Asia Region - Lausanne, 27 June 2014
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Transcript of Asia Region - Lausanne, 27 June 2014
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8/19/2019 Asia Region - Lausanne, 27 June 2014
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Investor Day
Lausanne, June 27, 2014
Jacek Olczak
Chief Financial Officer
Philip Morris International
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Agenda
● 2014 EPS guidance
● Key drivers of future profit growth● Reduced-Risk Products
● Cash flow and balance sheet management
● Returning cash to our shareholders
● Outlook for growth and conclusion
Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harm
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2014 EPS Guidance
● Revised reported diluted EPS guidance for 2014 is $4.87 to $4.97 exchange rates, compared to $5.26 in 2013. This includes:
- A pre-tax charge related to the contemplated decision to discontinue cigaretBergen op Zoom, in the Netherlands, of approximately 24 cents per share. Tthis charge is expected to be recorded in the second quarter of 2014
- The 1 cent per share charge recorded as asset impairment and exit costs in quarter of 2014 relating to the decision to cease cigarette production in Melb Australia, by the end of this year
- An unfavorable currency impact, at prevailing exchange rates, of approximafor the full-year 2014
● Our revised 2014 guidance represents a growth rate of approxima8%, excluding currency and these restructuring charges, comparedadjusted diluted EPS of $5.40 in 2013.
Source: PMI forecasts and PMI Financials
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(a) Excluding China and the USASource: PMI estimates and PMI forecasts
Key Drivers: Industry Volume Trends
(3)% (2)% to (3)%
(1)% t
International Cigarette Industry Volume Decline Rate(a)
2013 2014 Forecast 2015 F
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Key Drivers: Market Share Momentum
35.7%
37.0%
2010 12mm May2014
+1.3pp
(a) Excluding duty freeSource: PMI estimates
Top 30 PMI OCI Markets(a)
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(a) Excluding China
Note: Data based on historical viewSource: PMI estimates
Key Drivers: Market Share Momentum
Regional PMI Market Shares (%)
38.538.9
2010 12mm May
23.4
24.8
2010 12mm May
24.5 24.9
2010 12mm May
36
201
+0.4pp
EU
+1.4pp
EEMA
+0.4pp
Asia(a)
201420142014
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PremiumShare of Market Share
201012mm May
2014 Variance12
Argentina 35.7% 38.5% 2.8 pp
Brazil 22.2 27.1 4.9
Egypt 7.4 9.7 2.3
Indonesia 35.5 37.3 1.8
Mexico 61.3 61.4 0.1
Philippines 26.4 19.1 (7.3)Poland 13.5 14.5 1.0
Russia 13.4 13.6 0.2
Turkey 17.8 21.0 3.2
Vietnam 2.6 5.6 3.0
(a) 12mm April
Note: Premium includes above premiumSource: PMI estimates and Nielsen
Key Drivers: Adult Smokers Trading-Up to Premium Brands
(a)
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Key Drivers: An Invigorated Marlboro
18.5 19.0
2010 12mm May
Marlboro Market Shares (%)
6.47.2
2010 12mm May
6.2 6.1
2010 12mm May
14
201
+0.8pp
EEMA
(0.1)pp
(a) Excluding ChinaSource: PMI estimates
+0.5pp
EU
201420142014
Asia(a)
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Key Drivers: An Invigorated Marlboro
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Key Drivers: An Invigorated Marlboro
Note: Pack designs are for illustrative purposes only
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Key Drivers: Pricing
1,223
1,984
1,662
1,8941,759
2,
2008 2009 2010 2011 2012 2
Source: PMI Financials
Pricing Variance ($ million)
