Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (June 2012)
65 slides from Philip Morris International's investor day presentation, Jun 21, 2012
Slide 1: Investor Day – LA&C Region
Investor Day – LA&C Region Lausanne, June 21, 2012 James R. Mortensen President, Latin America & Canada Region Philip Morris International
Slide 2: What Latin America & Canada Offers
What Latin America & Canada Offers ● Favorable environment for uptrading ● Increasingly reasonable excise tax structures ● Volume opportunities in addressing illicit trade ● Strengthening brand portfolios led by Marlboro ● Expanding margins ● Talented, results-driven organization 2
Slide 3: Agenda
Agenda ● LA&C Region Overview ● PMI Performance ● Regional Strategies ● Key Markets Overview ● Conclusion 3
Slide 4: Regional Overview
Regional Overview 2011 ● 44 markets ● 600+ million population ● 281 billion units, industry volume ● 100 billion units, PMI shipments ● 35.6% market share ● $1.0 billion OCI ● 13 PMI cigarette factories ● 11,000+ employees Cigarette Factories Source: PMI estimates 4
Slide 5: Macroeconomic Environment (2011)
Macroeconomic Environment (2011) Real GDP Growth (%) Inflation Rate (%) 9.8 8.9 6.6 3.9 3.4 2.7 2.5 2.9 Argentina Mexico Brazil Canada Argentina Brazil Mexico Canada Unemployment (%) Population Growth (%) 7.5 7.1 1.2 6.0 1.1 5.2 0.9 0.9 Canada Argentina Brazil Mexico Mexico Canada Brazil Argentina S
Slide 6: Cigarette Consumption
Cigarette Consumption Consumption CAGR: (2.1)% Illicit Trade Volume Tax-Paid CAGR: (2.6)% Tax-Paid Volume (units billion) 360 349 332 36 10% 321 38 40 12% 313 90% 294 281 88% 200 2007 2009 2011 Source: PMI estimates and media reports 6
Slide 7: Illicit Trade Trends
Illicit Trade Trends Illicit Trade Volume 2007 2011 (units billion) 24 19 14 8 4 2 Canada Brazil Mexico Colombia Source: PMI estimates and media reports 7
Slide 8: Tax-Paid Industry Volume by Market (2011)
Tax-Paid Industry Volume by Market (2011) Total Region = 281 billion units CAGR % of 2007-2011 Total Region Brazil 93 (4.1)% 33% Argentina 44 1.6% 16% Mexico 34 (6.3)% 12% Canada 32 2.5% 11% Source: PMI estimates 8
Slide 9: LA&C Contribution to 2011 PMI Results
LA&C Contribution to 2011 PMI Results Cigarette Shipment Volume Net Revenues 11% 11% Adjusted OCI 7% Source: PMI Financials 9
Slide 10: Growing Market Share
Growing Market Share PMI SoM in 2011 (%) and Variance in SoM 2011 vs. 2007 (pp) +5.4pp +8.0pp (2.4)pp 74.4% +1.7pp +6.9pp 72.3% 48.7% 34.1% +1.5pp 35.6% 13.8% Argentina Mexico Colombia Canada Brazil Regional Note: Canada and Mexico share growth shown pro forma Source: PMI estimates 10
Slide 11: Strong Financial Performance
Strong Financial Performance Shipment Volume Net Revenues Adjusted OCI (units billion) ($ million) ($ million) CAGR: 2.9% CAGR: 13.6% CAGR: 17.4% CAGR: 13.9% (excl. currency) CAGR: 19.8% (excl. currency) 100.2 3,299 1,012 89.3 1,981 532 2007 2011 2007 2011 2007 2011 Source: PMI Financials 11
Slide 12: Momentum Continued in Q1, 2012
Momentum Continued in Q1, 2012 Shipment Volume Net Revenues Adjusted OCI (units billion) ($ million) ($ million) +2.9% +0.4% (2.8)% +5.4% (excl. currency) +4.0% (excl. currency) 24.3 780 783 23.7 252 245 Q1, 2011 Q1, 2012 Q1, 2011 Q1, 2012 Q1, 2011 Q1, 2012 Source: PMI Financials 12
Slide 13: Expanding Adjusted OCI Margin
Expanding Adjusted OCI Margin (%) 35 31.3 30.7 26.9 20 2007 2011 Q1, 2012 Note: Adjusted OCI margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes Source: PMI Financials 13
Slide 14: Regional Strategies
Regional Strategies ● Strengthen portfolio ● Expand margins ● Seek a fair and reasonable regulatory / fiscal environment ● Confront illicit trade 14
Slide 15: Improving Mix
Improving Mix Total Tax-Paid Industry Price Mix (%) 28 Premium 30 38 Mid 37 34 Low 33 2009 2011 Source: PMI estimates 15
Slide 16: Superior PMI Positioning in Premium Segment
