Investor Day – EEMA Region Lausanne, June 21, 2012
Miroslaw Zielinski President, Eastern Europe, Middle East & Africa Region & PMI Duty Free Philip Morris International What EEMA Offers
● Favorable demographics, fast growing economies
● Up-trading to PMI brands
● Manageable tax and regulatory environment
● Efficient infrastructure, superior execution
● Accelerating, sustainable financial gains
2 Agenda
● EEMA overview and results
● PMI strategic priorities:
- Continuously grow and innovate our brand portfolio
- Proactive tax and regulatory engagement
- Pricing and price gap strategy
- Grow our presence in key markets
- Seize development opportunities
● Concluding remarks
3 Key Facts
● 1.2 trillion cigarettes ● 94 markets,1.7 billion people ● $80 billion retail spend
● 12,000+ PMI employees ● PMI results (2011) - Volume: 290 billion - Share: 23% - Adjusted OCI: $3.3 billion Source: Global Insight, PMI Financials and PMI estimates 4 Industry Volume: Top 10 Markets (2011)
(units billion) 400150 375 PMI Ranking # 1 300 # 2 100 91 86 80
29 28 26 26 22 20
0 Rus. Turk. Ukr. Egypt Kaz. Alg. Saudi Rom. S.Afr. Serb.
Note: Rus. is Russia, Turk. is Turkey, Ukr. is Ukraine, Kaz. is Kazakhstan, Alg. is Algeria, Saudi is Saudi Arabia, Rom. is Romania, S.Afr. is South Africa and Serb. is Serbia. Excluding Iran Source: PMI estimates 5 Rapid Population Growth
CAGR 2007-2011 (%)
EEMA 1.7
OECD 0.7
China 0.5
World 1.1
Source: Global Insight 6 Rapid Economic Growth
Real GDP Growth Real GDP per Capita Growth CAGR 2007-2011 CAGR 2007-2011
(%)2.8 (%)
1.1
0.2 OECD
EEMA OECD EEMA (0.5)
Source: Global Insight 7 Adult Smokers Uptrading (units billion) Variance 2011 vs. 2009 (units billion) 1,218 1,176 1,170 (48) Premium 197 195 206 9
Mid 323 324 333 10
Low 698 657 631 (67)
2009 2010 2011 Note: Excluding duty free Source: PMI estimates 8 Superior PMI Positioning
● PMI’s superior 2011 Volume by Price Segment (%) positioning translates into a compelling Industry PMI (excl. PMI) advantage in revenue
12 generating power Premium 38 30
Mid 24
58 Low 38
Note: Excluding duty free Source: PMI Financials and PMI estimates 9 Industry Revenues ($ billion)
$20.3 $19.2 $18.1 7.0 6.1 Premium 5.8
6.8 Mid 6.3 6.7
Low 6.0 6.4 6.5
2009 2010 2011
Note: Based on 26 markets, covering 81% of EEMA 2011 volume, excluding duty free Source: PMI estimates 10 Industry Revenues ($ billion) Variance 2011 vs. 2009 $20.3 ($ billion) $19.2 $18.1 7.0 1.2 6.1 Premium 5.8
6.8 0.5 Mid 6.3 6.7
Low 6.0 6.4 6.5 0.5
2009 2010 2011
Note: Based on 26 markets, covering 81% of EEMA 2011 volume, excluding duty free Source: PMI estimates 11 PMI Share of $2.2 Billion Industry Revenue Gain
Total Net Revenue Gain: +$2.2 billion
Others PMI
50%
23%
2011 Volume Share 2009-2011 Revenue Gain
Note: Based on 26 markets, covering 81% of EEMA 2011 volume, excluding duty free Source: PMI estimates 12 EEMA Contribution to 2011 PMI Results
Cigarette Shipment Volume Net Revenues
32% 25%
Adjusted OCI
24%
Source: PMI Financials 13 Strong Profitability Growth
