Investor Day Lausanne, September 27, 2018

Transcription

1 Investor Day Lausanne, September 27, 2018 Jacek Olczak Chief Operating Officer

2 OPERATING AROUND THE ADULT CONSUMER 2

3 Operating Around the Adult Consumer CC RRPs PMI Combustible Cigarette Performance Reduced-Risk Product Performance Upskilling Our Organization 3

4 Our Eye is On the Ball: Robust Cigarette Fundamentals Sustainable Pricing Variance ~7% combustible pricing forecast for 2018 Market Share Leader (a) 26.8% cigarettes only 28.3% including heated tobacco units Superior Brand Portfolio (a) Marlboro, L&M, Chesterfield, and Philip Morris in global top 10 (a) YTD August, Excluding China and the U.S. Reflects cigarettes and heated tobacco units (b) Excluding China and the U.S. Reflects cigarettes and heated tobacco units Source: PMI Financials or estimates International Industry Total Volume Trends (b) ~(2.5)% forecast decline for

5 Our Strong Cigarette Brand Portfolio International Cigarette Market Share (YTD August, 2018) 9.7% 3.3% 2.3% 1.8% 1.6% 1.2% #1 #4 #7 #10 #12 #15 We Own Six of the World s Top 15 International Cigarette Brands Note: Excluding China and the U.S. Reflects sales volume of PMI cigarettes as a percentage of cigarette industry sales volume Source: PMI Financials or estimates 5

6 Solid Global Cigarette Brand Share of Market (%) YTD August YTD August Note: Excluding China and the U.S. Reflects sales volume of PMI cigarettes as a percentage of cigarette industry sales volume Source: PMI Financials or estimates 6

7 Cigarette SoM Resilient Despite Investment Shift to RRPs PMI SoM (12 mma) in Markets where IQOS is Available 33.2% 31.7% 32.5% Total (a) PMI (CC+ HTU) Industry (CC+ HTU) 31.4% 31.2% PMI CC Industry CC Cigarettes (b) 31.1% January December August (a) Sales volume of PMI cigarettes and HTUs as a percentage of the total industry sales volume for cigarettes and HTUs in the markets where IQOS was available at the end of August 2018 (b) Sales volume of PMI cigarettes as percentage of the total industry sales volume for cigarettes in the markets where IQOS was available at the end of August 2018 Source: PMI Financials or estimates 7

8 Focused Product Launches Yielding Higher Success Rate Strike Rate (%) & Number of Launches (0.7% SoM in 12 months after launch) Number of Launches Number of SKUs 4,497 4,488 4,419 24% 31% 42% (a) (a) Based on latest available share for 2017 launches Note: Strike rate is defined as % of innovations meeting a pre-defined threshold, 12 months after launch Source: PMI Financials or estimates 8

9 Region/Market MARKET SNAPSHOT Snapshot OPERATING RESILIENCE RUSSIA EU REGION EU TURKEY SAUDI ARABIA PHILIPPINES INDONESIA 9

10 Strong Total Market Share Performance Total PMI Total Industry Volume (billion units) % 38.3% 38.3% 38.4% 0.3% 1.0% % Var. vs. YTD Aug, 2017 (1.7)% HEETS Philip Morris Chesterfield L&M 2.7% 3.2% 3.1% 3.0% 5.5% 5.9% 6.0% 5.9% 6.9% 6.9% 6.9% 6.9% EU REGION Marlboro 18.8% 19.0% 18.8% 18.5% YTD August 2018 Note: Total industry volume reflects cigarettes and heated tobacco units Source: PMI Financials or estimates 10

11 Solid Business Fundamentals Cigarette Industry Volume (billion units) (a) 43.8% 44.3% 43.3% 43.1% % Var. vs. YTD Aug, % TURKEY 9.5% 10.2% 10.2% 11.0% 11.6% 11.7% 11.5% 11.2% Marlboro Parliament Amendment to cigarette excise tax structure on June 30, 2018: Increased specific component Reduced ad valorem component YTD July 2018 (a) YTD August, 2018 Source: PMI Financials or estimates, and Nielsen 11