Superior PMI Positioning in Premium Segment 2011 Price Mix (%) 21 Premium 46 41 Mid 30 Low 38 24 PMI Tax-Paid Industry Source: PMI estimates (excl. PMI) 16
Slide 17: Strengthen Portfolio
Strengthen Portfolio ● Solidify Marlboro as the Region’s #1 selling brand: - 2011 market share: 13.8% - 2011 premium segment share: 46.7% ● Support local brands that enjoy established equities ● Expand international brands 17
Slide 18: Marlboro Has the Broadest Geographic Footprint
Marlboro Has the Broadest Geographic Footprint Premium Segment Leader ≥ 25% Share of Premium Segment Source: PMI estimates 18
Slide 19: Rolled Out the Marlboro Architecture
Solidify Marlboro’s Position as #1 Brand Rolled Out the Marlboro Architecture Note: Packs are for illustrative purposes only 19
Slide 20: Modernized Core Variants
Solidify Marlboro’s Position as #1 Brand Modernized Core Variants 20
Slide 21: Launched Innovative Line Extensions – Flavor
Solidify Marlboro’s Position as #1 Brand Launched Innovative Line Extensions – Flavor 21
Slide 22: Launched Innovative Line Extensions – Gold
Solidify Marlboro’s Position as #1 Brand Launched Innovative Line Extensions – Gold 22
Slide 23: Launched Innovative Line Extensions – Fresh
Solidify Marlboro’s Position as #1 Brand Launched Innovative Line Extensions – Fresh 23
Slide 24: Growing Marlboro's Share
Growing Marlboro’s Share Marlboro Share of Market 2007 2011 Variance Mexico 47.7% 52.3% 4.6pp Argentina 21.6 24.1 2.5 Brazil 6.0 7.1 1.1 Colombia 2.7 4.8 2.1 Source: PMI estimates 24
Slide 25: Energizing New Communication Platform: "Be Marlboro"
Solidify Marlboro’s Position as #1 Brand Energizing New Communication Platform: “Be Marlboro” 25
Slide 26: Strengthen Portfolio
Strengthen Portfolio ● Solidify Marlboro as the Region’s #1 selling brand ● Support local brands which enjoy established equities 26
Slide 27: Delicados: a Mexican Icon
Delicados: a Mexican Icon 2011 ● # 2 brand in Mexico: - 10.9% market share ● # 1 brand in low-price segment: - 50.3% segment share ● Clear, unique positioning ● Authentic Mexican brand ● Value for money Source: PMI estimates 27
Slide 28: Nacional and Diplomat are Market Leaders
Nacional and Diplomat are Market Leaders Dominican Republic El Salvador 2011 2011 SoM 60.7% SoM 36.9% +1.8pp vs. 2010 +1.1pp vs. 2010 Source: PMI estimates 28
Slide 29: Strengthen Portfolio
Strengthen Portfolio ● Solidify Marlboro as the Region’s #1 selling brand ● Support local brands which enjoy established equities ● Expand international brands: - Launch in markets which exhibit the potential for success - “Morph” local brands with weak equities 29
Slide 30: L&M Gaining Traction in Bogota
L&M Gaining Traction in Bogota . BOGOTA COLOMBIA ● Launched in Bogota in Nov. 2011 ● 1.3% SoM in April 2012 Source: Nielsen 30
Slide 31: "Morphing" to Build Brand Equity
“Morphing” to Build Brand Equity GUATEMALA HONDURAS EL SALVADOR NICARAGUA COSTA RICA PANAMA 31
Slide 32: Regional Strategies
Regional Strategies ● Strengthen portfolio ● Expand margins ● Seek a fair and reasonable regulatory / fiscal environment ● Confront illicit trade 32
Slide 33: Favorable Pricing Environment
Favorable Pricing Environment LA&C Pricing Variance ($ million) 350 334 276 175 138 129 0 2007 2008 2009 2010 2011 Source: PMI Financials 33
Slide 34: Focus on Cost Base
Focus on Cost Base ● Rationalize factory footprint: - Venezuela Cast Leaf - Uruguay Plant Savings: US$ 20 million per year - Mexico City Plant ● Reduce SKUs ● Lower overhead costs: - Established shared service and other centers of expertise Source: PMI estimates 34
Slide 35: Regional Strategies
Regional Strategies ● Strengthen portfolio ● Expand margins ● Seek a fair and reasonable regulatory / fiscal environment ● Confront illicit trade 35
Slide 36: Excise Tax Structural Improvements
