI Market Research and PMI estimates 28
Slide 29: Marlboro: Further Strengthening the Brand's Appeal
Marlboro: Further Strengthening the Brand’s Appeal Market Share in Algeria (%) 34.4 18.2 2010 2013 Note: Translation from French: “How about you finally express yourself? Music, fashion, art, technology: become an expert in one of your passions!" Source: PMI estimates 29
Slide 30: Marlboro: Expanding its Reach to Virginia Blends
Marlboro: Expanding its Reach to Virginia Blends South Africa: Marlboro Beyond Senegal: Marlboro Blue 0.5% Market Share (Q1, 2014) 2.6% Market Share (Q1, 2014) Source: PMI estimates 30
Slide 31: Parliament
’ PARLIAMENT Se LF Yt SS Sylaeill osha yé dhedeyle ple wore Igatazns 2! y977 SI apnSh Jgly sig Sailly ob laall 4,25 5) ‘The amount of tar, nicotine and carbon monoxide you inhale will vary depending on how you smoke the cigarette. Smoking increases risk of more than 25 diseases including cancer and
Slide 32: Parliament is the Fastest-Growing Premium Brand
Parliament is the Fastest-Growing Premium Brand 2013 EEMA Region Market Shares (%) PMI Competition Growth +0.9pp +0.7pp +0.4pp +0.2pp +0.2pp vs. 2010 7.1 +0.8pp 3.7 2.8 1.1 1.1 Parliament Marlboro Kent Dunhill Davidoff Source: PMI estimates 32
Slide 33: Parliament Has Share Growth Momentum Across the Region
Parliament Has Share Growth Momentum Across the Region Parliament Market Shares (%) and Share Growth Turkey Kazakhstan Russia GCC +2.8pp +3.9pp +0.6pp +1.3pp 10.0 7.9 7.2 4.0 3.4 2.8 1.8 0.5 2010 2013 2010 2013 2010 2013 2010 2013 Note: GCC stands for Gulf Cooperation Council Source: PMI estimates a
Slide 34: Note: Translation from Russian: "Quality evolution - Famous Recessed Filter from the Makers of
Note: Translation from Russian: "Quality evolution - Famous Recessed Filter from the Makers of Parliament"
Slide 35: L&M Initiatives Deliver Solid Volume Growth in EEMA
L&M Initiatives Deliver Solid Volume Growth in EEMA L&M Volume (units billion) CAGR: 4.8% 50.3 48.0 43.7 44.2 2010 2011 2012 2013 Source: PMI Financials 35
Slide 36: L&M Growing Share in Egypt
L&M Growing Share in Egypt L&M Market Share in Egypt (%) 13.1 8.8 2010 2013 Source: PMI estimates 36
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Slide 38: Chesterfield Driving Share Growth in Croatia
Chesterfield Driving Share Growth in Croatia Market Share (%) 5.7 2.0 1.8 1.5 _ January March May July September November 2013 Source: PMI estimates 38
Slide 39: Chesterfield Panther Growing Our Presence in South Africa
Chesterfield Panther Growing Our Presence in South Africa 3mm Market Share (%) 0.5 October April 2013 2014 Source: PMI estimates 39
Slide 40: Bond Street
STREET STREET KYPEHME] KYPEHME |ge|KYPEHME YBUBAET] YBUBAET 2 YBUBAET APNBVE1 KYPEHNE YBUBAET KYPEHUE KYPEHUE YBUBAET fi] YBUBAET
Slide 41: Bond Street's Strong Performance
Bond Street’s Strong Performance Bond Street Market Shares (%) and Share Growth Kazakhstan Ukraine Serbia Russia +5.1pp +1.6pp +2.9pp +0.9pp 22.5 17.4 8.8 8.4 7.2 6.5 5.5 5.6 2010 2013 2010 2013 2010 2013 2010 2013 Source: PMI estimates and Nielsen 41
Slide 42: Advocate for Reasonable Regulatory and Fiscal Frameworks
Advocate for Reasonable Regulatory and Fiscal Frameworks ● Regulatory environment continues to be manageable ● Governments shifting toward more rational tax structures: - Multi-year programs - Higher specific component 42
Slide 43: Predominance of High Specific Excise Tax Structures
Predominance of High Specific Excise Tax Structures Specific-to-Total Excise Tax Ratio on Marlboro (%) 100.0 100.0 100.0 69.4 68.0 67.7 35.9 13.7 2.1 Kazak. S.Afr. Algeria Russia Romania Ukraine Serbia Egypt Turkey Note: Data are as of April 2014. Kazak. is Kazakhstan and S.Afr. is South Africa Sour
Slide 44: Counter Illicit Trade
Counter Illicit Trade ● Estimated to represent over 130 billion units in EEMA ● Regional initiatives: - Expanding resources - Supporting law enforcement - Creating awareness among adult smokers and other stakeholders - Engaging regulators Source: PMI estimates 44
Slide 45: Russia: PMI Growing Share and Profit
Russia: PMI Growing Share and Profit Industry Volume (units billion) PMI Market Share (%) (6.7)% +0.5pp 26.2 26.7 71.7 66.9 Q1, 2013 Q1, 2014 Q1, 2013 Q1, 2014 Source: PMI estimates and Nielsen 45
Slide 46: Russia: Commercial Approach Driving Results
Russia: Commercial Approach Driving Results Q1, 2014 PMI Market Shares (%) and Growth vs. PY (pp) 31.0% +0.2pp n North Moscow 27.2% 25.6% +0.2pp +1.0pp Center 23.8% +0.3pp South East n 25.9% +1.2pp Source: Nielsen 46
