Investor Day Lausanne, June 21, André Calantzopoulos Chief Operating Officer Philip Morris International

Transcription

1 Investor Day Lausanne, June 21, 2012 André Calantzopoulos Chief Operating Officer Philip Morris International

2 Agenda Industry Overview Competitive Landscape Fiscal & Regulatory Environment Regional Overview Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development Next Generation Products / MRTPs Key Takeaways 2

3 Tobacco Industry Retail Sales Value 2011 ($ billion) Total: $748 OTP USA Cigarettes 8% 12% 24% 56% International Cigarettes (a) China Cigarettes (a) Excluding duty free Source: PMI estimates 3

4 Tobacco Industry Retail Sales Value 2011 ($ billion) Total: $598 56% International Cigarettes (a) 24% China Cigarettes (a) Excluding duty free Source: PMI estimates 4

5 World Cigarette Market (a) Volume (units trillion) CAGR % % % (4.1)% China Non-OECD OECD (a) Excluding the U.S. and duty free Source: PMI estimates 5

6 World Cigarette Market (a) Volume (units trillion) Retail Value ($ billion) CAGR % 5.6 CAGR 9.5% $ % % 2.2 $0.78 $0.87 $ % 10.7% $1.52 $1.29 $ % 278 $ (4.1)% China Non-OECD OECD Avg. Retail Price/Pack (b) (a) Excluding the U.S. and duty free (b) Assumes an average pack size of 20 cigarettes Source: PMI estimates 6

7 Industry Price Segment Mix (a) Overall OECD Non-OECD Premium 24% 25% 35% 37% 18% 19% Mid 29% 29% 28% 29% 31% 26% Low 47% 46% 34% 37% 54% 52% Volume (units trillion) (a) Excluding the U.S., China and duty free Source: PMI estimates 7

8 Industry Taste / Format Segment Dynamics (a) Low Tar (b) CAGR: <1% Slims (c) Menthol CAGR: 14% CAGR: 1% (units billion) (units billion) (units billion) 1,500 1,305 1, PMI Share of Segment 31.9% 27.9% 50.8% (a) Excluding the U.S., China and duty free (b) Includes lights, ultra lights and super lights (c) Includes slims, extra slims and super slims Source: PMI estimates 8

9 Agenda Industry Overview Competitive Landscape Fiscal & Regulatory Environment Regional Overview Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development Next Generation Products / MRTPs Key Takeaways 9

10 Key Competitor Shares 2011 International Market (a) International Market excl. China Others PMI 14.1% 16.0% Others 24.8% 28.1% PMI 12.4% BAT China 43.0% 5.1% 9.4% IMT JT IMT 8.9% JT 16.5% 21.7% BAT (a) Excluding the U.S. Note: Cigarette volumes are on a calendar year basis, except for IMT, which reports on a fiscal year ending September Source: Company reports and PMI estimates 10

11 Key Competitor Shares 2011: Top 10 OECD & Non-OECD Markets (a) Top 10 OECD Markets Top 10 Non-OECD Markets Others IMT 9.2% PMI PMI 12.0% 35.9% Others 38.0% 25.8% BAT 17.2% 19.8% 25.7% JT 4.5% IMT 11.9% JT BAT (a) Reflects the top ten OECD and non-oecd markets ranked by 2011 industry volume, excluding the U.S., China and duty free Source: PMI estimates, Tobacco Institute of Japan and Hankook Research 11 11

12 Top 10 Cigarette Markets 2011 (a) (units billion) OECD Markets Non-OECD Markets Japan 195 Russia 375 Turkey 91 Indonesia 294 Korea 90 India 111 Italy 85 Philippines 97 Germany 84 Brazil 93 Spain 61 Ukraine 86 Poland 56 Bangladesh 82 France 54 Vietnam 81 UK 43 Egypt 80 Mexico 34 Pakistan 63 (a) Based on 2011 industry volume, excluding the U.S., China and duty free Source: PMI estimates, Tobacco Institute of Japan and Hankook Research 12

13 PMI Leadership in Top Markets (a) Share of Market (%) OECD PMI Ranking: Japan Turkey Korea Italy Germ. Spain Poland France UK Mexico 41 7 # 1 72 # 2 (%) Non-OECD <1 2 <1 0 Russia Indon. India Phil. Brazil Ukraine Vietnam Egypt Bangl. Pakistan (a) Reflects top ten OECD and non-oecd markets ranked by 2011 industry volume, excluding the U.S. and duty free Note: Germ. is Germany, Indon. is Indonesia, Phil. is the Philippines, and Bangl. is Bangladesh Source: Tobacco Institute of Japan, Nielsen, Hankook Research and PMI estimates 13