Excise Tax Structural Improvements January 2009 Current Fully Ad Valorem Structures with Specific Component or Minimum Tax Product Characteristic Based 36
Slide 37: Regional Strategies
Regional Strategies ● Strengthen portfolio ● Expand margins ● Seek a fair and reasonable regulatory / fiscal environment ● Confront illicit trade 37
Slide 38: Initiatives Against Illicit Trade
Initiatives Against Illicit Trade ● Expand dedicated resources ● Act to prevent excessive tax increases and counter- productive regulations ● Provide information on illicit trade logistics; train authorities ● Foster cross-border cooperation and share best practices ● Engage other stakeholders 38
Slide 39: Mexico: Market Profile
Mexico: Market Profile PMI Share of Market (%) Industry Volume: 72.3 34.3 billion units 69.3 64.3 2007 2009 2011 ● PMI market leader since 1998 Key Brands ● Marlboro: #1 brand ● Delicados: #2 brand; #1 in low-price segment ● B&H: #1 brand in 100’s and menthol segments Note: 2007 share shown pro form
Slide 40: Mexico: Excise Tax
Mexico: Excise Tax ● January 2011 dramatic excise tax increase ● Average retail selling price increased by 32% ● Tax-paid industry volume declined 21% in 2011 ● Illicit trade surged ● Failed to deliver expected government revenues ● May YTD, 2012 tax-paid industry indicates market has returned to hi
Slide 41: Mexico: Marlboro Growing across all Pillars
Mexico: Marlboro Growing across all Pillars Share of Market (%) +0.6pp +0.8pp 52.3% +2.7pp 48.2% +4.1pp 2009 Flavor Gold Fresh 2011 Source: PMI estimates 41
Slide 42: Mexico: B&H Share Growing
Mexico: B&H Share Growing Share of Market (%) 6.1 5.7 5.5 2009 2010 2011 ● Launched 14’s pack ● Introduced Polar Blue ● Launched UNO in a super slim format Source: PMI estimates 42
Slide 43: Mexico: Key Priorities
Mexico: Key Priorities ● Capitalize on Marlboro growth with Be Marlboro ● Address expanding taste preferences of adult smokers ● Recover volume lost to illicit trade: - Record product seizures YTD May 2012 43
Slide 44: Canada: Market Profile
Canada: Market Profile PMI Share of Market (%) 32.4 33.8 34.1 Industry Volume: 32.1 billion units 2007 2009 2011 ● Highly profitable market ● PMI leader among LA (min. 18) – 29 ● Encouraging reduction in illicit trade Note: PMI share for 2007 shown pro forma Source: PMI estimates 44
Slide 45: Canada: Cigarette Volume Continues to Grow
Canada: Cigarette Volume Continues to Grow PMI Shipment Volume (units billion) 10.9 10.8 10.0 9.6 9.5 2007 2008 2009 2010 2011 Note: Volume for 2007 and 2008 shown pro forma Source: Rothmans Inc. and PMI Financials 45
Slide 46: Canada: Belmont Has a Promising Future
Canada: Belmont Has a Promising Future Belmont in Ontario (2011) 14.3% 9.6% 4.4% Market Share Share of LA (min. 18) - 29 Premium Segment Share ● Gradually expand to select geographies; maintain brand image Source: PMI estimates 46
Slide 47: Canada: Next is the Low-Price Segment Leader
Canada: Next is the Low-Price Segment Leader Share of Market (%) 6.9 4.4 ● Fastest growing brand ● Sells at a modest premium 1.0 ● Margin expansion 2009 2010 2011 ● Build equity, leadership and profitability in the low-price segment ● Create the low-price brand that consumers ask for by name Source:
Slide 48: Canada: The Opportunity in Reducing Illicit Trade
Canada: The Opportunity in Reducing Illicit Trade Illicit Trade Incidence Tax Paid Industry Volume (%) (units billion) Quebec Ontario Total Canada 32.4 32.1 48.6 40.1 27.2 28.6 29.6 14.9 2008 2011 2008 2011 2008 2009 2010 2011 At 10% incidence level in Quebec and Ontario, industry volume upside ~3 b
Slide 49: Brazil: Market Profile
Brazil: Market Profile PMI Share of Market (%) 14.0 13.8 12.3 Industry Volume: 92.7 billion units 2007 2009 2011 Key Brands ● Large and challenging market ● Significant illicit trade issue ● Favorable economic conditions ● Improvement in excise tax structure Source: PMI estimates 2011 Market Share 7