12 Improved Pricing Strong pricing mainly driven by the annualization of pricing announced in H2, 2017, and further supported by price increases earlier this year July 1, 2018 excise tax increase with a pass-on of RUB 5/pack PMI HTU national IMS share of 0.7% YTD July, 2018 PMI Cigarette SoM (%) Total Industry Volume (billion units) RUSSIA (a) % Var. vs. YTD Aug, 2017 Premium Mid Low (8.6)% YTD July 2018 (a) YTD August, 2018 Note: Total industry volume reflects cigarettes and heated tobacco units. Cigarette share is based on cigarette industry only. Premium includes above premium. Low includes super-low Source: PMI Financials or estimates, and Nielsen 12

13 Solid SoM Performance Supported by Marlboro Hand-Rolled Kreteks (SKT) PMI cigarette share growth driven by strong performances of Marlboro Filter Black and Dji Sam Soe Magnum Mild Industry Segment Split (%) INDONESIA PMI Cigarette SoM (%) Cigarette Industry Volume (billion units) % Var. vs. YTD Aug, % Hand-Rolled Kreteks (SKT) Machine-Made Kreteks (SKM) (a) Machine-Made Kreteks (SKM) (b) (a) Includes non-kretek brands (b) Excludes Marlboro SKM Source: PMI Financials or estimates YTD August YTD August 2018 Marlboro 13

14 Gaining Share and Increasing Profitability Further profit growth from excise taxdriven price increases Strong PMI share growth led by: Fortune: benefiting from narrowed price gaps vs. lower-priced brands Marlboro: solid performance in spite of its price increase in December 2017 Excise tax increase of PHP 2.50/pack (+7.7%) effective July 2018 PHILIPPINES PMI Cigarette SoM (%) Cigarette Industry Volume (billion units) (a) % Var. vs. YTD Aug, 2017 (2.7)% Others Fortune Marlboro (a) YTD August, 2018 Source: PMI Financials or estimates 2017 YTD August

15 Sequential MARKET SNAPSHOT Improvement SAUDI ARABIA SEQUENTIAL IMPROVEMENT IN VOLUME DECLINE Industry (40.8)% Source: PMI Financials or estimates Cigarette Volume (Variance vs. PY) (23.8)% PMI IMS (40.1)% (54.5)% Q1 Q2 Q1 Q SAUDI ARABIA PMI Cigarette SoM (%) Cigarette Industry Volume (billion units) H1 H2 H % Var. vs. H (33.2)% Others Chesterfield L&M Marlboro 15

16 Our Eye is On the Ball: Robust Cigarette Fundamentals Sustainable Pricing Variance ~7% combustible pricing forecast for 2018 Market Share Leader (a) 26.8% cigarettes only 28.3% including heated tobacco units Superior Brand Portfolio (a) Marlboro, L&M, Chesterfield, and Philip Morris in global top 10 (a) YTD August, Excluding China and the U.S. Reflects cigarettes and heated tobacco units (b) Excluding China and the U.S. Reflects cigarettes and heated tobacco units Source: PMI Financials or estimates International Industry Total Volume Trends (b) ~(2.5)% forecast decline for

17 Everything Else Comes On Top International Cigarette SoM (a) (YTD August, 2018) 9.7% 1.5% (b) 3.3% 2.3% 1.8% 1.6% 1.2% #1 #4 #7 #10 #12 #15 (a) Sales volume of cigarette brand as a percentage of the total industry sales volume for cigarettes (b) Sales volume of PMI HTUs as a percentage of the total industry sales volume for cigarettes and HTUs Note: Excluding China and the U.S. Source: PMI Financials or estimates 17

18 Operating Around the Adult Consumer CC RRPs PMI Combustible Cigarette Performance Reduced-Risk Product Performance Upskilling Our Organization 18

19 Every Consumer Matters Approximately 5.8 million adult consumers around the world have already stopped smoking and switched to IQOS Note: Status at the end of August 2018 Source: PMI Financials or estimates, IQOS user panels, and PMI Market Research 19

20 Continued IQOS User Growth (in millions) Total IQOS users (a) Users that have stopped smoking and switched to IQOS Q3 Q4 Q1 Q2 August (a) Total IQOS users means the estimated number of Legal Age (minimum 18-year-old) who have used HeatSticks/HEETS for at least 5% of their daily tobacco consumption over the past seven days Source: PMI Financials or estimates, and IQOS user panels and PMI Market Research 20

21 Total IQOS Users by Region (in thousands) EU 1, EE LA&C 27,255 LA&C EA&A 6,562 4,412 Total IQOS users Users that have stopped smoking and switched to IQOS ME&A 28 4 Note: Status at the end of August 2018 Source: PMI Financials or estimates, IQOS user panels and PMI Market Research 21

22 IQOS in Italy SoM Aug % Torino SoM Aug % Bologna & Modena Milan SoM Aug % Rome SoM Aug % Jun 2018 Total IQOS Users (in thousands) 117 IQOS Conversion Rate (>95%) Awareness Level 8% Tier 3 IMS SoM 0.8% Notes: City share represents offtake share Tier 1 Awareness: I have heard or seen IQOS and or HEETS Tier 3 Awareness: I have heard of IQOS and HEETS, understand correctly what IQOS is or its benefits are and I find at least 1 benefit highly relevant Source: PMI Financials or estimates, IQOS user panels and PMI Market Research 5% D 19% 63% % 23% Tier 1 1.9% 22

23 IQOS in Germany Total IQOS Users (in thousands) 36 Hamburg 111 Berlin SoM Aug % IQOS Conversion Rate (>95%) 57% Dusseldorf D 64% Frankfurt SoM Aug % Dresden Awareness Level (3 cities) 28% 63% Stuttgart SoM Aug % Munich IMS SoM 0.2% 38% 66% Tier 3 Tier 1 0.5% Notes: City share represents offtake share Source: PMI Financials or estimates, IQOS user panels and PMI Market Research 23

24 IQOS in Greece Total IQOS Users (in thousands) SoM Aug % Athens Oct 2017 Jul 2018 IQOS Conversion Rate (>95%) Awareness Level 6% 17% 13% 39% Tier 3 Tier 1 IMS SoM 1.8% D 76% 82% 4.3% Notes: City share represents offtake share Source: PMI Financials or estimates, IQOS user panels and PMI Market Research 24

25 Growing IQOS User Base in the EU Region (in thousands) Total IQOS users Users that have stopped smoking and switched to IQOS 873 1,124 1, Q2 Q3 Q4 Q1 Q2 August Source: PMI Financials or estimates, IQOS user panels and PMI Market Research 25

26 IQOS in Russia Total IQOS Users (in thousands) IQOS Conversion Rate (>95%) 62% St. Petersburg SoM Aug % Moscow Yekaterinburg Novosibirsk Awareness Level (Moscow) 12% 22% D 76% Rostov-on-Don Krasnodar Vladivostok IMS SoM 0.1% 20% 41% Tier 3 Tier 1 1.1% Notes: City share represents offtake share. Source: PMI Financials or estimates, IQOS user panels and PMI Market Research 26

27 IQOS in South Korea Total IQOS Users (in thousands) 353 1,136 IQOS Conversion Rate (>95%) D 59% 66% Awareness Level 13% 51% 35% 35% 87% Tier 3 Tier 1 IMS SoM 2.9% 8.1% Source: PMI Financials or estimates, Hankook Research, IQOS user panels and PMI Market Research 27

28 IQOS in Japan Total IQOS Users (in thousands) 4,358 5,426 IQOS Conversion Rate (>95%) 58% 65% Awareness Level 34% 87% 35% 88% Tier 3 Tier 1 IMS SoM 12.8% 15.2% Source: PMI Financials or estimates, Tobacco Institute of Japan, IQOS user panels and PMI Market Research 28

29 Japan: Market Opportunity for Smoke-Free Alternatives is Real December August 31.3% 41.6% 37.1% 14.0% 28.0% 18.5% 22.2% 4.3% 3.1% 0.4% 11.0% 6.2% Device Ownership Past 7-Day Usage HnB Category Share Note: All numbers reflect a three-month moving average Device ownership of any heated tobacco product (IQOS, glo, Ploom TECH) among all adult tobacco users in Japan Past 7-day usage of any heated tobacco product (IQOS, glo, Ploom TECH) among all adult tobacco users in Japan HnB category share represent selected C-Store sales volume for HTUs as a percentage of the total retail sales volume for cigarettes and HTUs in these C-Stores Source: PMI Financials or estimates, IQOS user panels and PMI Market Research 29

