pm 2014 investor day 2014-06-26-lac region investor day slides [website final]
TRANSCRIPT
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Investor Day – LA&C RegionLausanne, June 26, 2014
Martin KingPresident, Latin America & Canada RegionPhilip Morris International
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Agenda
● Regional Overview and Performance
● Regional Strategies
● Key Markets Overview
● Conclusion
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Positive Momentum: Positioned for Accelerated Growth
● Robust share growth
● More predictable excise tax structures lead to pricing for income and shargrowth
● Making in-roads against illicit trade
● Profitability increase and cost base optimization
● Strong portfolio with improving adult smoker profile led by Marlboro
● Talented organization
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Source: PMI estimates and PMI Financials
Regional Overview
2013
● Presence in 44 mark● 11,500+ employees● 10 PMI cigarette fac● Industry Volume: 25
● PMI Volume: 97 bill● PMI Market Share: 3● Adjusted OCI: $1.1 b
Share GrowthMarket Leader
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Contribution to 2013 PMI Results
11%11%
Cigarette Shipment Volume Net Revenues Adjusted O
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Note: GDP growth versus 2012. GDP per Capita USD estimates are derived from purchasing power parity. Argentina Inflation based on Citi Research LA May 30, 2014Source: International Monetary Fund and World Economic Outlook Database
Macro-economic Environment
3.5
2.5
1.21.6
Argentina Brazil Mexico Canada
Real GDP Growth (%)
Inflation Rate (%)
28.8
6.33.6
Argentina Brazil Mexic
7.35.8
4.8
7.1
Argentina Brazil Mexico Canada
Unemployment (%)
GDP per Capita (USD tho
18.612.1 15.6
Argentina Brazil Mexic
2013
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Source: PMI estimates
LA&C Region: Industry Volume
305
256
2008 2013
14
29
35
43
Colombia
Canada
Mexico
Argentina
Brazil
CAGR: (3.4)%Industry Volume (units billion) 2013 Industry Volume in Ke
(units billion)
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Note: Excludes brands sold under licenseSource: PMI Financials and PMI estimates
LA&C Region: PMI Outperforming the Industry
99 99 97
34.5%
36.9% 38.0%
252008 2012 2013
PMI Volume (units billion) and Share of MarketPMI Share Growth (2013 vs. 2008): +3.5pp
PMI
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Source: PMI estimates
75.6% 73.5%
51.0%37.2%
15.7%
Argentina Mexico Colombia Canada Brazil
2013 vs. 2008
LA&C Region: Strong Market Share Momentum
+4.8pp +5.8pp +1.9pp +1.5pp +2.9pp
PMI Share of Market (%) and Growth (pp)Top 5 markets account for 90% of our Regional volume
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Regional Strategies
● Effective price management
● Recovery of volume lost to illicit trade
● Cost base optimization
● Brand portfolio enhancement
● Reduced-Risk Products introduction
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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Source: PMI Financials
207
255 260
2008-2009 Average
2010-2011 Average
2012-2013 Average
LA&C Region: Favorable Pricing Environment
Average Pricing Variances ($ million)
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Source: PMI estimates and media reports
LA&C Region: Making In-Roads Against Illicit Trade
25 billion
7 billion
5 billion
3 billion
8 billion
2013 Consumption Volume(units billion)
2013 Illicit TradeVolume (units billion) and
Incidence (%)
Canada
Mexico
Colombia
Others
BrazilTax-Paid256 billionIllicit Trade48 billion
● Gather informroutes and illehotspots
● Liaise with goimplement so
● Making headwMexico, and C
25%
19%
13%
18%
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Focus on Optimizing our Cost Base
Operating factories
Closed factories
VenezuelaCast Leaf
Uruguay
Mexico City
Guatemala
Curaçao
● 5 factories closed in three y
● Distribution model restruct● Leaf:
- Sustainable growing footpri
- Synergies in tobacco supply
● Clustering across the mark
● Rightsizing
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(a) Ex-currencySource: PMI Financials
PMI: Steady Adjusted OCI and Margin Growth
647
1,077
1,139
27.8%
32.4%
34.0%
50
850
2008 2012 2013
Adjusted OCI ($ million) and Adjusted OCI Margin Growth
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Our Portfolio Strategy
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Strengthen Portfolio
Innovate to further address evolving adult smoker preferences
Locally levon tradem
with estabequit
ReinforceMarlboro’ s
leadership toboost volume
growth
