Philip Morris International Inc · NYSE:PM
Philip Morris International — Investor Day (June 2010)
65 slides from Philip Morris International's investor day presentation, Jun 23, 2010
Slide 1: Investor Day Lausanne, June 23, 2010
Investor Day Lausanne, June 23, 2010 Hermann Waldemer Chief Financial Officer Philip Morris International
Slide 2: 2010 Revised EPS Guidance
2010 Revised EPS Guidance ($) 0.07 0.08 3.75-3.85 3.70-3.80 (0.20) April Guidance Improved One-Time Tax Currency Revised June Business Item(b) Guidance Outlook (a) (a) In particular with regards to Japan (b) Reversal of provisions, largely due to the successful completion of 2000-2003 tax audits Sou
Slide 3: 2010 Revised EPS Guidance
2010 Revised EPS Guidance ● Revised PMI 2010 reported diluted EPS guidance is $3.70 to $3.80, based on prevailing exchange rates ● Globally, currency now broadly neutral compared to last year ● Guidance represents a reported diluted EPS growth rate of 14% to 17% compared to $3.24 achieved in 2009 ●
Slide 4: Outlook
Outlook ● Exchange rates ● Japan ● Underlying business 4
Slide 5: Exchange Rates vs. USD
Exchange Rates vs. USD Daily Average Indices Euro 105 100 95 93 90 85 Apr 22 Jun 18 2010 2010 Source: Bloomberg London Close 5
Slide 6: Exchange Rates vs. USD
Exchange Rates vs. USD Daily Average Indices Euro Russian Ruble Turkish Lira Indo. Rupiah Mexican Peso 105 100 98 97 95 95 94 93 90 85 Apr 22 Jun 18 2010 2010 Source: Bloomberg London Close 6
Slide 7: PMI 2009 Net Revenues by Currency
PMI 2009 Net Revenues by Currency Other Emerging Euro 14% 32% Key 25% Emerging 29% Other Developed Source: PMI Financials 7
Slide 8: Exchange Rates
Exchange Rates 2009 Average June 18, 2010 % Variance USD vs. Euro 1.38 1.24 -10.2% vs. USD Swiss Franc 1.10 1.11 -1.1% Japanese Yen 91.10(a) 91.01 0.1% Russian Ruble 31.42 31.04 1.2% Ukrainian Hryvnia 8.08 7.92 2.0% Turkish Lira 1.56 1.56 -0.1% Indonesian Rupiah 10,547 9,158 13.2% Mexican Peso 13.55
Slide 9: Japan
Japan (Yen per pack of 20) Current Oct 2010 Variance National Excise Tax 71.04 106.04 35.00 Local Excise Tax 87.44 122.44 35.00 Special Tobacco Tax 16.40 16.40 - Total 174.88 244.88 70.00 ● PMI obtained permission to increase prices by 20 Yen per pack in June Source: Japanese Ministry of Finance and
Slide 10: Japan
Japan (Yen per pack of 20) Current Oct 2010 Variance National Excise Tax 71.04 106.04 35.00 Local Excise Tax 87.44 122.44 35.00 Special Tobacco Tax 16.40 16.40 - Total 174.88 244.88 70.00 ● JT announced at end of April plans to increase prices by 100- 140 Yen per pack in October ● PMI pricing decisi
Slide 11: Underlying Business
Underlying Business ● Additional tax increases in Australia, Egypt and Greece ● Excise taxation manageable despite increased pressure related to government debt concerns ● Pricing continues to be strong in 2010 11
Slide 12: Underlying Business
Underlying Business ● Additional tax increases in Australia, Egypt and Greece ● Excise taxation manageable despite increased pressure related to government debt concerns ● Pricing continues to be strong in 2010 ● Stronger outlook in Asia and Latin America ● Economic recovery, but unemployment remain
Slide 13: Underlying Business
Underlying Business ● Additional tax increases in Australia, Egypt and Greece ● Excise taxation manageable despite increased pressure related to government debt concerns ● Pricing continues to be strong in 2010 ● Stronger outlook in Asia and Latin America ● Economic recovery, but unemployment remain
Slide 14: Top International Brands (2009)
Top 15 International Brands (2009) (billion units) Marlboro Marlboro 302 Winston Mild Seven L&M L&M 91 Pall Mall Kent PMI Camel JT Viceroy BAT Bond Street Bond Street 42 Dunhill Philip Philip Morris Morris 38 Chesterfield Chesterfield 38 Parliament Parliament 37 LD Lark Lark 31 0 50 100 150 200 250
Slide 15: Marlboro Architecture
Marlboro Architecture Flavor Line “Flavor enjoyment” Gold Line “Smooth taste and style” Fresh Line “Fresh taste sensations” Note: Pack designs for illustrative purposes only 15
Slide 16: PMI Local Heritage Brands
PMI Local Heritage Brands (billion units) Market 2009 Share Fortune 37 Philippines(a) 36.4% A Mild 30 Indonesia 10.5 Morven Gold 24 Pakistan 34.3 Dji Sam Soe 20 Indonesia 7.8 Optima 15 Russia 3.0 Diana 12 Italy 13.4 A Hijau 11 Indonesia 4.3 Champion 9 Philippines(a) 10.4 Apollo-Soyuz 7 Russia 1.9 Ho
Slide 17: PMI Geographic Reach
PMI Geographic Reach OECD non-OECD 43% 42% 57% 58% Volume – Q1, 2010 Net Revenues – Q1, 2010 34% 66% Reported OCI – Q1, 2010 Source: PMI Financials 17
Slide 18: PMI Market Shares in Top Emerging Markets
PMI Market Shares in Top 10 Emerging Markets(a) Share of Market (Q1, 2010) (%) 100 (b) 92 90 50 41 42 40 36 29 30 26 20 17 13 10 <1 1 0 Russia Indon. Ukraine Turkey India Brazil Phil. Egypt Vietnam Pakistan #2 #1 #1 #1 #2 #1 #2 #2 (a) Ranked by industry volume, excluding the PRC (b) Pro forma to ref
Slide 19: PMI Organic Growth in Emerging Markets
PMI Organic Growth in Emerging Markets 2009 vs. 2006 Share of Market Variance (pp) 6 5.6 2.7 1.8 1.6 1.2 1.0 0.8 0 Egypt Turkey Ukraine Brazil Russia Philippines Indonesia Source: PMI estimates and A.C. Nielsen 19
Slide 20: Cigarette Acquisitions
Cigarette Acquisitions VISUAL TK Sampoerna (Indonesia) Coltabaco (Colombia) Lakson (Pakistan) Rothmans Inc. (Canada) 20
Slide 21: Cigarette Acquisitions
Cigarette Acquisitions 14% 11% 2009 Volume 2009 Adjusted OCI Note: Share of PMI volume and PMI adjusted OCI for Canada, Colombia, Indonesia and Pakistan collectively. Adjusted OCI excludes one-time charges related to the Colombian Cooperation Agreement, asset impairment, exit and other costs Source:
Slide 22: Philippines
Philippines ● 85 billion unit cigarette market in 2009 ● Favorable demographic profile and increasing consumer purchasing power Premium 28% Low 54% 18% Mid Price Segments (Q1, 2010) Source: PMI estimates 22
Slide 23: China
China ● International joint venture with China National Tobacco Corporation (“CNTC”) ● Eight markets ● RGD had Q1, 2010 share of: - 3.4% in Slovakia - 2.0% in Czech Republic Source: A.C. Nielsen 23
Slide 24: China
China ● License arrangement ● Production in two factories ● Distribution by CNTC ● 1.3 billion units in 2009 Source: PMI Financials 24
Slide 25: PMI Shares in Top Developed Markets
PMI Shares in Top 10 Developed Markets(a) (%) Share of Market – Q1, 2010 60 54 40 37 38 35 34 32 24 17 7 0 Japan Korea Italy Germ. Spain Poland France UK Greece Canada #2 #2 #1 #1 #2 #1 #1 #3 #1 #2 (a) Ranked by industry volume, excluding the United States Source: Tobacco Institute of Japan, Hankook
Slide 26: Pricing Strategy
Pricing Strategy ● Market by market assessment: - Excise taxation levels and structures - Consumer affordability - Competitive environment ● Reduced price skirmishes over the last couple of years, although price competition remains robust 26
Slide 27: Pricing
Pricing ($ million) Variances Q1, 2010 vs. Q1, 2009 500 449 (107) 0 Price Volume / Mix Source: PMI Financials 27
Slide 28: PMI Results vs. Mid to Long-Term Currency Neutral Annual Growth Targets
PMI Results vs. Mid to Long-Term Currency Neutral Annual Growth Targets Mid to Long-Term Annual Growth Targets FY, 2008 FY, 2009 Q1, 2010 Net Revenues(a)(b) 4–6% + 5.6 % + 5.3 % + 6.1 % Adjusted OCI(b)(c) 6–8% + 9.8 % + 8.7 % + 8.6 % Adjusted Diluted 10 – 12 % + 12.9 % + 15.4 % + 13.5 % EPS(c)(d) (a
Slide 29: Productivity and Cost Savings Program
Productivity and Cost Savings Program Forecast Cumulative Gross Cost Savings (2008-2010) ($ million) 1,550 850 450 250 Manufacturing G&A + Other EU Program Total Productivity Source: PMI Financials 29
Slide 30: Manufacturing Productivity
Manufacturing Productivity ● Repatriation of volume from USA to Europe ● Clustering of support functions ● Blend and specifications rationalization ● Supply chain and logistics 30
Slide 31: PMI Operating Performance
PMI Operating Performance ($/000) 15 Adjusted OCI / 000 CAGR: 5.9% 12.08 CAGR: 10.77 6.2% 8.48 0 2003 2007 2009 Source: PMI Financials 31
Slide 32: 2009 Adjusted Operating Margins
