PM 2014 investor day 2014-06-26-LAC Region Investor Day Slides [WEBSITE FINAL]

8/9/2019 PM 2014 investor day 2014-06-26-LAC Region Investor Day Slides [WEBSITE FINAL]

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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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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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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


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


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



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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


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 (%)


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



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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


Offices

Tobacco Processing

Cigarette Manufacturing

PMI Market Share

Key Brands

SoM (2013) : 52.3% 11.2%#1 brand #2 brand #2



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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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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



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


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



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 (%)


B il At Gl


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Brazil: At a Glance


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


PMI Market Share (

Key Brands

SoM (2013) : 23.8% 41.5%

Offices

Stemmery

Manufacturing Facility


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 (%)


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


Argentina: Strength of PMI Innovations


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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

PM 2014 investor day 2014-06-26-LAC Region Investor Day Slides [WEBSITE FINAL]

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