Expand ourinternational
portfolio
Deploy the new commercial approach
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PMI: Leading Position in the Premium Segment
37
18
39
35
24
47
Industry(excluding PMI)
PMI
Premium
Low
Mid
2013 LA&C Region Price Segmentation (%)
Note: Premium includes above premium and low includes super-lowSource: PMI estimates
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Source: PMI estimates
Marlboro : Impressive Share Growth
13.7
14.6
15.0
2008 2012 2013
42.6
45.0
2008 2012
Share of Regional Market (%) Share of Premium Segmen
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Source: PMI estimates and PMI Market Research
Marlboro : Broad Geographic Footprint and Improved Profile
Shares of Market (2013)Growth vs. 2008
≥ 30% Share of Premium Segment
Premium Segment Leader
Mexico: 52.3%+3.6pp
Colombia: 6.9%+3.7pp
Brazil: 8.7%+2.3pp
Argentina: 23.8%+0.8pp
LA (min. 18) – 24 Sh
26.7%
29.8%
2008 2012
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+0.4pp
+0.2pp+0.7pp
13.7
2008 FLAVOR GOLD FRESH
Source: PMI estimates
Marlboro : Growth in All Three Pillars
Regional Market Share (%)
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Note: Translation from Portuguese: " MARLBORO RED has just f inished innovating"
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Note: Translation from Spanish: " Marlboro Kretek Mint , 3 flavors, a new experience"
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Note: Translation from Spanish: "Maybe I will share the moment"
To be replaced
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L&M : Actively Supported with Innovative Offers
● International brand with trusted quality● 5th largest PMI brand in the Region● Growing geographically; present in 14 markets (+8 vs. 2010)
Note: Translation from Portuguese: "New L&M Box. The quality of a box pack at the price of soft packaging". Translation from Spanish: "New resealable pack. Unique taste, aromat
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Chesterfield : Complement to the Mid/Low Price Portfolio
● Chesterfield sold in 6 markets● Central America and Mexico introduction● Destination for adult smokers seeking
international image brands
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● Clear, unique positioning● Widening appeal through a renewed brand
character
Source: PMI estimates and PMI Market Research
Delicados : An Authentic Mexican Brand
● # 2 brand in Mexico:
- 11.2% market share (
● # 1 brand in the low-pri
2013
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Phil ip Morris : #2 Brand in the LA&C Region
● 8.0% share YTD May, 2014● Successful line extensions in Argentina and Paraguay● Low price alternative with further potential in Canada
Source: PMI estimates
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35.73
37.2
National LA (min
Canada: Market Profile
● Stable economy● PMI leader among LA (min. 18) - 29 year old
smokers● Encouraging anti-illicit trade government
initiatives
Source: PMI estimates and PMI Market Research
Offices
Cigarette Factory
PMI Market Shares
2008 201
+1.5 pp
Industry Volume (2013) :28.9 billion units
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Canada: Expanding Margins while Sustaining Share Growth
● Sustainable pricing resulting in long-term profitability growth
● Brand equity and product quality supporting premium prices● Strong brands in below-premium segment to capture price sensitive adult
smokers
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Canada: Belmont Solid Growth and Improving Profile
● Potential to expand to other geographies
6.9
14.8
23.8
2.9
8.7
2013 Belmont Shares (%)
Source: PMI estimates and PMI Market Research
Premium SegmentMarket LA (min. 18)
Ontario Ontario OntarioBritishColumbia
BritishColumbia
+2.5 pp + 1.6 pp + 6.8pp + 5.7pp + 11.7 ppGrowthvs . 2008
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Source: PMI Market Research
Canada: Canadian Classics and Qu ébec Clas s iq ue Taking the Lead
● Strong Canadian heritage and superior quality● Continued resilience against down-trading● #1 selling brand in the country – 12.5% market share (YTD May 2014
Canada: Next & Phil ip Morris Well Positioned in the
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● Launch of a well-known branestablished equity
● Ontario + Quebec SoM: 0.4%
9.9
14.7
Market Below-PremiumSegment
● Fastest-growing brand, selling at aslight premium
Ca ada: Next & Phil ip Morris We os t o ed t eBelow-Premium Segment
2013 Next Shares (%)Growth vs. 2009
Source: PMI estimates and PMI Market Research