14 PMI Geographically Balanced 2011 Share of Market by Region (a) EU EEMA ASIA LA&C PMI 38% 23% 26% 36% BAT 20% 22% 16% 49% JT 17% 23% 12% 4% IMT 21% 12% 3% 0% Others 4% 20% 43% 11% 745 billion units (a) Excluding the U.S., China and duty free Source: PMI estimates 14

15 PMI Premium Price Segment Leadership 2011 Price Segment Volume by Competitor (a) PMI BAT JT IMT Premium 55% 42% 29% 26% 23% 11% 16% 10% 16% 33% 41% 22% 23% 31% 47% Mid 20% 68% 57% 48% Low 25% 36% 48% 43% 30% OECD Non- OECD OECD Non- OECD OECD Non- OECD OECD Non- OECD Volume % 43% 57% 32% 68% 47% 53% 47% 53% (a) Excluding the U.S., China and duty free Source: PMI estimates 15

16 Agenda Industry Overview Competitive Landscape Fiscal & Regulatory Environment Regional Overview Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development Next Generation Products / MRTPs Key Takeaways 16

17 Rational Excise Tax Environment Most governments recognize that, over the longer term, the optimization of their revenues is fostered by: - Reasonable, regular excise tax increases - Predominantly specific excise tax structures - Use of minimum excise taxes and other mechanisms to limit consumption by discouraging lower prices - Multi-year legislation or plans No disruptively large excise tax increases so far in

18 Improving Excise Tax Structures A number of markets have implemented more favorable tax structures over the past few years: - Increased specific-to-total tax ratios - Notable recent examples include Brazil, France and Spain Provides greater predictability for government revenues Narrows price gaps in market 18

19 Tax Structures and Price Increase Productivity in PMI s Top 30 Volume Markets Ad Valorem and VAT Rate (%) Turkey France Spain Italy Greece Pakistan Argentina Thailand Mexico Serbia Poland Egypt Hungary Czech Rep. Portugal S. Arabia Germany Ukraine Brazil Netherlands Russia Colombia Indonesia Algeria Kazakhstan Philippines Canada Australia Korea Japan Price Increase Productivity (%) Turkey France Spain Italy Greece Pakistan Argentina Thailand Mexico Serbia Poland Egypt Hungary Czech Rep. Portugal S. Arabia Germany Ukraine Brazil Netherlands Russia Colombia Indonesia Algeria Kazakhstan Philippines Canada Australia Korea Japan 19 Source: Internal PMI Estimates

20 PMI Operates Successfully in Strictly Regulated Markets Many of our markets have introduced: - Extensive public smoking restrictions - Advertising bans (e.g., billboards, print media, television and radio) - Graphic health warnings - Limitations on the use of "descriptors" We generally support these regulations 20

21 PMI Opposes Extreme Regulatory Measures Some governments have sought to enact measures that are extreme in nature and are not based on rational scientific principles, such as: - Plain packaging - Health warnings covering most of the pack - Display bans - Bans on the use of all ingredients There is no sound evidence that these types of proposals would reduce consumption or would meaningfully benefit public health 21

22 Agenda Industry Overview Competitive Landscape Fiscal & Regulatory Environment Regional Overview Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development Next Generation Products / MRTPs Key Takeaways 22

23 Asia Now Largest Volume Contributor to PMI PMI Volume Contribution by Region LA&C LA&C Asia 11% 25% 11% 34% Asia EEMA 34% EEMA 32% 30% 23% EU EU Source: PMI Financials 23

24 Financial Growth Across All Regions ($ billion) Net Revenues EU EEMA Asia LA&C CAGR (a) 0.2% 8.6% 13.3% 13.9% Adjusted OCI EU EEMA Asia LA&C CAGR (a) 1.3% 13.9% 21.0% 19.8% (a) Excluding currency Source: PMI Financials 24

25 Agenda Industry Overview Competitive Landscape Fiscal & Regulatory Environment Regional Overview Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development Next Generation Products / MRTPs Key Takeaways 25

26 Evolving Commercial Landscape Proliferation of brands, intensifying competition and increasing innovation adding to portfolio complexity More demanding adult smokers require more effective communication Regulatory restrictions: - Limited consumer communication opportunities - Additional time and effort to build products 26

27 Enhanced Commercial Approach Increased retention of our current adult smokers Improved success rate of new product introductions Longer and simultaneous support of key brands Innovative consumer touch points Increased focus, simplification and use of common platforms 27

28 Agenda Industry Overview Competitive Landscape Fiscal & Regulatory Environment Regional Overview Opportunities: - Commerical Organization - Reduction of Illicit Trade - Business Development Next Generation Products / MRTPs Key Takeaways 28

