Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (June 2014)
49 slides from Philip Morris International's investor day presentation, Jun 26, 2014
Slide 1: Investor Day – Asia Region
Investor Day – Asia Region Lausanne, June 26, 2014 Matteo Pellegrini President, Asia Region Philip Morris International
Slide 2: Asia Mid to Long-term Success Drivers
Asia Mid to Long-term Success Drivers ● Favorable demographics and robust economies ● Superior brand portfolio ● Proven record to drive innovation ● Manageable regulatory and fiscal environment ● Comprehensive plan to counter illicit trade ● Expansion into new geographies ● Commercialization of Redu
Slide 3: Regional Overview
Regional Overview ● 24 markets ● Population: 3.9 billion ● Industry volume: 1.2 trillion cigarettes(a) ● PMI shipments: 301 billion cigarettes Indonesia India ● Adjusted OCI: $4.6 billion ● Manufacturing facilities: 17 PMI-owned and 38 third-party hand-rolled ● 50,000+ employees Vietnam Japan ● 60,0
Slide 4: GDP Growth Outperforming the World
GDP Growth Outperforming the World Annual GDP Growth (%) World Asia 4.8 4.9 4.7 4.6 3.1 3.0 2.6 2.5 2011 2012 2013 2014 Forecast Source: Global Insights 4
Slide 5: Increasing Population and Consumer Purchasing Power
Increasing Population and Consumer Purchasing Power Annual Population Growth (%) Middle Class (million households) Asia’s OECD Asia’s Non-OECD Asia’s OECD Asia’s Non-OECD 301 281 261 1.1 240 1.0 1.0 1.0 77 78 79 79 0.2 0.2 0.2 0.2 2011 2012 2013 2014 2011 2012 2013 2014 Forecast Forecast Note: Middl
Slide 6: Adult Smoker Up-Trading in Asia’s Non-OECD Markets Continues
Adult Smoker Up-Trading in Asia’s Non-OECD Markets Continues Premium Industry Volume (units billion) Premium PMI Market Share (%) +21% 207 +1.0pp 12.0 171 11.0 2008 2013 2008 2013 Note: Premium includes Above Premium. Excluding China, Australia, Japan, Korea and New Zealand Source: PMI estimates 6
Slide 7: Sizable Cigarette Industry
Sizable Cigarette Industry (units billion) Asia Region World’s Top 10 Cigarette Markets by Volume (2013)(b) Industry Volume(a) CAGR: 0.2% 1,182 342 1,172 308 193 102 92 89 88 86 83 80 2008 2013 Russia Indon. Japan India Turkey Viet. Korea Phil. Bangl. Egypt (a) Excluding China (b) Excluding China, t
Slide 8: Clear Market Share Leadership
Clear Market Share Leadership 2013 Asia Region Share of Market (%) +6pp vs. 2008 25 16 13 3 PMI BAT JT IMT Note: Excluding China Source: PMI estimates 8
Slide 9: Contribution to 2013 PMI Results
Contribution to 2013 PMI Results +9pp vs. 2008 +10pp vs. 2008 +14pp vs. 2008 34% 34% 33% Cigarette Shipment Volume Net Revenues Adjusted OCI Source: PMI Financials 9
Slide 10: Strong Profitability Growth
Strong Profitability Growth Shipment Volume Net Revenues Adjusted OCI (units billion) ($ million) ($ million) CAGR: +6.1% CAGR: +11.2% CAGR: +17.6% CAGR: +10.3% (ex-currency) CAGR: +15.6% (ex-currency) 10,501 4,649 301.3 6,185 223.7 2,071 2008 2013 2008 2013 2008 2013 Source: PMI Financials 10
Slide 11: First-Quarter Results
First-Quarter Results Shipment Volume Net Revenues Adjusted OCI (units billion) ($ million) ($ million) -2.5% -21.8% -30.3% -8.7% (ex-currency) -14.3% (ex-currency) 2,790 1,345 72.6 2,182 70.8 938 Q1, 2013 Q1, 2014 Q1, 2013 Q1, 2014 Q1, 2013 Q1, 2014 Source: PMI Financials 11
Slide 12: Strong Adjusted OCI Margin
Strong Adjusted OCI Margin Adjusted OCI Margin (%) 45.3 (a) 44.3 33.5 2008 2013 Q1, 2014 (a) Ex-currency Source: PMI Financials 12
Slide 13: Long-Term Pricing Sustainability
Long-Term Pricing Sustainability Pricing Variance ($ million) 991 699 2008-2013 551 Average(a) 491 462 368 203 2008 2009 2010 2011 2012 2013 (a) 2008 to 2013 average excluding 2011 Source: PMI Financials 13
Slide 14: Superior Brand Portfolio with Strong Local Heritage Offerings
Superior Brand Portfolio with Strong Local Heritage Offerings 2013 Asia Region Cigarette Volume (units billion) PMI Competition’s Top International Brands 93 Camel 75 Dji Sam Soe Winston Lucky Strike Fortune Kent Marlboro Dunhill Mevius Sampoerna A Pall Mall BAT JT Source: PMI data from PMI Financia
Slide 15: Strong Marlboro Performance
Strong Marlboro Performance Marlboro Volume (units billion) Marlboro Volume (units billion) CAGR 2008-2013: 2.4% YTD May, 2014 vs. PY: 2.8% 81 78 75 72 70 32.1 67 31.2 2008 2009 2010 2011 2012 2013 YTD May YTD May 2013 2014 Source: PMI Financials 15
Slide 16: Marlboro Innovation: Capsule Segment
Marlboro Innovation: Capsule Segment Capsule Segment (%) Marlboro Capsule Products (units billion) Industry PMI Share of Segment 6.5 54.5 5.5 3.6 1.8 21.1 1.5 0.2 <1 2009 2013 2009 2013 2009 2010 2011 2012 2013 Note: Excluding China Source: PMI estimates and PMI Financials 16
Slide 17: Be Marlboro Campaign
Be Marlboro Campaign _ “ae PERINGATAN: 2) MEROKOK MEMBUNUHMU Pp ty
Slide 18: Note: Translation from Korean: "No more being ordinary. Uniquely Fusion!"
Note: Translation from Korean: "No more being ordinary. Uniquely Fusion!" 18
Slide 19: Note: Visual execution is for illustrative purposes only
Note: Visual execution is for illustrative purposes only 19
Slide 20: Favorable Excise Tax Structures
Favorable Excise Tax Structures ● Predominantly specific excise Multi-Tier Specific Single-Tier Specific Ad Valorem Mixed India Australia Bangladesh Malaysia taxes Indonesia Hong Kong Thailand ● Pakistan’s excise tax structure Philippines Japan Vietnam changed from a mixed to a Pakistan Singapore Mi
Slide 21: Illicit Trade is our Third-Largest "Competitor"
Illicit Trade is our Third-Largest "Competitor" 2013 Asia Region Cigarette Industry Volume 2013 Illicit/Non-domestic Incidence (%) (billion units) Australia 14 301 Hong Kong 41 India 18 Malaysia 36 Pakistan 25 100+ Philippines 18 Singapore 20 Vietnam 16 PMI BAT JTI Non-tax paid Note: Non-tax paid ma
Slide 22: Illicit Trade Strategies
Illicit Trade Strategies ● Expand our knowledge and evidence Hong Kong Awareness Campaign base with illicit trade research ● Public and trade awareness campaigns ● Co-operation with the legitimate industry and government agencies ● Advocate effective policies and enforcement Malaysia ● Implementatio
Slide 23: Japan: Recent Developments
Japan: Recent Developments ● Industry volume declined by 2.0% in PMI Market Share (%) 2013 to 193 billion units 26.7 25.9 26.5 25.5 ● Expected to decline by 3.0% to 3.5% in 2014 ● VAT increased from 5% to 8% in 2013 Q4, 2013 Q1, 2014 QTD May April and expected to increase from 2014 8% to 10% in Octo
Slide 24: Japan: Marlboro Strategic Priorities
Japan: Marlboro Strategic Priorities ● Marlboro Clear Hybrid series to be Marlboro Clear Hybrid Series launched in August 2014 ● National roll-out of the Be Marlboro campaign in April ● Extremely encouraging results, awareness already 30% ● Brand attributes increasing for Marlboro in most key dimens
Slide 25: Japan: Lark Strategic Priorities
Japan: Lark Strategic Priorities Lark ● Stabilize market share through Philip Morris Morphing into Lark Royal Blend innovative offerings ● Brand consolidation of Philip Morris into Lark in Q2 ● Introduction of the Lark Blue line-up in May and Lark Royal Blend in June ● New architecture to be unveile
Slide 26: Japan: Commercialization of iQOS
Japan: Commercialization of iQOS ● Home usage studies were positive ● 30% adult smokers adopted the product by the end of the trial ● City test as of Q4, 2014 ● Geographical expansion in 2015 Source: PMI Market Research 26
Slide 27: Indonesia: Recent Developments
Indonesia: Recent Developments ● Industry volume grew by 1.9% in Cigarette Industry Volume (units billion) 2013 to 308 billion units 308 ● Economic slowdown and higher CAGR 1.5% 280 303 fuel and food prices, although 247 251 255 GDP growth remains above 5% ● Contraction of low-price segment +1.2% im
Slide 28: Indonesia: Adult Smoker Up-Trading with Growing Purchasing Power
Indonesia: Adult Smoker Up-Trading with Growing Purchasing Power Industry Volume Variance by Price Segment Middle Class (million households) (2013 vs. 2011 units billion) 2013 SoM: 19.5% 43.5% 37.0% 17.6 17.7 16.1 13.3 12.0 Low Mid Premium 2011 2013 2014 (0.9) Forecast Note: Middle Class means house
Slide 29: Indonesia: PMI Remains the Clear Market Share Leader
Indonesia: PMI Remains the Clear Market Share Leader Market Shares (%) 35.6 36.1 34.6 34.9 32.8 PMI 25.3 25.3 Gudang 23.2 24.1 22.0 Garam Djarum 19.9 19.0 18.9 19.6 19.5 8.1 6.9 6.4 6.3 6.2 BAT Nojorno 5.5 5.3 4.9 4.6 4.5 2011 2012 2013 Q1 QTD May 2014 Source: PMI estimates 29
Slide 30: Indonesia: Preference for Growing Machine-Made Kreteks
Indonesia: Preference for Growing Machine-Made Kreteks Share of Taste Segments (%) Industry PMI 41.2 41.7 40.5 80.5 79.3 38.6 77.0 Machine-Made 36.2 Whites 71.3 Kretek LTLN 66.3 Machine-Made 31.5 31.7 29.0 28.6 29.6 Kretek FF Hand-Rolled 47.0 48.1 47.6 48.3 Machine-Made Kretek 28.0 26.1 43.6 Kretek
Slide 31: Indonesia: Portfolio Skewed Towards Growing Machine-Made Kretek LTLN Segment
Indonesia: Portfolio Skewed Towards Growing Machine-Made Kretek LTLN Segment ● PMI share of growing machine-made kretek LTLN segment at 48.3% in QTD May ● Led by Sampoerna A with 14.0% market share and 33.5% share of segment ● Mid-priced U Mild with a growing market share of 5.6% and 13.4% share of
Slide 32: Indonesia: Dji Sam Soe Magnum Growth in Machine-Made Kretek
Indonesia: Dji Sam Soe Magnum Growth in Machine-Made Kretek (units million/week) 2014 Average Weekly Combined Volume Pre-launch of Magnum Blue: 84 million 150 Post-launch of Magnum Blue: 126 million Dji Sam Soe Launch of Dji Sam Soe Magnum Filter Magnum Blue 40 35 January April May 2013 2014 2014 So
Slide 33: Indonesia: Strong Fundamentals for Future Growth
Indonesia: Strong Fundamentals for Future Growth ● Favorable economic growth ● Middle class rising with higher disposable income ● Simplified excise tax structure ● Growing cigarette industry ● Superb brand portfolio ● Successful expansion into the growing machine-made kretek segment ● Stabilization
Slide 34: Philippines: Recent Developments
Philippines: Recent Developments ● Growing adult population Cigarette Consumption (units billion) ● Economy backed by foreign 109 105 remittances and urbanization 7 Estimated ● Volume declared for tax purposes at non-duty 19 paid volume 86 billion units in 2013 ● Stable cigarette consumption ● Estim
Slide 35: Philippines: Mighty Corporation Tax Under-Declaration is Core Issue
Philippines: Mighty Corporation Tax Under-Declaration is Core Issue Mighty Corporation Volume (units billion) ● Mighty Corporation declared only Declared Volume Estimated Non-declared Volume about half of its sales volume for tax 8.1 9.2 8.4 purposes in 2013 6.8 5.9 4.5 ● Initial penalty of $20 mill
Slide 36: Philippines: Improving Shipment Volume
Philippines: Improving Shipment Volume (units billion) PMI Total Volume Marlboro Volume Other Brands Volume 6.1% 10.3% 5.0% 28.0 26.4 21.9 20.9 6.1 5.5 YTD May YTD May YTD May YTD May YTD May YTD May 2013 2014 2013 2014 2013 2014 Source: PMI Financials 36
Slide 37: Philippines: Outstanding Portfolio
Philippines: Outstanding Portfolio 2013 2013 Industry Share PMI Share of Market: 79.3% Premium PMI SoS 18.6% 100% Mid 9.9% 67% Low 32.1% 98% Super-Low 39.4% 57% Note: Images are for illustrative purposes only. Translation: "The New Look of Fortune" Source: PMI estimates 37