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Enable commercial growth through a newly designed mixed distribution mo● Improve operational and strategic capability at retail level● More efficient implementation of portfolio strategy● Continue leveraging on our wholesaler partners
Enhanced interaction with eligible retailers through customized trade program● Direct delivery● First to market access for our products
Canada: Distribution & Commercial Strategy
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67.773.5 73.5
2008 2012 2013
Mexico: Market Profile
● PMI market leader since 1998● Market leader in relevant segments● Key production center for the region
Source: PMI estimates
Offices
Tobacco Processing
Cigarette Manufacturing
PMI Market Share
Key Brands
SoM (2013) : 52.3% 11.2%#1 brand #2 brand #2
Industry Volume (2013) :34.6 billion units
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● No tax increase in the last three years
(2.6) (2.1)(0.2)
(17.7)
(3.2)
(0.5)
(a) Adjusted for trade inventory movements(b) Based on preliminary resultsSource: PMI estimates
3.6 3.8 3.8
7.5
2008 2009 2010 2011
Mexico: Industry Tax-Paid Volume and Illicit Trade
Industry Tax-Paid Volume Decline vs. PY (%)(a)
Illicit Trade Incidence
2008 2009 2010 20122011 2013
CAGR 2007 -2013: (2.2)%
TaxIncrease
Empty Pack Survey
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Source: PMI estimates
Mexico: Industry Dynamics
Price Segmentation Dynamics (%)
0.4 2.8 3.922.6 21.1 22.6
24
12.0 11.9 10.913
65.4 66.6 63.7 58
2008 2012 2013 YTD May,
Premium
Super-Low
Mid
Low
82.8 89.8 90.7 91.3PMI SoS
Down -trading Pressure
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Mexico: Restoring Share Growth
● Marlboro 18’s and Ice Xpre● Delicados value offers: 14s,
● Support through menthol and kretekinnovations
Leveraging on AfforInvesting in Marlboro ’s Brand Equity
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Mexico: Pioneer in Launching New Commercial Approach
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Mexico: Key Opportunities
● Maintain and reinforce our leadership position in the premium segment
● Accelerate illicit volume recovery to the legal market● Leverage our efficient manufacturing footprint
● Advocate for a predictable and reasonable fiscal environment
● Fully capture the benefits of the new commercial approach
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49.147.5
50.
2008 2010 2012
Colombia: Market Profile
● Solid economic outlook● Continued Marlboro growth● Ongoing actions to fight high illicit trade
Source: PMI estimates
Industry Volume (2013) :13.7 billion units
Offices
Tobacco Processing
Cigarette Manufacturing
PMI Market Share
Key Brands
SoM (2013) : 6.9% 2.7%
l b h f
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3.8
4.8
6.06.9
0.61.3
2.02.7
2010 2011 2012 2013
● Continuous market share growth● Achieved market leadership among LA (min. 18) – 24 year old smok
Colombia: Strength of Marlboro
Marlboro Market Share (%)
Total Marlboro Marlboro Fresh Family
Source: PMI estimates and PMI Market Research
B il M k P fil
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12.8
14.815.
2008 2012 2013
Brazil: Market Profile
● Favorable economic conditions● Marlboro leading brand in São Paulo● New integrated manufacturing facility● Leaf vertical integration
Source: PMI estimates
Industry Volume (2013) :76.5 billion units
Offices
Manufacturing Facility
PMI Market Share
Key Brands
SoM (2013) : 8.7% 2.7%
B il E i T Ch L d t B tt P i G
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1.15 1.201.25 1.30
0.800.90
1.05
1.20
1.30
1Dec2011
May2012
Jan2013
Jan2014
Jan2015
Box
Soft Pack
1.351.25 1
Apr 2011
May2012 2
MPPCPrice Gap
Tax System Rates Convergence(BRL/Pack)
3.00 3.50 4.00 4.50Min. Price
4.75 5.50 6.MarlboroBox RSP
MPPC Price Gap vsMarlboro Box 20s (BR
Brazil: Excise Tax Change Leads to Better Price Gaps
6.00 7.05 8.10 9.00 Ad-valorem (%)
Source: PMI estimates
B il At Gl
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Brazil: At a Glance
Source: PMI estimates
8.6 9.1
39.931.2
28.432.0
23.1 27.7
2010 2013
Cigarette Industry Price Segmentation (%) Adult Smoker Up -Trading
Premium
Mid
Low
Super-Low
+
PMI SoS 2(growth vs. 2
32.7%
9.7% +0
10.7% +0
2.1% +2
Brazil: Focus Area
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Brazil: Focus Area
(a) Nominal GDP per capita 2013 average exchange rate of BRL/USD = 2.1308
Source: Third-party consultant (LCA), Nielsen and PMI estimates
PMI Market Shares (
Focus Area
Brazil South Brazil North
Population: 87.2 million 111.5 million
GDP/capita (a) (USD thousand): 15.4 8.4
% of Tax-Paid Cigarette Market: 65% 35%
14.015.7
23.