Slide 50: Brazil: New Tax Structure Levels Playing Field
Brazil: New Tax Structure Levels Playing Field ● Dismantles complex, market-distorting structure ● Ultimately aligns the specific component at one rate ● Establishes minimum retail selling price ● Structure and rate published through 2015 50
Slide 51: Brazil: Upward Socio-Economic Movement
Brazil: Upward Socio-Economic Movement Population Distribution by Socio-Economic Level – (million) 26.4 Å HIGH Æ 42.4 62.7 Å MED Æ 103.1 92.9 Å LOW Æ 45.2 2005 2011 ● 40+ million people entered middle class in last 6 years ● Increasing disposable income Source: Cetelem-Ipsos and IBGE – Brazilian Ins
Slide 52: Brazil: Conditions Conducive to Improving Performance
Brazil: Conditions Conducive to Improving Performance ● Level playing field in taxation ● Upward socio-economic movement 52
Slide 53: Brazil: Focused Resources
Brazil: Focused Resources Marlboro National Focus Area 20.3% 10.7% Sao Paulo . Rio De Janeiro . 7.1% Curitiba . Focus Area ● 44% of total population SoM SoM LA ● 66% of tax paid industry volume (min. 18) – 24 Source: PMI estimates; Population: IBGE – Brazilian Institute of Geography and Statistics S
Slide 54: Brazil: Marlboro Line Extensions Contributing to Growth
Brazil: Marlboro Line Extensions Contributing to Growth Share of Market (%) 7.1 Line Extensions 0.7 6.0 2007 2011 Source: PMI estimates 54
Slide 55: Brazil: L&M Innovation
Brazil: L@M Innovation PHILIP MORRIS INTERNATIONAL FUMACA TOXICA FUMAGA TOXICA
Slide 56: Brazil: Ingredient Restrictions – RDC
Brazil: Ingredient Restrictions – RDC 14 ● Prohibits the use of most ingredients in tobacco products: - De-facto ban on existing blended cigarettes; 99% of market - Effectively eliminates menthol and kretek products - Arbitrary and irrational ● Manufacturers compliant by September 2013: - Retail inv
Slide 57: Brazil: Challenge RDC
Brazil: Challenge RDC 14 ● Anvisa lacks authority to ban ingredients ● Underlying basis for RDC 14 is unsupported ● Considering various avenues, including litigation 57
Slide 58: Brazil: Key Priorities
Brazil: Key Priorities ● Ensure Marlboro’s relevance to emerging middle class ● Position L&M as mid-price brand with premium features ● Manage our price gaps ● Forge effective partnerships with key accounts ● Expand distribution in focus area 58
Slide 59: Argentina: Market Profile
Argentina: Market Profile PMI Share of Market (%) 72.2 74.4 69.0 Industry Volume: 43.8 billion units 2007 2009 2011 Key Brands ● Uptrading market ● Outstanding share performance ● Balanced portfolio Source: PMI estimates 2011 Market Share 24.1% 38.0% 3.6% 59
Slide 60: Argentina: Marlboro Growing Share and Improving Profile
Argentina: Marlboro Growing Share and Improving Profile Share of Market LA (min. 18) – 24 Share 27.6% 23.9% 24.1% 23.3% 22.9% 23.0% 2009 2010 2011 Source: PMI estimates and Market Research 60
Slide 61: Argentina: Philip Morris Continues to Lead
Argentina: Philip Morris Continues to Lead Share of Market (%) 38.0 ● #1 brand in market 32.2 ● Safety net for Marlboro ● Smart and approachable attitude ● Leader among LA (min. 18) – 24 smokers 2007 2008 2009 2010 2011 Source: PMI estimates and Market Research 61
Slide 62: Argentina: Philip Morris Caps
Argentina: Philip Morris Caps 62
Slide 63: Conclusion
Conclusion ● Our brand portfolios have never been stronger ● Marlboro is in great shape ● Proper balance between international and local brands ● More equitable tax structures ● Environment conducive to profitability growth ● Illicit trade conversion to tax-paid products will lead to volume and inco
Slide 64: Questions & Answers
Investor Day – LA&C Region Lausanne, June 21, 2012 Questions & Answers
Slide 65: 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
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