29 Illicit Trade: Main Categories Counterfeit: Cigarettes that have been manufactured without the permission of the trademark owner Contraband: Cigarettes that enter or are sold in a market in violation of fiscal/customs laws, e.g., without paying import duties, excise tax and/or VAT Illicit Whites: Cigarettes that are produced in a market primarily to be smuggled into and sold in another market where they have no legal distribution 29

30 Illicit Trade: An Opportunity, Not Only a Risk Estimated volume of some 600 billion units, or about 10% of global consumption High illicit trade incidence notably in: Brazil India South Africa Canada Ireland Turkey Egypt Malaysia UAE France Norway Uruguay Germany Pakistan Vietnam Source: PMI estimates 30

31 Illicit Trade: An Opportunity, Not Only a Risk Estimated volume of some 600 billion units, or about 10% of global consumption High illicit trade incidence notably in: Brazil India South Africa Canada Ireland Turkey Egypt Malaysia UAE France Norway Uruguay Germany Pakistan Vietnam A 50% reduction in illicit trade would increase industry volume by some 300 billion units: - Potential OCI upside for PMI of $1.7 billion Source: PMI estimates 31

32 Illicit Trade: Solutions Governments becoming more aware of issue and its adverse consequences PMI has a sizable, dedicated team in place to help combat illicit trade Three-year cooperation agreement with Interpol: - Information gathering & sharing - Increase awareness of consumers and governments - Support legal action against those involved in the illicit trade - Provide training to key government stakeholders - Creation of Interpol Global Register 32

33 Agenda Industry Overview Competitive Landscape Fiscal & Regulatory Environment Regional Overview Opportunities: - Commerical Organization - Reduction of Illicit Trade - Business Development Next Generation Products / MRTPs Key Takeaways 33

34 Opportunities for Geographic Expansion 2011 Share of Market (a) Main Geographic Opportunities (units billion) JT 16.5% 8.9% IMT International Manufacturers BAT 21.7% 28.1% 24.8% Other PMI India Bangl. Vietnam Egypt Iran Thai. Taiwan PMI SoM (%) <1 < (a) Excluding the U.S. and China Note: Bangl. is Bangladesh, Thai. is Thailand Source: PMI estimates 34

35 China 2011 Industry Volume (a) 5.6 trillion units China 43% 2.4 trillion unit market: - PMI share: <0.1% Controlled by state monopoly, the CNTC: - Most profitable company in China PMI developing excellent relationship with the CNTC: - Marlboro in China - International joint venture - Other strategic initiatives (a) Excluding the U.S. and duty free Source: PMI estimates 35

36 Agenda Industry Overview Competitive Landscape Fiscal & Regulatory Environment Regional Overview Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development Next Generation Products / MRTPs Key Takeaways 36

37 PMI s NGP Objectives Products acceptable to adult smokers of conventional cigarettes: - Taste and sensory experience - Ritual Robust scientific evidence of risk reduction: - Individual risk - Reduced risk to the population - Best practice systems Appropriate regulation for development, assessment, commercialization and consumer communication 37

38 Our Position on Risk Reduction in Products Modifying conventional cigarettes unlikely to be effective in providing material health benefits Elimination of combustion most promising path to risk reduction: - Tobacco heating - Other innovative systems 38

39 Alternatives to Cigarette Products: Smokeless Category Swedish Snus: Epidemiology could qualify it as reduced risk Swedish Match PM International Joint Venture: - Progressive geographic expansion - Nicotine delivery slower than in cigarettes - Different ritual and taste; slow adoption as expected 39

40 Alternatives to Cigarette Products: e-cigarettes Nicotine-containing aerosol Relatively poor sensory experience and weak nicotinedelivery profile Reliability and safety issues Commercialized without regulatory approvals Increased consumer awareness and regulatory scrutiny 40

41 Blood Nicotine Level Comparison Cigarette E cigarettes Nicotine Venous Blood Concentration (ng/ml) Time (minutes) Note: Illustrative comparison; corrected for baseline nicotine Source: Vansickel AR, Cobb CO, Weaver MF, Eissenberg TE (2010). A clinical laboratory model for evaluating the acute effects of electronic "cigarettes": nicotine delivery profile and cardiovascular and subjective effects. Cancer Epidemiol Biomarkers Prev 19:

42 PMI s Three Product Platforms (a) Platform 1 (a) The products described are subject to ongoing development and therefore the descriptions are illustrative and do not necessarily represent the latest stages of product development 42

43 PMI s Three Product Platforms (a) Platform 1 Platform 2 (a) The products described are subject to ongoing development and therefore the descriptions are illustrative and do not necessarily represent the latest stages of product development 43