2010 2013 2010National
+1.7pp
Brazil: M lb ’s Continued Growth
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● New Marlboro 2.0 Archit
Note: Translation: "NEW MARLBORO RED surprising new filter"
Source: PMI estimates, Nielsen and PMI Market Research
6.88.7 12.2
18.2
2010 2013 SoM
Brazil: Marlboro s Continued Growth
● Leading brand in São Paulo, Brazil’slargest city
● Continuous market share growth
Marlboro Market Shares (%)National Focus Area (2013)
+1.9pp
LA(min. 18) – 24
Brazil: L&M
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Source: PMI estimates, Nielsen and PMI Market Research
Brazil: L&M
● Fastest-growing mid-price brand in the focus area● First box format in its price category
2.22.7
4.7
6.6
2010 2013 SoM
L&M Market Shares (%)National Focus Area (2013)
LA(min. 18) – 24
Brazil: Market Priorities
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Brazil: Market Priorities
● Broaden Marlboro ’s appeal to emerging middle class adult smokers
● Fully capitalize on anti-trust ruling● Seek productivity to fund further investments
Argentina: Market Profile
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● Balanced portfolio and outstanding shareperformance
● Solid footprint● Economic and regulatory restrictions
70.8
74.9 75.6
2008 2012 2013
Argentina: Market Profile
Industry Volume (2013) :42.6 billion units
PMI Market Share (
Key Brands
SoM (2013) : 23.8% 41.5%
Offices
Stemmery
Manufacturing Facility
Source: PMI estimates
Argentina: Marlboro’s Improving Profile and Relevance
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Argentina: Marlboro s Improving Profile and Relevance
● Marlboro ’s share of market grew by 0.8pp from 2008 - 2013
2728
30
2008 2012 2013
+3pp vs. 2008Marlboro LA (min. 18) – 24 Share (%)
Source: PMI estimates and PMI Market Research
Argentina: Phil ip Morris Continues to Lead
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Argentina: Phil ip Morris Continues to Lead
● #1 brand in the market● Smart and approachable attitude
● Leader and growing among LA (min. 18) – 24 year old smokers
34.1
41.542.7
5.1
8.0
39.4
2.0
20132008 2012
Philip Morris Market Share (%)Philip Morris Caps
May 2
Source: PMI estimates and PMI Market Research
Argentina: Strength of PMI Innovations
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Source: PMI estimates
Argentina: Strength of PMI Innovations
0.22.0
5.6
8.7
0.31.3
4.6
9.3
12.8
2010 2011 2012 2013 YTD May2014
PMI
Other
TotalIndustry
Capsules Share of Market (%)
Argentina: Leveraging on Our Continued Strength in the Country
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g g g g y
● Undisputed market leader with strong footprint
● Successfully navigating in complex environment● Winning, well-balanced brand portfolio driving innovation
LA&C Region: Conclusion
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g
● Address temporary challenges in Mexico
● Sustainable pricing and cost optimization will drive profitability● Strong share growth momentum is expected to continue
● Marlboro ’s brand position will fuel our market share
● Opportunity to recover illicit trade volume to tax-paid market
● Introduction of Reduced-Risk Products
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 – LA&C RegionLausanne, June 26, 2014
Questions & Answers
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Reconciliation of non-GAAP measures included in this presentatto the most comparable GAAP measures are provided on ourwebsite at: www.pmi.com/2014InvestorDay/RecSlides
Glossary of Terms: www.pmi.com/2014InvestorDay/Glossary