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Key Drivers: Rational and Reasonable Fiscal Environment
● Disruptive excise tax increases have become less frequent
● Improved excise tax structures:
- Increase in relative importance of specific elements
- Reinforced minimum excise taxes
- Compensation for VAT increases
- Elimination of discriminatory elements
- Gradual harmonization of cigarette and fine cut excise taxes
- Indexation- Multi-year programs
● Provide greater visibility and predictability for governments and the
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Key Drivers: Margin Expansion Through Cost Savings and
Productivity Improvements
41.4 41.742.3
44.145.4
2008 2009 2010 2011 2012
(a) Excluding currencySource: PMI Financials
Adjusted OCI Margins (%)
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(a) Excluding currency where data is availableNote: PMI is not included in the Tobacco Peer Group and Compensation Survey Group averages. Figures are for the 12 month period ending December 31, 2013 or ne
the companies in the tobacco peer and compensation survey groups is available in the glossarySource: FactSet and company filings, compiled by Centerview
Superior PMI Margins
46.0
34.5
24
PMI Tobacco Peer Group Average
CompensaGroup A
2013 Adjusted OCI Margin (%)(a)
4.6pp 5.4pp 1.0Increase vs. 2008:
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Outlook: A Return to Our Revenue and OCI Growth Algorithm
● As of 2015, we target mid to long-term currency-neutral annual gro4% to 6% for net revenues and 6% to 8% for adjusted OCI:
- An improved performance in challenging markets
- Better volume trends
- Improved product mix
- Strong pricing
- Limited cost increases
Source: PMI forecasts
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Reduced-Risk Products: Assessing the Potential
● For the initial five years, the markets in scope for our launches repconsumption of about one trillion units
● Potential annual volume evaluated at 30-50 billion units
● Potential incremental margin estimated at $720 million to $1.2 billioover time assuming pricing, manufacturing costs and excise taxes combustibles
Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harmSource: PMI estimates and PMI forecasts
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Reduced-Risk Products: Assessing the Potential
2014 2015 2016
iQOS City Tests National Geographic Expan
Platform 2Final Phase ofDevelopment
Clinical Trials City Tests N
Platform 4(current generation)
Altria / Nicocigs Geographic Expansion
Platforms 3 and 4
(next generation)Product Development Comm
Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harm
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Free Cash Flow: Key Drivers
Variance:
Net Earnings
Currency
Working Capital
Others, net
Total
Source: PMI Financials
6.8
8.9
2008 2013
Free Cash Flow ($ billion)
CAGR: 5.5%
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Free Cash Flow as a % of Net Revenues (2008 – March 31, 2014)
Note: Free cash flow as a percentage of net revenues is defined as total 2008 – March 31, 2014 period free cash flow over total 2008 – March 31, 2014 period net reven
and net revenues for the period were $50.1 billion and $178.6 billion, respectively. Nearest comparable period is used where the 2008 – March 31, 2014 comparison is nSource: Company filings, compiled by Centerview
4.6%
8.3%
8.7%
9.1%
9.4%
12.2%
14.2%
14.9%
16.1%
16.8%
16.9%
19.8%
20.0%
20.1%
25.5%26.0%
27.1%
28.1%
Mondelēz
Bayer
Unilever
PepsiCo
Nestlé
Heineken
Imperial Tobacco
Vodafone
McDonald's
Diageo
Coca-Cola
Johnson & Johnson
Novartis
GlaxoSmithKline
BATRoche
Pfizer
PMI
13.4%
14.2
14.