30 Initiatives in Japan Plus Improved Device Increased Second Holder Penetration Simplified Warranty Registration Process Improved Response Time Campaign 5 Million New IQOS Devices Stronger-Tasting HTU Variants 30

31 2018 IMS Evolution for IQOS Kit and Holder Japan (in thousands) IQOS Holder IQOS Kit April May June July August Source: PMI Financials or estimates 31

32 BUSINESS MODEL EVOLUTION Increasing Interactions with Adult Consumers Wholesale & Retail From "Business-to-Business" to "Business-to-Consumer" LEARN EXPERIENCE LIVE ADVOCATE Discover Consider Evaluate Find Try Buy Use Convert Bond 32

33 Investing C for Revenue Growth Revenue LEARN EXPERIENCE LIVE ADVOCATE Discover Consider Evaluate Find Try Buy Use Convert Bond Acquisition Cost Retention Cost 33

34 RRP Commercial Investment at Market Level (2017 % split) Acquisition Split between Acquisition and Retention Costs depends on Market Maturity 60 Retention 40 Variable IQOS Coaches Registration Incentive Referral Programs Marketing & Events Fixed Brand Retail Trade & LAMPs Overheads Variable Customer Care E-commerce Loyalty Programs Source: PMI Financials or estimates 34

35 Cost PROFITABILITY per IQOS User COMPA+RISON - Index Acquisition Retention (a) Japan Italy Russia (a) Indexed to base year acquisition cost per IQOS user Source: PMI Financials or estimates Note: Marginal Contribution of new user assumed only for half a year. Annualized USD per User. Data based on 2018 RF6. 35

36 IQOS PROFITABILITY User Economics COMPARISON - Index (2017 marginal contribution per user; Index = marginal contribution per Marlboro adult smoker) Converted IQOS LAU Situational & Predominant IQOS LAU Marlboro Adult Smoker Converted IQOS LAU Situational & Predominant IQOS LAU Marlboro Adult Smoker Japan Germany Italy Romania Russia Greece Note: 2017 annualized marginal contribution per user. Marginal Contribution per user represents customer revenues before considering discounts and incentives to consumers, less the volume driven components of Cost of sales. It excludes fixed manufacturing costs and distribution costs Source: PMI Financials or estimates Note: Marginal Contribution of new user assumed only for half a year. Annualized USD per User. Data based on 2018 RF6. 36

37 Business BUSINESS Model MODEL Evolution EVOLUTION Opens New Doors Wholesale & Retail From "Business-to-Business" to "Business-to-Consumer" LEARN EXPERIENCE LIVE ADVOCATE Discover Consider Evaluate Find Try Buy Use Convert Bond 37

38 RRP Portfolio Drives New Revenue Opportunities Cigarettes Tobacco IQOS + + Consumables Device & Accessories Services 38

39 Growing Revenue Stream: IQOS Accessories Today: Narrow Range Tomorrow: Wider Range 30% Adult Users JAPAN 25% KOREA 29% RUSSIA 46% ITALY 66% GERMANY 74% Source: PMI Financials or estimates, and PMI Market Research 39

40 Operating Around the Adult Consumer CC RRPs PMI Combustible Cigarette Performance Reduced-Risk Product Performance Upskilling Our Organization 40

41 Aligning Organization Along The RRP Consumer Journey LEARN EXPERIENCE LIVE ADVOCATE Discover Consider Evaluate Find Try Buy Use Convert Bond ACQUISITION RETENTION Understand consumer needs faster Enhance & add new capabilities Deploy new organization at speed & scale 41

42 Summary Robust CC Business Market Opportunity for Smoke-Free Alternatives is Real PMI Business Model Evolution Deploy New Capabilities at Speed & Scale 42

43 Investor Day Lausanne, September 27, 2018