Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (June 2012)
53 slides from Philip Morris International's investor day presentation, Jun 22, 2012
Slide 1: Investor Day – Operations
Investor Day – Operations Lausanne, June 22, 2012 Martin King Senior Vice President, Operations Philip Morris International
Slide 2: The World of Operations
The World of Operations ● Operations overview ● Leaf, direct materials and productivity ● Supply chain optimization ● Innovation focus and quality leadership ● Environment, Health & Safety programs ● Employee development ● Key takeaways 2
Slide 3: Operations Overview
PHILIP MORRIS I STOR bai INTERNATIONAL Operations Overview
Slide 4: PMI Operates Cigarette and Non-Cigarette Manufacturing Facilities Worldwide
PMI Operates Cigarette and Non-Cigarette Manufacturing Facilities Worldwide 56 manufacturing facilities Cooperation with 21 Third-Party Manufacturers (TPMs) Source: PMI Financials and 38 Third-Party Operators (TPOs) 4
Slide 5: Manufacturing Facilities Footprint Optimization
Manufacturing Facilities Footprint Optimization • Greenfield and Acquisitions • Factory Restructuring Source: PMI Operations • Closures and Consolidations 5
Slide 6: Total Tobacco Sales Volume by Production Source
Total Tobacco Sales Volume by Production Source (units billion) (% increase) 1,000 +7% 942 882 101 (5)% 106 237 - 236 353 (5)% 370 251 170 +48% 0 2009 2011 Asia EU EEMA LA&C Note: Volume includes TPMs Source: PMI Operations Finance 6
Slide 7: Over 50,000 People Work in Operations
Over 50,000 People Work in Operations 2011 Headcount (%) Other Fixed Manufacturing Machine-made Hand-rolled Source: PMI Operations Finance 7
Slide 8: Over 50,000 People Work in Operations
Over 50,000 People Work in Operations Cigarettes (units million equivalent) 2011 Headcount per Variable Headcount (%) EU Region 51 50.0 Other 49.8 Fixed 49 48.7 Manufacturing Machine-made 47 Hand-rolled 45 2009 2010 2011 Source: PMI Operations Finance 8
Slide 9: Japan Sales Volume by Production Center
Japan Sales Volume by Production Center 5 Factories 11 Factories ● 222 cargo charter flights and 848 commercial cargo flights ● The use of three airports ● The lease of six temporary bonded warehouses ● Trade service level of 99% 2009 2011 Source: PMI Operations Finance 9
Slide 10: Total Tobacco Sales Volume by Production Type
Total Tobacco Sales Volume by Production Type (units billion) 1,000 (% increase) 942 +7% 26 882 +44% 34 18 +10% 31 116 +23% 94 +4% 766 739 500 2009 2011 Traditional Non-Traditional Hand-Rolled Other Tobacco Products (OTP) Note: Volume includes TPMs. Traditional format: Pack type: Box, Round-Corner B
Slide 11: Total 2011 Cost of Sales of $10.7 billion
Total 2011 Cost of Sales of $10.7 billion Shipping & Distribution Tobacco Leaf 8% 35% 30% Other 27% Direct Materials Note: Other cost of sales mainly includes employee-related costs, TPM costs and depreciation Source: PMI Operations Finance 11
Slide 12: Leaf, Direct Materials and Productivity
Leaf, Direct Materials and Productivity
Slide 13: PMI Leaf Purchases by Type
PMI Leaf Purchases by Type 100% 4 6 9 Others 31 Sun-cured Oriental Burley Virginia 50 0% 2011 Source: PMI Leaf 13
Slide 14: Geographic Leaf Sourcing
Geographic Leaf Sourcing < 5% of total kg > 5% of total kg Source: PMI Operations Finance 14
Slide 15: Leaf Sourcing Model
Leaf Sourcing Model 35% of leaf sourced through vertical integration Vertical Integration Suppliers Vertical Integration and Suppliers Source: PMI Operations Finance 15
Slide 16: Leaf Vertical Integration in Brazil
Leaf Vertical Integration in Brazil ● In Q2 2010, PMI signed separate agreements with Alliance One and Universal Leaf to vertically integrate leaf sourcing in Brazil ● New operation provides approximately 50% of our purchases in Brazil and 10% of PMI’s global leaf requirements ● Total PMI green leaf
Slide 17: Leaf Vertical Integration in Brazil Key Objectives
Leaf Vertical Integration in Brazil Key Objectives ● Better alignment of the crop to our demand ● Better control on product quality and integrity ● Cost efficiency, predictability and transparency ● Greater positive impact on the sustainability of tobacco-growing communities Source: PMI Leaf 17
Slide 18: Leaf Supply and Demand
Leaf Supply and Demand (billion kg Traded Volumes(a) packed) Supply Demand 4.5 4.0 3.5 3.0 2.5 2008 2009 2010 2011 (a) Supply = Production + Supplier inventories; Demand = Consumption – Manufacturers inventory reduction Note: Including China Source: PMI Leaf, based on latest available data from a nu
Slide 19: Leaf Purchase Price Evolution
Leaf Purchase Price Evolution Average $ per packed kg $5.64 $5.64 $5.69 $5.69 $5.58 $4.91 CAGR: 3.2% +14.9% - +0.9% (1.9)% +2.0% 2007 2008 2009 2010 2011 2012 Forecast Source: PMI Operations Finance 19
Slide 20: Leaf Crop Usage Illustration
Leaf Crop Usage Illustration 100% 55 56 89 Other Crop Years Crop Year 1 45 44 11 0% Year 1 Year 2 Year 3 Source: PMI Leaf 20
Slide 21: Leaf Strategy
Leaf Strategy ● Secure availability of volumes, quality and predictability of prices ● Promote the growth of high quality tobacco under conditions that help protect the environment and promote sustainable crops ● Implement comprehensive Agricultural Labor Practices (ALP) Code Source: PMI Leaf 21
Slide 22: Agricultural Labor Practices
Agricultural Labor Practices ● Progressively eliminate child labor and other labor abuses ● Implementing ALP Code where we source tobacco ● Trained 2,600+ field technicians to reach 500,000+ farmers ● Positive feedback from stakeholders ● Progress report on our website later this summer Source: PMI
Slide 23: Clove Crop and Price
Clove Crop and Price (million kg) (‘000 IDR / kg) 160 160 140 140 120 120 100 100 80 80 60 60 40 40 20 20 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Forecast Crop Average Price Source: HM Sampoerna Tbk 23
Slide 24: Clove Strategy
Clove Strategy ● Secure availability of volumes during large crop years ● Focus on yield improvement through technical assistance at farmer level ● Continue clove tree distribution (3.6 million since 2006) Source: PMI Leaf 24
Slide 25: Key Direct Materials Categories
Key Direct Materials Categories ● Three main categories represent 72% ● 2011 spend: approximately $2.8 billion Others Printed Board & Paper Flexibles 16% 35% 12% 16% 21% Fine Papers Acetate Tow Note: Flexibles mainly represent wrapping films, inner liner and tear tape. Others primarily reflect shipp
Slide 26: Challenges in Direct Materials Procurement
Challenges in Direct Materials Procurement ● Increasing complexity ● Growing requirements for innovation ● Supply base footprint development in Asia ● Price volatility in some categories and supply/demand balance Source: PMI Procurement 26
Slide 27: Direct Materials Strategy
Direct Materials Strategy ● Supply security and speed-to-market ● Cost competitiveness and predictability ● Supplier relationship management ● Access to innovation Source: PMI Procurement 27
Slide 28: Reduced Cigarette Ignition Propensity: A Success Story
Reduced Cigarette Ignition Propensity A Success Story ● Over 200 billion cigarettes with 1,200+ specifications converted in the EU in 2011 ● On-going projects to improve adult smoker satisfaction while complying with regulatory standards ● Supply secured through long-term commitments ● Well-managed
Slide 29: Indirect Materials and Services
Indirect Materials and Services ● 2011 spend of approximately $5.6 billion ● 65% of spend is non-Operations ● Significant and growing contributor to productivity program ● Strengthen organizational capabilities to create more efficient processes that deliver ongoing productivity Note: Indirect mater
Slide 30: 2012 Gross Productivity and Cost Savings Target: $300 million (Pre-Tax)
2012 Gross Productivity and Cost Savings Target: $300 million (Pre-Tax) Total Non- Operations Operations Source: PMI Operations Finance 30
Slide 31: 2012 Gross Productivity and Cost Savings Target: $300 million (Pre-Tax)
2012 Gross Productivity and Cost Savings Target: $300 million (Pre-Tax) Total Operations Contribution Manufacturing Others performance Non- Blend & Operations specification rationalization Operations Tobacco processing technology Procurement Source: PMI Operations Finance 31
Slide 32: Supply Chain Optimization
PHILIP MORRIS . stoR bai INTERNATIONAL Supply Chain Optimization
Slide 33: Leverage an Integrated and Agile Supply Chain
Leverage an Integrated and Agile Supply Chain ● Optimize inventory-related working capital ● Integrate supply chain from markets to suppliers ● Manage supply chain and sourcing risks Source: PMI Supply Chain 33
Slide 34: Inventory Duration Development
Inventory Duration Development Year-End Inventory Duration 110% 100% 100% 90% Leaf 80% Finished Goods 70% 60% 50% 2009 2010 2011 2012 Forecast Source: PMI Operations Finance 34
Slide 35: Finished Goods Inventory Duration Development
Finished Goods Inventory Duration Development Year-End Inventory Duration 110% 100% 100% 90% Forestalling Inventory 80% Total Inventory 70% Regular Inventory 60% 50% 2009 2010 2011 2012 Forecast Source: PMI Operations Finance 35