Slide 47: Russia: Growing in Premium
Russia: Growing in Premium PMI Share of Premium Segment (%) 38.1 36.3 23.6 26.2 Parliament 12.7 11.9 Marlboro Q1, 2013 Q1, 2014 Source: Nielsen 47
Slide 48: Russia: L&M Share Momentum
Russia: L&M Share Momentum L&M Market Share (%) 3.1 2.5 Jan Jan Jan Mar 2012 2013 2014 Note: Translation from Russian: "Quality evolution - Famous Recessed Filter from the Makers of Parliament" Source: Nielsen 48
Slide 49: Russia: Bond Street Compact Accelerating the Brand's Growth
Russia: Bond Street Compact Accelerating the Brand’s Growth Bond Street Market Share (%) 7.0 6.5 6.5 - 1.0 Compact 6.2 0.2 - 5.6 - Other 2010 2011 2012 2013 Q1, 2014 Source: Nielsen 49
Slide 50: Russia: Megapolis Investment
Russia: Megapolis Investment ● Long-term sustainability of distribution ● Attractive financial return ● Increased coverage in rural areas ● More efficient route to market 50
Slide 51: Russia: Growth Outlook
Russia: Growth Outlook ● Industry volume decline expected to moderate: - Excise tax developments Key Movements in Excise Tax(a) 2014 2015 2016 Specific Excise Increase vs. Prior Year 45% 20% 25% Ad Valorem Excise (% of MRSP) 8.5% 9.0% 9.5% - Reduction in relative price gaps (a) As per current legisl
Slide 52: Turkey: PMI Competing Successfully Across Price Points
Turkey: PMI Competing Successfully Across Price Points ● Industry decline of 7.6% in 2013, with signs of stabilization in 2014 ● PMI leading brand portfolio that covers all price points ● Q1, 2014 PMI volume growth of 9.7% versus prior year, driven by Parliament, Marlboro and Chesterfield Source: PM
Slide 53: Turkey: Parliament's Stellar Performance
Turkey: Parliament’s Stellar Performance 3mm Parliament Market Share (%) 10.5 8.4 March March March 2012 2013 2014 Note: mm stands for months moving Source: Nielsen 53
Slide 54: Turkey: Chesterfield's Growth Momentum
Turkey: Chesterfield’s Growth Momentum 3mm Chesterfield Market Share (%) 2.2 0.1 May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar 2013 2014 Source: Nielsen 54
Slide 55: North Africa: PMI's Expansion in a Growing Market
North Africa: PMI’s Expansion in a Growing Market Industry Volume (units billion) PMI Volume (units billion) CAGR: 1.0% CAGR: 15.8% 139 132 37 18 2008 2013 2008 2013 Source: PMI estimates and PMI Financials 55
Slide 56: North Africa: Marlboro and L&M Drivers of Growth
North Africa: Marlboro and L&M Drivers of Growth PMI Market Share in North Africa (%) 26.5 Other 22.6 20.1 18.8 9.1 L&M 7.6 6.5 7.5 15.3 Marlboro 11.9 13.2 9.1 2010 2011 2012 2013 Source: PMI estimates 56
Slide 57: North Africa: PMI Reinforcing Its Competitive Position
North Africa: PMI Reinforcing Its Competitive Position ● Enhance participation in 2013 Industry Volume (units billion) and Market Share market profits pool Industry Volume 80 31 14 12 ● Direct presence in Egypt 18% 15% PMI 23% ● Acquired 49% in Arab 41% 8% Investors-TA (Algeria) Other 7% ● Opportuni
Slide 58: Saudi Arabia: PMI's Strength in an Expanding Market
Saudi Arabia: PMI’s Strength in an Expanding Market Industry Volume (units billion) and Market Shares 29 28 26 24 45% 46% PMI 47% 47% Other 2010 2011 2012 2013 Source: PMI estimates 58
Slide 59: Saudi Arabia: Growing in Premium
Saudi Arabia: Growing in Premium PMI Share of Premium Segment (%) 60.4 57.4 57.1 55.9 57.6 Other 4.3 Parliament 0.9 1.4 3.8 2.3 48.5 48.8 48.7 51.8 Marlboro 47.6 2010 2011 2012 2013 Q1, 2014 Source: PMI estimates 59
Slide 60: Saudi Arabia: L&M Reaches Record Share
Saudi Arabia: L&M Reaches Record Share L&M Market Share (%) +1.3pp 21.8 20.5 2010 2013 Note: Translation from Arabic: "On average, the commute home offers the same old view. Defy Average." Source: PMI estimates 60
Slide 61: EEMA Region: Seizing Mid to Long-Term Growth Opportunities
EEMA Region: Seizing Mid to Long-Term Growth Opportunities ● Strong momentum of business expansion ● Focused on building foundation for further growth: - Adapt to geopolitical challenges - Further strengthen our position in established markets - Accelerate our growth momentum in the Middle East and
Slide 62: Conclusion: PMI's Growth Outlook in EEMA
Conclusion: PMI’s Growth Outlook in EEMA ● Expected growth of industry profit pool ● Superior brand portfolio ● Strong organizational capabilities ● Continued industry outperformance Significant contribution to PMI’s superior results 62
Slide 63: Investor Day – EEMA Region
Investor Day – EEMA Region Lausanne, June 27, 2014
Slide 64: 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
Philip Morris International — Investor Day (June 2014) on 6ix