Japan Tobacco
Altria
Lorillard
BAT
PMI
Compensation Survey Group Tobacco Peer Grou
Imperial Tobacco
Reynolds American
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10.4
13.9 14.816.0
19.9
25.5
0.9
1.31.2
1.1
1.3
1.7
2008 2009 2010 2011 2012 2013 Q
Credit Rating, Earnings and Debt
Note: EBITDA calculation method changed in 2013 and amounts restated back to 2008 to adjust for extraordinary, unusual or non-recurring expenses, netSource: PMI Financials
Net Debt to EBITDA ($ billion, except ratios)
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Source: PMI Financials
Very Well-Laddered Bond Portfolio
USD
USD
USD
USD
USDUSD
USDUSD USD
EUREUR
EUR
EUR EUR
USDEUR
EUR
USD
EUR
EUR
USDUSD
CHF
CHF
CHF
CHF
EUR
CHFCHF
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2029 2033 2038
3.5
3.0
2.0
1.5
1.0
0.5
2.5
($ billion)
0
Bond Maturity Profile as of May 31, 2014
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Focused Use of Cash Flow to Enhance Shareholder Returns
(a) Including dividend of $3.0 billion paid in April 2008 to Altria Group, Inc.Source: PMI Financials
Free Cash Flow:$49.6 billion
Strategic BusinessDevelopment Initiatives:
$4.6 billion
Dividends(a):$29.7 billion
Share Rep$33.9
Net Debt Issuance$18.6 bill
43% 507%
Cash Available:$68.2 billion
2008-2013
Returning Cash to Our Shareholders: Dividend Pay Out Target
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Returning Cash to Our Shareholders: Dividend Pay-Out Target
Ratio of 65%
Note: 2008 annualized rate is based on a quarterly dividend of $0.46 per common share, declared June 18, 2008Source: PMI Financials
56%
69%
62%58%
63%
6
2008 2009 2010 2011 2012 2
Dividend Pay-Out
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Returning Cash to Our Shareholders: Dividend Increase and Yiel
NA
(18.8)%
22.5%
38.6%
42.6%
43.5%
44.9%
48.1%
50.0%
52.2%
53.6%
54.1%
56.0%
60.5%
70.1%
81.3%
104.3%
116.0%
Mondelēz
Novartis
GlaxoSmithKline
Diageo
Heineken
Vodafone
Unilever
Bayer
Johnson & Johnson
Nestlé
PepsiCo
Roche
Coca-Cola
BAT
Imperial Tobacco
PMI
McDonald's
Dividend Growth: Compensation Survey Group(2008 – June 24, 2014)
Dividend Yield: Compensation S(June 24, 2014)
Pfizer
Note: PMI reflects absolute growth in annualized announced dividends from time of first PMI dividend of $0.46 in June 2008 through June 24, 2014. Companies in the Cabsolute growth from FY 2008 dividends or Q2, 2008 annualized dividend through current last twelve months dividends or current last quarter annualized dividerepresents the annualized dividend on June 24, 2014, over the closing share price on that date. The share price for PMI was $89.37 as of June 24, 2014. The annualreflect calendar year figuresSource: FactSet and company filings, compiled by Centerview
1.5%
1.7%
2.0%
2.7%
2.7%
2.9
2.9
3.
3.
3
Mondelēz
Heineken
Bayer
Diageo
Johnson & Johnson
Coca-Cola
Roche
PepsiCo
Novartis
Nestlé
McDonald's
Unilever
Pfizer
BAT
PMI
Imperial Tobacco
GlaxoSmithKline
Vodafone
Returning Cash to Our Shareholders: Substantial Share
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Note: The outstanding PMI shares at the time of the spin were 2,109 millionSource: PMI Financials
Returning Cash to Our Shareholders: Substantial Share
Repurchase Programs
Cumulative Amount Shares Shares Outst($ billion) (million) (%
35.1 27571.6
PMI Share Repurchase Programs (2008 – Q1, 2014)
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From OCI to EPS: Key Considerations and Outlook
● Fully committed to our share repurchase program. Target spendingbillion in 2014 and approximately $2-3 billion a year in 2015 and 20
● Investments required to support the commercialization of RRPs
● For 2015 and 2016, we target a growth in currency-neutral adjusteEPS in a range of 8% to 10%
● An improved operating environment, additional business developminitiatives and the geographic expansion of RRPs could provide an
beyond this period
Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harmSource: PMI forecasts
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PMI Outlook is Very Promising
● Superior brand portfolio, led by an invigorated Marlboro
● Optimized global footprint and infrastructure
● Sustainable strong pricing power based on our brands
● Limited cost increases and significant productivity improvement op
● Best-in-class R&D capabilities
● Tremendous potential for our Reduced-Risk Products
● Talented and highly motivated employees
Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products that have the potential to reduce individual risk and population harm
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Investor Day
Lausanne, June 27, 2014
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Reconciliation of non-GAAP measures included in this presto the most comparable GAAP measures are provided on owebsite at: www.pmi.com/2014InvestorDay/RecSlides
Glossary of Terms: www.pmi.com/2014InvestorDay/Glossa