44 PMI s Three Product Platforms (a) Platform 1 Platform 2 Platform 3 (a) The products described are subject to ongoing development and therefore the descriptions are illustrative and do not necessarily represent the latest stages of product development 44

45 NGP Risk Assessment: A Two-Pronged Approach Reduction in the risk of disease for the adult smoker: - Pre-clinical and clinical studies Impact on the population as a whole: - Initiation - Cessation - Relapse of smokers who have quit - Switching rates, risk understanding and potential for unintended use - Potential conversion to conventional cigarettes of adult smokers that start with NGPs 45

46 NGP Risk Assessment: Population Behavioral, clinical and econometric assessments Useful part of evidence used to substantiate individual risk Further validation following post-market surveillance 46

47 Cessation as a Benchmark to Substantiate Risk Reduction The health risks of smoking and the reversal of risks after quitting smoking are well established From Epidemiology Point of Intervention Disease Risk [T]he closer risks and exposures from the MRTP are to cessation products, the more confident a regulator can be in the chances for net public health benefit U.S. Institute of Medicine, 2011 Time Note: The descriptions in the chart are for illustrative purposes only 47

48 PMI s Assessment Strategy Total Quality Design and Control Principles 48

49 PMI s Assessment Strategy State-of-the-Art Toxicological Assessment Standard Toxicological Assessment Aerosol Chemistry and Physics Total Quality Design and Control Principles Potential to Reduce Risk Potential to Reduce Exposure 49

50 Heating versus Combustion Simplifies Chemistry Conventional Cigarette Note: Study using Platform 2 PMI NGP 50

51 Reductions in Atheromatic Plaque Growth in NGP Exposed ApoE -/- vs. Conventional Cigarette % Aortic Arch Covered by Plaque CC Exposure for 6 Months CC 3 Months Cessation 3 Months CC 3 Months NGP 3 Months Switching to NGP is similar to cessation for plaque growth Note: CC = Conventional Cigarette. Data presented are mean ± SE. n=16 for each bar 51

52 PMI s Assessment Strategy Consumer Perception and Behavior Assessment Clinical Trials (Short-Term & Long-Term) State-of-the-Art Toxicological Assessment Standard Toxicological Assessment Aerosol Chemistry and Physics Total Quality Design and Control Principles Reduced Exposure & Risk Potential to Reduce Risk Potential to Reduce Exposure 52

53 PMI s Assessment Strategy Post-Market Studies & Surveillance Consumer Perception and Behavior Assessment Clinical Trials (Short-Term & Long-Term) State-of-the-Art Toxicological Assessment Standard Toxicological Assessment Aerosol Chemistry and Physics Total Quality Design and Control Principles Reduced Population Harm Reduced Exposure & Risk Potential to Reduce Risk Potential to Reduce Exposure 53

54 U.S. Law Defines a Different Category FDA REGULATION Tobacco Pharma Conventional Tobacco Products MRTPs Nicotine Replacement Therapies (NRTs) Standards for Pre-market Approval Legislative recognition of tobacco risk reduction 54

55 The FDA has Issued Draft Guidance Non-binding MRTPs may be valuable tools in promoting public health Generally in line with PMI s assessment approach Does not establish required levels of evidence Continued consultation necessary for more detailed guidance 55

56 PMI has Begun Engaging Regulators U.S. FDA: - Written submissions (February 2012) and comments to Draft Guidance (June 2012) - Positive meeting (May 2012) - Detailed subject matter meetings to follow European Union Asia 56

57 Planning for Commercialization Construction of large-scale greenfield manufacturing facility: - Site selection under evaluation - Equipment derived primarily from conventional machinery - Strong potential for optimization as technology matures - Larger initial footprint and capital investment - Ready in 2015 / 2016 Development of commercial plans underway: - Communication and branding - Priority markets - Business model refinement Planning of resources and supply chain readiness 57

58 NGP Expected Timeline Significant progress on NGPs Manufacturing facility ready in 2015 / 2016 Product commercialization planned for 2016 /

59 Agenda Industry Overview Competitive Landscape Fiscal & Regulatory Environment Regional Overview Opportunities: - Commercial Organization - Reduction of Illicit Trade - Business Development Next Generation Products / MRTPs Key Takeaways 59

60 Key Takeaways Continued organic growth: - Innovation in brands, consumer engagement and commercial approach - Sustainable pricing - Evolving tax structures - Reduction of illicit trade NGPs represent a potential paradigm shift: - Product commercialization planned for 2016 /

61 Investor Day Lausanne, June 21, 2012 Questions & Answers

62 Reconciliations of non-gaap measures included in this presentation to the most comparable GAAP measures are provided on our website at: