Philip Morris International Inc · NYSE:PM
Philip Morris International — Morgan Stanley Global Consumer & Retail Conference 2008
75 slides from Philip Morris International's conference presentation, Nov 18, 2008
Slide 1: Morgan Stanley Global Consumer & Retail Conference
Morgan Stanley Global Consumer & Retail Conference New York, 18 November 2008 Exhibit 99.2
Slide 2: Forward-Looking Statements
Forward-Looking Statements Forward-Looking Statements This presentation and related discussion contain statements that to the extent they do not relate strictly to historical or current facts, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act
Slide 3: Summary
Summary Summary Well-positioned to weather the current global crisis Investor concerns: - Risk of consumer downtrading - Emerging market volatility - Currency exposure
Slide 4: Summary
Summary Summary Well-positioned to weather the current global crisis Investor concerns: Risk of consumer downtrading Emerging market volatility Currency exposure PMI attributes: Solid business momentum Exciting growth prospects Strong cash flows – – – – – –
Slide 5: Summary
Summary Summary Well-positioned to weather the current global crisis Investor concerns: - Risk of consumer downtrading - Emerging market volatility - Currency exposure PMI attributes: - Solid business momentum - Exciting growth prospects - Strong cash flows Enhance long-term shareholder value
Slide 6: PMI 2008 Results
PMI 2008 Results PMI 2008 Results (a) For reconciliation of reported results to organic results, see last slide of the presentation Source: PMI Financials +1.1 % +2.4% Cigarette Volume Organic (a) Change (%) Reported Change (%) YTD Sept YTD Sept (bio)
Slide 7: PMI 2008 Results
PMI 2008 Results PMI 2008 Results +5.7% +15.6% $17.3 $20.0 Net Revenues (b) +1.1 % +2.4% Cigarette Volume Organic (a) Change (%) Reported Change (%) YTD Sept YTD Sept (bio) (a) For reconciliation of reported results to organic results, see last slide of the presentation (b) Excluding excise taxes So
Slide 8: PMI 2008 Results
PMI 2008 Results PMI 2008 Results +39.1% $4.6 $6.4 Cash Flow (c) +21.7% 2.21 2.69 Diluted EPS ($/Share) +11.3% +21.8% $6.9 $8.4 OCI +5.7% +15.6% $17.3 $20.0 Net Revenues (b) +1.1 % +2.4% Cigarette Volume Organic (a) Change (%) Reported Change (%) YTD Sept YTD Sept (bio) (a) For reconciliation of rep
Slide 9: PMI 2008 YTD Sept OCI Variance Analysis
PMI 2008 YTD Sept OCI Variance Analysis PMI 2008 YTD Sept OCI Variance Analysis (87) (66) 8,422 6,912 Currency Vol/Mix Price Costs Other Acq. Source: PMI Financials ($mio)
Slide 10: OCI Variance Analysis: Volume/Mix
YTD Sept OCI Variance Analysis: Volume/Mix OCI Variance Analysis: Volume/Mix (201) (198) (157) (290) ($mio)
Slide 11: PMI 2008 YTD Sept OCI Variance Analysis
PMI 2008 YTD Sept OCI Variance Analysis PMI 2008 YTD Sept OCI Variance Analysis (87) (66) 8,422 6,912 Currency Vol/Mix Price Costs Other Acq. Source: PMI Financials ($mio)
Slide 12: Currencies
Currencies Currencies 95.67 105.88 119.36 Japanese Yen 11,364 9,254 9,110 Indonesian Rupiah 13.09 10.53 10.96 Mexican Peso 1.35 25.89 1.22 1.34 YTD Sept 1.65 1.23 Turkish Lira 27.56 24.05 Russian Ruble 1.19 1.06 Swiss Franc 1.25 1.52 Euro 14 Nov YTD Sept (a) Local currency to the US Dollar except Eu
Slide 13: Constant Currency Long-Term Annual Growth Targets
Volume: 1-2% Net revenues (a) : 4-6% Operating income: 6-8% EPS: 10-12% Constant Currency Long-Term Constant Currency Long-Term Annual Growth Targets Annual Growth Targets (a) Excluding excise taxes
Slide 14: 2008 Guidance
2008 Guidance 2008 Guidance Expect to meet the low end of annual earnings guidance range of $3.32 to $3.38 per share, reflecting 19%-21% growth rate Continued currency volatility could have impact of +/- one to two cents per share from the low end of the range
Slide 15: Estimated EPS Growth
Estimated EPS Growth Estimated EPS Growth Weighted Average 2008 Weighted Average 2008 Note: EPS growth reflects calendar year 2008 EPS growth Source: Thompson One Analytics, FactSet and Wall Street equity research Global Mega Cap Peer Group Company Peer Group Global CPG Group Tobacco Peer Group 9.7%