Slide 38: Philippines: Shifting to Single-Tier Excise Tax Structure
Philippines: Shifting to Single-Tier Excise Tax Structure RRSP (PHP) Excise Tax (PHP/pack) Brand Per pack Per stick Current 2015 2016 2017 2017 2018 onwards 51/55 3.00 27 +1 +1 +1 25.5 1.75 +4% 30 annually 25 1.50 17 +4 +4 +5 22 1.25 Source: PMI estimates 38
Slide 39: Philippines: Strong Potential for Profitable Growth
Philippines: Strong Potential for Profitable Growth ● Favorable socio-economic trends ● Sizable cigarette consumption volume ● Balanced portfolio with a strong premium segment share, led by Marlboro ● PMI volume growing ● Fiscal tax stamp implementation ● Expected narrowing of price gaps with single
Slide 40: Australia: Recent Developments
Australia: Recent Developments Total Industry Volume (units billion) ● Cigarette industry volume stable at Cigarettes OTP 22.6 21.8 21.9 18.7 billion units in 2013 ● 2013 market share at 37.6% ● 12.5% excise tax increase in 19.6 18.8 18.7 December 2013 ● Market share under pressure in 2011 2012 2013
Slide 41: Australia: Adult Smoker Down-Trading Acceleration Driven by Commoditization and Affordability
Australia: Adult Smoker Down-Trading Acceleration Driven by Commoditization and Affordability ● Low price segment growth fueled by Industry Share of Price Segments (%) discounting and plain packaging ● Investments in Bond Street and 19.2 18.4 17.6 15.8 13.6 Premium choice to regain market position ●
Slide 42: Korea: Recent Developments
Korea: Recent Developments ● Cigarette industry volume at 88 Market Shares (%) billion units in 2013 80 40 ● Industry volume declined over the 61.4 62.2 61.0 past 3 years at an annual rate of 1% 58.6 KT&G 50 ● Market share growing, achieving 25 20.0% YTD May 19.8 19.2 19.4 20.0 PMI ● Capitalize on i
Slide 43: Korea: Share Gains from New Product Launches
Korea: Share Gains from New Product Launches (%) 2013 15 Market Shares Industry: 71 launches 11.8 PMI: 12 launches 3.6 PMI Share of New Launches: 30% 0 Jan-11 2011 Jan-12 2012 Jan-13 2013 Source: Nielsen Retail Audit 43
Slide 44: Opportunities for Future Growth
Opportunities for Future Growth 2013 Asia Region Industry Volume: Main Geographic Opportunities (units billion) 1.2 trillion units(a) 177 International Competitors Others 102 536 56 54 billion units 47 29 Indon. India Vietnam Korea Bangl. Thailand 2013 PMI SoM (%) 36.1 <1 3.0 19.4 <1 23.1 (a) Exclud
Slide 45: Huge Opportunities: Vietnam, India and Bangladesh
Huge Opportunities: Vietnam, India and Bangladesh ● Focus on Marlboro in key cities PMI Combined Total Cigarette Volume (units billion)(a) 3.5 ● In Vietnam premium segment 3.0 leadership achieved 1.7 ● Favorable demographics and increasing adult smoker confidence 2011 2012 2013 ● Continued investmen
Slide 46: Diverse, Talented and Committed Organization
Diverse, Talented and Committed Organization ● Over 1,800 people were hired in 2013 ● 64 Asian talent moved to international assignments ● Implemented two leadership development programs to build Indonesia Philippines future leaders from Asia ● Launched a regional internship program to build entry l
Slide 47: Asia Business Outlook
Asia Business Outlook ● Positive economic and demographic outlook ● Clear market share leadership ● Leading brand portfolio with a focus on innovation ● Sustainable pricing ● Investments to unlock long-term growth potential ● Tremendous opportunity for Reduced-Risk Products ● Annual average mid to l
Slide 48: Investor Day – Asia Region: Questions & Answers
Investor Day – Asia Region Lausanne, June 26, 2014 Questions & Answers
Slide 49: 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