2009 Adjusted Operating Margins (%) 50 42 40 31 28 0 PMI IMT BAT JT Source: PMI Financials and competitive data based on respective company reports 32
Slide 33: Cumulative Operating Cash Flow (2008-2010)
Cumulative Operating Cash Flow (2008-2010) ($ billion) 21.7 17.8 7.8 2010 2.0 Q1 7.9 7.3 2009 2008 7.9 6.6 March 2008 Actual Forecast Results Source: PMI Financials 33
Slide 34: Net Earnings Conversion to Cash Flow
Net Earnings Conversion to Cash Flow ($ million) 2008 2009 Net Earnings 7,150 6,552 Depreciation & Amortization 842 853 Working Capital (133)(a) 552 Other 76 (73)(b) Operating Cash Flow 7,935 7,884 Conversion Rate(c) 1.11 1.20 (a) Negative movement in working capital in 2008, largely due to forestal
Slide 35: Free Cash Flow
Free Cash Flow(a) ($ millions) 2,500 1,824 + $ 542 Currency 1,282 + 42.3% 0 Q1 Q1 2009 2010 (a) Free cash flow equals net cash provided by operating activities less capital expenditures Source: PMI Financials 35
Slide 36: Free Cash Flow as a % of Net Revenues – Peer Group
Free Cash Flow as a % of Net Revenues – Peer Group January 1, 2008 – 31 March, 2010 PMI 27.7% BAT 24.5% Roche 24.2% GlaxoSmithKline 23.6% Pfizer 22.0% Novartis 21.4% Johnson & Johnson 20.8% Coca-Cola 18.1% Vodafone 17.8% McDonalds 16.6% Diageo 16.5% Imperial Tobacco 15.9% PepsiCo 9.6% Nestle 8.8% Ba
Slide 37: Free Cash Flow as a % of Net Revenues – International Tobacco Sector
Free Cash Flow as a % of Net Revenues – International Tobacco Sector 2008 FY – March 31, 2010 YTD PMI 27.7% BAT 24.5% Imperial Tobacco 15.9% Swedish Match 14.1% Japan Tobacco 6.7% Note: Free Cash Flow as a % of Net Revenue is defined as total Free Cash Flow during January 1, 2008 – March 31, 2010 ($
Slide 38: Working Capital Enhancement Program
Working Capital Enhancement Program ● Benchmarking to determine key opportunities ● Tobacco leaf and finished goods inventories identified ● Role of forestalling ● Investments in information technology Incremental $750 million - $1 billion expected to be generated over three years (2010-2012) Source
Slide 39: Capital Structure
Capital Structure ● Tremendous cash flow underpins our strong balance sheet ● Long-term credit ratings: A2 / A / A ● Short-term credit ratings: P-1 / A-1 / F1 ● Over $14 billion well-laddered bonds with an attractive weighted average cost of 5.5% ● Total available and undrawn bank revolver credit of
Slide 40: Capital Structure
Capital Structure ● Net debt to EBITDA has increased from 0.6 at end March 2008 to 1.3 at end March 2010 ● Goal is to maintain current credit ratings and flexibility to make acquisitions ● Intention is to maintain our leverage at levels that are compatible with our credit ratings Source: PMI Financi
Slide 41: Net Debt to EBITDA
Net Debt to EBITDA Peer Group Tobacco Sector Kraft 4.1x Imperial Tobacco 3.9x Imperial Tobacco 3.9x Heineken 2.9x Diageo 2.8x Vodafone 2.0x Pepsi 2.0x BAT 1.9x BAT 1.9x Pfizer 1.7x Bayer 1.6x Swedish Match 1.8x Roche 1.6x PMI 1.3x GlaxoSmithKline 1.2x McDonalds 1.0x PMI 1.3x Nestle 1.0x Unilever 0.3
Slide 42: Shareholder Returns
Shareholder Returns ● Dividends increased by 17.4% in 2008 and by 7.4% in 2009 to an annualized rate of $2.32 per share ● Target dividend pay-out ratio of 65% Source: PMI Financials 42
Slide 43: Dividend Yield – Peer Group
Dividend Yield – Peer Group June 18, 2010 GlaxoSmithKline 6.0% Vodafone 5.8% PMI 5.1% Pfizer 4.7% BAT 4.6% Imperial Tobacco 4.0% Novartis 3.9% Roche 3.9% Kraft 3.9% Johnson & Johnson 3.6% Unilever 3.6% Coca-Cola 3.4% Diageo 3.3% McDonalds 3.1% Nestle 3.0% Pepsi 3.0% Bayer 2.9% Heineken 1.8% Note: Di
Slide 44: Shareholder Returns
Shareholder Returns ● $13 billion two-year share repurchase program completed on 30 April 2010 ● New $12 billion three-year share repurchase program initiated for period May 2010 – April 2013 ● Since March 2008 spin-off, about $20 billion returned to shareholders, representing approximately 23% of o
Slide 45: What PMI Offers
What PMI Offers ● Superior brands ● Market leadership and growth potential in emerging markets ● Strong pricing power, due to brand leadership and broad portfolio ● Delivering consistently against all financial targets ● Revised 2010 EPS guidance calls for currency neutral 14- 17% growth on a report