Slide 16: Business Update
Business Update Business Update Developed markets: Germany Japan Emerging Markets: Russia Indonesia
Slide 17: Germany Business Update
5.3 6.8 Jan 08 Oct 08 25.2 24.2 Germany Business Update Germany Business Update Cigarette industry volume down 3.1% YTD Oct PMI share is up 0.3 share points to 36.8% YTD Oct Marlbor o share stabilizing in last few months L& M fastest growing brand Build on momentum of L&M, notably L& M Night priced
Slide 18: Germany Business Update
YTD Oct Germany Business Update Germany Business Update Strong PMI share growth in fine cut: Innovative expansion L&M expansion Improved outlook for PMI across the tobacco market Cautiously optimistic regarding higher minimum pack size regulations (%) 7.4 11.3 13.7 L&M Others Next Source: PMI estima
Slide 19: Japan Business Update
Japan Business Update Japan Business Update Total market down 3.7% YTD Sept TASPO card penetration at 32% Consumers switching to convenience stores Debate around excise tax and pricing freedom Source: Tobacco Institute of Japan and PMI consumer research
Slide 20: Japan Business Update
9.9 9.8 9.8 10.2 6.7 6.6 6.8 6.6 7.3 7.5 7.3 7.2 Japan Business Update Japan Business Update PMI shipments have dropped 6.0% YTD Sept reflecting market decline and distributor inventory adjustments PMI share at 24.0% in Q3 has been stable for four consecutive quarters Market Shares (%) Q4 Q1 Q2 Q3 2
Slide 21: Japan Business Update
Japan Business Update Japan Business Update Strategic focus on innovation, new line extensions and product improvement Marlboro Black Menthol 1.0% share in Sept; best launch ever Marlboro Filter Plus in November Source: Tobacco Institute of Japan launched
Slide 22: Russia Business Update
Russia Business Update Russia Business Update Key Consumer Trends (SoM) YTD Sept YTD Sept YTD Sept Source: Business Analytica Medium Plus Price Lighter Taste Slims Diameter
Slide 23: Russia Business Update
Russia Business Update Russia Business Update PMI shipments have increased 8.0% YTD Sept PMI market share in Q3 reached 27.0%, up 0.4 pp versus prior year Consumer uptrading and pricing driving strong profitability gains PMI has strong brands in all price categories Mid Low/ Super-low Premium & Abov
Slide 24: Russia Business Update
Russia Business Update Russia Business Update Business momentum continues unabated Efficient and effective distribution network Payment terms respected Stable and predictable excise tax structure Attractive retail prices Strong manufacturing presence Broad portfolio of growing brands
Slide 25: Indonesia Business Update
Indonesia Business Update Indonesia Business Update Industry volume up 5% YTD Sept driven by favorable demographics and moderate price increases Key growth segment is machine made kreteks that are lighter in taste Tax reform tending towards greater role of specific element and reduction in complexit
Slide 26: Indonesia Business Update
Indonesia Business Update Indonesia Business Update PMI shipments up 10% YTD Sept (after adjustment) (a) PMI market share up 0.3 points YTD Sept Marlboro has benefited from launch of Marlboro kretek + 10 % (a) Total PMI + 45 % Others 2 % A Hijau + 6 % Dji Sam Soe + 12 % A Mild + 16 % Marlboro YTD Se
Slide 27: Emerging Markets: Indonesia 1997-2000
Emerging Markets: Indonesia 1997-2000 Emerging Markets: Indonesia 1997-2000 (13) GDP Growth (%) Inflation (%) 8,422 7,855 10,014 2,909 Exchange Rate (IDR/USD) Economic Indicators Source: Global Insight
Slide 28: Emerging Markets: Indonesia 1997-2000
Emerging Markets: Indonesia 1997-2000 Emerging Markets: Indonesia 1997-2000 Sampoerna / PMI Volume (bio) 1,985 7,412 1,075 4,649 OCI ($mio) 2,052 OCI (IDR bio) 1,191 1,069 Revenues ($mio) 10,029 3,111 Revenues (IDR bio) Sampoerna Financial Results Source: Sampoerna and PMI company records
Slide 29: Indonesian economy much stronger today than in 1998
Indonesian economy much stronger today than in 1998 Emerging Markets: Indonesia 2008 Emerging Markets: Indonesia 2008 -28% up to -500% Exchange Rate (IDR/USD) Inflation (%) Reserves ($bio) Export Contribution to GDP (%) GDP ($bio) Source: Global Insight
Slide 30: Emerging Markets: Indonesia 2008
Market Shares 13.9 29.5 36.1 22.1 15.8 18.0 2.4 6.3 4.1 5.9 10.6 2.4 YTD Sept 08 Emerging Markets: Indonesia 2008 Emerging Markets: Indonesia 2008 (%) Gudang Garam Nojorono Bentoel BAT Djarum PMI/Sampoerna Sampoerna / PMI Portfolio 6% 5% 26% 36% 52% 27% 8% 17% 8% 15% A Hijau A Mild Dji Sam Soe Marlb
Slide 31: Emerging Markets: Russia 1998-99
Emerging Markets: Russia 1998-99 Emerging Markets: Russia 1998-99 Industry Price Segmentation 57% 81% 43% 19% 0% 50% 100% Premium/ Mid Value/ Low 4.5x 3.2x L&M Bond Street Marlboro Apollo-Soyuz Source: Business Analytica 7.4 25.4 4.4 13.8 3.4 10.2 5.7 2.3 Jul 1998 Jul 1999 RUB/Pack
Slide 32: Emerging Markets: Russia 1998-2001
Emerging Markets: Russia 1998-2001 Emerging Markets: Russia 1998-2001 Switch to local manufacturing Strengthened low price portfolio Volume recovered by 2001 Profitability grew at a rapid pace starting in 2000 Source: Local affiliate financials
Slide 33: Emerging Markets: Russia 2008
St. Petersburg Moscow Novosibirsk Ekaterinburg Rostov-on-Don Emerging Markets: Russia 2008 Emerging Markets: Russia 2008 Field offices Offices 80,000 Outlets on Routes Locales covered 1,030 Field Force Area offices Russia is now a significant economy which has accumulated strong foreign currency res
Slide 34: Emerging Markets: Economic
Emerging Markets: Economic Emerging Markets: Economic Previous Crises Driven primarily by overheating of local economies Massive devaluation of local currencies and strong inflationary pressures
Slide 35: Emerging Markets: Economic
Emerging Markets: Economic Emerging Markets: Economic Previous Crises Driven primarily by overheating of local economies Massive devaluation of local currencies and strong inflationary pressures Current Situation Global financial crisis originating in developed countries Inflation tending to moderat
Slide 36: Emerging Markets: PMI
Emerging Markets: PMI Emerging Markets: PMI Previous Crises Currency devaluation and imports driving higher retail prices Ad valorem excise taxes exacerbated price gaps Markets resilient, but consumer downtrading PMI portfolio heavily dependent on Marlbor o and L&M
Slide 37: Emerging Markets: PMI
Emerging Markets: PMI Emerging Markets: PMI Previous Crises Currency devaluation and imports driving higher retail prices Ad valorem excise taxes exacerbated price gaps Markets resilient, but consumer downtrading PMI portfolio heavily dependent on Marlbor o and L&M Current Situation Disposable consu
Slide 38: PMI Volume and OCI in Eight Emerging Markets
PMI Volume and OCI in Eight Emerging Markets PMI Volume and OCI in Eight Emerging Markets Combined Market Results Indexed Volume OCI CAGR: 9% CAGR: 5% Source: PMI local affiliate records
Slide 39: Geographic Balance
Non-OECD 55% OECD 45% Non-OECD 35% OECD 65% Geographic Balance Geographic Balance 2008 YTD Sept Volume 2008 YTD Sept OCI OECD Non-OECD (a) (a) Excluding PRC and duty-free Source: PMI Financials (a)
Slide 40: Brand Portfolio Strategy
Brand Portfolio Strategy Brand Portfolio Strategy
Slide 41: PMI Share of Premium & Above
Fra Ger Ita Pol Sp Rus Turk Ukr Indo Jap Arg Mex PMI Share of Premium & Above PMI Share of Premium & Above EU EEMA LA & Can Asia 2008 YTD Sept (%) Source: PMI GIMS
Slide 42: Brand Portfolio Strategy
Brand Portfolio Strategy Brand Portfolio Strategy
Slide 43: PMI Share of Mid Price
PMI Share of Mid Price PMI Share of Mid Price Fra Ita Pol Sp Rus Turk Ukr Indo Jap Thai EU EEMA Asia Source: PMI GIMS 2008 YTD Sept (%)
Slide 44: Brand Portfolio Strategy
Brand Portfolio Strategy Brand Portfolio Strategy
Slide 45: Brand Portfolio Strategy
Brand Portfolio Strate g y Brand Portfolio Strate g y
Slide 46: Brand Portfolio Strategy
Brand Portfolio Strategy Brand Portfolio Strategy Red Gold Fresh
Slide 47: Marlboro Filter Plus
Marlboro Filter Plus Marlboro Filter Plus Unique, multi-chamber filter, including tobacco plug Flavorful alternative that extends Marlboro heritage to 6mg, 3mg and 1mg Generally sold at a premium Sept 2008 Market Shares 2.1 2.0 1.4 0.6 1.0 1.0 2.5 Kuw Rom Almaty Kiev Moscow Vilnius (%) Source: AC Ni
Slide 48: Marlboro Intense / Compact
Marlboro Intense / Compact Marlboro Intense / Compact Marlboro Intense is a rich, flavorful, generally shorter cigarette Launched in Turkey and several EU markets Lighter version, Marlboro Compact in Italy has achieved a 0.6% share Source: AC Nielsen ,
Slide 49: Marlboro Gold
Marlboro Gold Marlboro Gold New more modern pack in test market in Austria, France and Italy Positive reaction from trade and adult smokers New pack perceived as “modern, dynamic and elegant”
Slide 50: Marlboro Gold Edge
Marlboro Gold Edge Marlboro Gold Edge Marlboro Gold Edge is the first entry into super slims for Marlboro Launch in Poland and Russia, where slims are growing driven by both male and female adult smokers
Slide 51: Marlboro Refreshing Taste Sensations
Marlbor o Marlbor o Refreshing Taste Sensations Refreshing Taste Sensations Innovative Marlboro Crisp Mint , Marlboro Fresh Mint and Marlbor o Ic e Mint launched in selected Asian countries in Expanded to selected Latin American markets 11.5 10.8 1.3 11.5% 12.1% Ice Mint YTD Sept YTD Sept Singapore
Slide 52: Marlboro Refreshing Taste Sensations
Marlbor o Marlbor o Refreshing Refreshing Taste Taste Sensations Sensations Marlboro Black Menthol launched in Japan in Q3, 2008 Most successful new PMI launch in this market 5.2 4.9 0.3 0.3 0.8 2008 H1 2008 Q3 Black Menthol Ice Mint Japan Marlboro Menthol SoM 5.5% 6.0% Source: Tobacco Institute of
Slide 53: Marlboro Market Leadership
Marlbor o Marlbor o Market Leadership Market Leadership in market (selected) in premium (selected) UK Ukraine Turkey Serbia Philippines Poland Kazakhstan Japan Finland Egypt Czech Rep Costa Rica Argentina Algeria Switzerland Spain Saudi Arabia Netherlands Mexico Lebanon Kuwait Italy Hong Kong Greece
Slide 54: Parliament
Parliament Parliament Prestige brand with recessed filter Generally above premium price with superior margins Parliament volume grew by 20.6% YTD Sept Source: PMI Financials
Slide 55: Parliament
Parliament Parliament Growth driven by Korea, Russia, Turkey and Ukraine Parliament Reserve launched in Russia, Turkey and Ukraine to reinforce prestigious image 1.7 2.4 5.8 1.3 3.1 2.6 7.1 1.8 7.5 Korea Russia Turkey Ukraine Source: AC Nielsen and Business Analytica Market Shares YTD Sept (%)
Slide 56: Virginia Slims
Virginia Slims Virginia Slims Stand-alone slims and super slims product Virginia Slims volume grew by 9.6% YTD Sept Virginia Slims Uno pack format Geographic expansion 1.9 2.6 0.8 2.1 2.9 1.1 Japan Korea Romania (%) Source: PMI Financials, Tobacco Institute of Japan and AC Nielsen Market Shares YTD
Slide 57: L&M In Market Sales
In Market Sales Q1 Q2 Q3 Q4 Q1 Q2 Q3 L&M L&M L& M repositioned in 2007 in key EEMA markets L&M volume down 5.0% YTD Sept Rate of volume decline moderating in Romania and Ukraine (mio) Source: PMI Financials and GIMS Ukraine Romania
Slide 58: L&M: Second largest brand in EU
L&M L&M Second largest brand in EU region after Marlboro L& M volume in EU up 4.2% YTD Sept Fastest growing brand in Germany and Netherlands Growing market leader in Poland, helped by slims Largest international brand in Thailand 4.7 4.1 13.8 15.9 6.8 6.1 14.5 16.6 Germany Netherlands Poland Thailan
Slide 59: Chesterfield
3.2 2.4 9.6 5.9 3.6 2.8 9.8 7.2 Italy Russia Spain Ukraine Chesterfield Chesterfield Chesterfield volume grew 16.9% YTD Sept Key markets are Italy, Russia, Spain and Ukraine (%) Source: PMI Financials, AC Nielsen, Business Analytica and estimates based on Logista Market Shares YTD Sept
Slide 60: Low Price
Low Price Low Price Combined volume of Bond Street Next and Red & White over 50 billion YTD Sept Complementary roles in Central and Eastern Europe Source: PMI Financials ,
Slide 61: Brand Portfolio
Brand Portfolio Brand Portfolio Mid Price Premium & Above Local Heritage International Low Price
Slide 62: Rothmans Inc. Acquisition
Rothmans Inc. Acquisition Rothmans Inc. Acquisition Provides meaningful presence in one of the most profitable markets Has a growing 33% share of the Canadian cigarette market Is the leader in value segment and fine cut market 44.5 47.3 53.7 57.8 55.5 52.7 46.3 42.2 0% 100% YTD Sept Value Premium Ci
Slide 63: Acquisition Opportunities
Acquisition Opportunities Acquisition Opportunities Pipeline of other opportunities; timing uncertain Strict strategic and financial criteria Excellent integration track record
Slide 64: Market Opportunities
Market Opportunities Market Opportunities PRC Vietnam Bangladesh India Volume: 2.3 trillion units Source: PMI GIMS
Slide 65: China
China China Building relationship with CNTC Marlboro manufactured and sold under license International joint-venture showing signs of promise Objective is to be CNTC’s key strategic partner Marlboro (under license) RGD (low price) Dubliss (mid) Harmony (premium)
Slide 66: Global Leadership and Scale
25.2% 20.2% 18.0% 8.7% 27.9% 15.6% 12.5% 11.0% 5.4% 55.5% Global Leadership and Scale Global Leadership and Scale PMI BAT JT IMT Other PMI BAT JT IMT Other International Market (a) International Market excl. PRC (a) (a) Assumes JT’s acquisition of Gallaher and Imperial’s acquisition of Altadis were
Slide 67: Key Opportunities in Other Tobacco Products
Key Opportunities in Other Tobacco Products Key Opportunities in Other Tobacco Products Cigarettes by far the most profitable tobacco category but opportunities for incremental profitability exist in OTP PMI has built a sizeable fine cut business through organic growth supplemented by acquisitions
Slide 68: Interval Acquisition
Interval Interval Acquisition Acquisition Acquisition of Interval and other fine cut brands from Imperial in June 2008 for €254 million Acquisition adds about two market share points in the EU Interval is the leading fine cut brand in France with potential for geographic expansion Source: PMI Financ
Slide 69: Key Opportunities in OTP
Key Opportunities in OTP Key Opportunities in OTP Cigarettes remain by far the most profitable tobacco category but opportunities for incremental profitability exist in other tobacco segments PMI has built a sizeable fine cut business through organic growth supplemented by acquisitions PMI has launc
Slide 70: Capital Structure
Capital Structure Capital Structure Strong balance sheet Long-term credit ratings A2 / A / A+ Short-term credit ratings P-1 / A-1 / F1 Continuous access to Tier 1 commercial paper market Over $10 billion bond offerings in US Dollars, Euros and Swiss Francs $6.4 billion of committed revolving credit
Slide 71: Shareholder Returns
Shareholder Returns Shareholder Returns Dividend raised by 17.4% in August to annualized level of $2.16 a share Target dividend payout ratio of 65% Two year $13 billion share repurchase program initiated in May Share repurchase program ahead of schedule: $4.7 billion spent Q4 2008 share repurchases
Slide 72: Stock Price Performance $US
Stock Price Performance $US Stock Price Performance $US Weighted Average Weighted Average (33.6%) (31.1%) (27.8%) (26.3%) (25.1%) (24.8%) (23.2%) Note: Peer groups represent the market weighted average performance of the group. Market weighting is based on current U.S. dollar denominated market capi
Slide 73: Conclusions
Conclusions Conclusions Strong business fundamentals and results Currency important but temporary phenomenon Expect to deliver against long term targets Emerging markets much better placed today Superior infrastructure, brand portfolio and geographic balance Pricing ability remains powerful Tremendo
Slide 74: Questions & Answers
Questions & Answers
Slide 75: Reconciliation of Reported Results to Organic Results
Reconciliation of Reported Results to Reconciliation of Reported Results to Organic Results Organic Results (For (For the the Nine Nine Months Months Ended Ended September September 30, 30, and and in in Billions) Billions) (a) Defined as operating income before general corporate expenses ($80 milli
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