Slide 36: SCIPIO: Key to Reducing Finished Goods Inventories
SCIPIO: Key to Reducing Finished Goods Inventories ● Provides visibility on finished goods inventories and links demand and supply planning ● Rolled out in 26 factories and 107 markets, covering 74% of global tobacco volume ● Expects to cover 85% of global tobacco volume by 2013 ● Complemented by in
Slide 37: Capital Investments
Capital Investments ($ million) 1.0 0.9 0.8 $897 $715 $713 2009 2010 2011 Capex Capex-to-Depreciation Ratio Source: PMI Operations Finance 37
Slide 38: High-Speed Investment Program
High-Speed Investment Program ● Investment over the next three years in new generation equipment capable of producing 20,000 cigarettes per minute ● Cascade equipment and make optimal use of existing assets ● Proactively create a pool of equipment to aid innovation, quality, speed-to-market and prod
Slide 39: Innovation Focus and Quality Leadership
Innovation Focus and Quality Leadership
Slide 40: Focused Innovation
Focused Innovation ● Innovation pipeline anchored to adult smoker preferences ● Six-month cycle of concept evaluation ● Best concepts selected for development ● Ensures a continuously filled and refined pipeline Translation Adult Consumer Concept Component Component Industrial Product Into Product P
Slide 41: Specification Rationalization Program
Specification Rationalization Program ● Supports focused commercial approach to sales ● Global program for specifications and SKU rationalization supported by three pillars: - Focus – “Develop once, deploy widely” - Master – Smart solutions to balance complexity/flexibility ratio of new features - M
Slide 42: Supporting Marlboro New Architecture
Supporting Marlboro New Architecture Flavor Line 153 launches and revamps Tactile surface treatment Sliding lid pack Gold Line 265 launches and revamps Tactile surface treatment Expanded to slims and super slims Fresh Line 79 launches and revamps Tailored menthol blends New filter technology Expande
Slide 43: PMI Continues to Deliver Innovation
PMI Continues to Deliver Innovation Expanded portfolio of capsule products 41 new launches in 2011 • Fresh-to-Fresh • Hybrid • Capsule + Carbon Filter • 14 different tar alternatives from 1mg in Marlboro and Lark to 14mg in Sampoerna New concept for personalization • Twistable filter • Adjust taste
Slide 44: PMI outperforms competition quality in key markets in 2011
PMI outperforms competition quality in key markets in 2011 Competition outperforms PMI PMI wins 100% of the PMI is statistically not different from comparison vs. competition competition 2% 18% 12% 68% PMI outperforms competition in more than 50% of products Source: PMI Product and Process Quality 4
Slide 45: Environment, Health and Safety (EHS) Programs
Environment, Health and Safety (EHS) Programs
Slide 46: EHS Performance − Safety
EHS Performance − Safety Manufacturing Lost Time Injury Rate(a) Fleet Crash Rate(b) -32% -36% -17% -23% 100% 100% 75% 75% 50% 0.22 50% 8.1 0.17 6.7 0.15 5.2 25% 25% 0% 0% 2010 2011 2012 2010 2011 2012 Forecast Forecast (a) Number of injuries in every 200,000 working hours (b) Crashes per million kil
Slide 47: EHS Manufacturing Performance − Environment
EHS Manufacturing Performance − Environment Energy per million cigarettes CO2 per million cigarettes -20% -20% -3% -3% 100% 100% 90% 90% 8.8 8.5 746 720 80% 80% 7.0 597 70% 70% 2010 2011 2015 2010 2011 2015 Water per million cigarettes Recycling Rate -20% -6% 100% 100% +7% +3% 90% 90% 5.4 5.1 80% 80
Slide 48: Employee Development
PHILIP MORRIS I STOR bai INTERNATIONAL Employee Development
Slide 49: Operations Performance and Engagement: OPEN
Operations Performance and Engagement: OPEN OPEN is the way we conduct business in Operations: • Empowering and developing the people and the organization • Standardizing processes using “Lean” techniques • Generating a continuous improvement culture Source: PMI Operations 49
Slide 50: Key Takeaways
PHILIP MORRIS I STOR bai INTERNATIONAL Key Takeaways
Slide 51: Key Takeaways
Key Takeaways ● We will work to maintain cost leadership in our industry ● We will reduce our inventories and increase the integration of our supply chain ● We will continue to innovate our products and deliver the best quality ● We will continuously develop and engage our employees to address our c
Slide 52: Questions & Answers
Investor Day – Operations Lausanne, June 22, 2012 Questions & Answers
Slide 53: 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
Philip Morris International — Investor Day (June 2012) on 6ix