Slide 46: Questions & Answers
Investor Day Lausanne, June 23, 2010 Questions & Answers
Slide 47: Forward-Looking and Cautionary Statements
Forward-Looking and Cautionary Statements This presentation and related discussion contain statements that, to the extent they do not relate strictly to historical or current facts, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Su
Slide 48: Glossary of Terms
Glossary of Terms ● References to PMI volumes refer to shipment volume, unless otherwise stated ● Industry volume and market shares are from a number of internal and external sources ● Organic volume refers to volume excluding acquisitions ● Net revenues exclude excise taxes ● Operating Companies In
Slide 49: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Quarters Ended March 31, ($ in millions) (Unaudited) % Change in Reported Net 2010 2009 Revenues excluding Excise Taxes Reported Net Reported Net Reve
Slide 50: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income, excluding Currency and Acquisitions For the Quarters Ended March 31, ($ in millions) (Unaudited) % Change in Adjusted Op
Slide 51: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Quarters Ended March 31, (Unaudited) 2010 2009 % Change Reported Diluted EPS $ 0.90 $ 0.74 21.6% L
Slide 52: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Cash Flow to Free Cash Flow and Free Cash Flow, excluding Currency Reconciliation of Operating Cash Flow to Operating Cash Flow, excluding Currency For the Quarters Ended March 31, ($ in
Slide 53: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income, excluding Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Adjusted Op
Slide 54: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Reported Net 2009 2008 Revenues excluding Excise Taxes Reported Reported Net Reported Net
Slide 55: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Years Ended December 31, (Unaudited) 2009 2008 % Change Reported Diluted EPS $ 3.24 $ 3.31 (2.1)%
Slide 56: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income, excluding Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Adjusted Op
Slide 57: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Reported Net Revenues 2008 2007 excluding Excise Taxes Reported Net Reported Net Reported
Slide 58: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income, excluding Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Adjusted Op
Slide 59: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Reported Net Revenues 2007 2006 excluding Excise Taxes Reported Reported Net Reported Net
Slide 60: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Reported Net Revenues 2006 2005 excluding Excise Taxes Reported Reported Net Reported Net
Slide 61: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for Impact of Currency and Acquisitions For the Years Ended December 31, ($ in millions) (Unaudited) % Change in Reported Net Revenues 2005 2004 excluding Excise Taxes Reported Reported Net Reported Net
Slide 62: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Calculation of Total Debt to EBITDA and Net Debt to EBITDA Ratios ($ in millions, except ratios) (Unaudited) For the Year Ended March 31, December 31, 2010 2009 April ~ December January ~ March 12 months 2009 2010
Slide 63: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Calculation of Total Debt to EBITDA and Net Debt to EBITDA Ratios ($ in millions, except ratios) (Unaudited) March 31, 2008 April ~ December January ~ March 12 months 2007 2008 rolling Earnings before income taxes
Slide 64: Reconciliation of Non-GAAP Measures
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Income to Reported Operating Companies Income Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income For the Years Ended December 31, ($ in
Slide 65: Investor Day Lausanne, June 23, 2010
Investor Day Lausanne, June 23, 2010
Philip Morris International — Investor Day (June 2010) on 6ix