Shipment Volume Net Revenues Adjusted OCI (units billion) ($ million) ($ million) CAGR: − % CAGR: 5.6% CAGR: 7.4% CAGR: 8.6% (excl. currency) CAGR: 13.9% (excl. currency) 7,881 3,254
2,443 290.3 290.3 6,346
2007 2011 2007 2011 2007 2011
Source: PMI Financials 14 Excellent First Quarter
Shipment Volume Net Revenues Adjusted OCI (units billion) ($ million) ($ million) +3.6% +8.8% +11.9% +3.4% (excl. acq) +12.6% (excl. curr and acq) +18.0% (excl. curr and acq) 1,835 810 1,687 724
65.9 63.6
Q1, 2011 Q1, 2012 Q1, 2011 Q1, 2012 Q1, 2011 Q1, 2012
Source: PMI Financials 15 PMI Share Growth
(%) 24
23.2 23.0 22.9
22.5
22.0
21 2007 2008 2009 2010 2011
Note: Excluding duty free Source: PMI estimates 16 Premium Brands as a % of PMI Volume
(%) 43
39.5 38.7
37.1 35.9 35.3
30 H1 H2 H1 H2 Q1 20102011 2012
Note: Excluding duty free Source: PMI Financials 17 Expanding Adjusted OCI Margin
(%) 45 44.1
41.3
38.5
35 2007 2011 Q1, 2012
Note: Adjusted OCI margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes Source: PMI Financials 18 Marlboro Volume Performance
Volume (units billion)
110 25
7.6% 5.3%
50 10 2010 2011 Q1, 2011 Q1, 2012
Source: PMI Financials 19 Marlboro Continuous Innovation
● Marlboro Filter Plus
● Slimmer, 7.1mm formats
● Refreshing variants with capsules
20 21 Marlboro Gold Touch / Fine Touch
Volume (million units)
800 2010 2011
New +23% 100%+ +80% +53% +24% Launch
0 Russia Iraq Kazakhstan Ukraine Saudi Arabia Serbia
Source: PMI Financials 22 23 Marlboro Filter Plus Volume Gains
Volume (units billion) CAGR 4 (2008-2011)
+7.4% +10.5%
+7.8%
+16.5%
2 2008 2009 2010 2011
Source: PMI Financials 24 Parliament
● The ultimate luxury cigarette ● Above premium pricing ● Original recessed filter ● Intriguing line extensions ● Continuous enhancements
25 Parliament Volume Growth
Volume (units billion)
32 7 13.3%
12.9%
16 3 2010 2011 Q1, 2011 Q1, 2012
Source: PMI Financials 26 Parliament Share Growth
Share of Market (%)
Q1, 2011
8.4 Q1, 2012 7.5
4.8 4.0
2.8 3.1 3.1 2.5
1.0 0.6
Turkey Kazakhstan Russia Ukraine GCC
Source: Nielsen and PMI estimates 27 L&M
● International brand
● Trusted quality
● Premium pack
● “Right price”
● Growing in the Balkans, Russia, Saudi Arabia and Turkey
Source: PMI Financials 28 29 L&M Volume Performance
Volume (units billion)
52 12
1.1% (0.1)%
36 8 2010 2011 Q1, 2011 Q1, 2012
Source: PMI Financials 30 L&M Volume Performance
Shipments (units billion)
Q1, 2011 3 Q1, 2012
+7% +18% +8%+51% (20)%
0 Turkey Russia Saudi Arabia Balkans Egypt
Source: PMI Financials 31 Chesterfield
● Quality, heritage Share of Market (%)
Q1, 2011 ● Distinctive modern packaging Q1, 2012 ● Top of mid price segment 7.2 7.5
● New KS and 100s slims offers 3.4 3.4
Ukraine Russia
Source: Nielsen 32 33 Bond Street
● International quality
● Affordable price
● Gains from downtraders and from uptraders
● Extending franchise reach with slims offerings
34 35 Bond Street Volume Performance
Volume (units billion)
52 11
6.3%
3.8%
36 7 2010 2011 Q1, 2011 Q1, 2012
Source: PMI Financials 36 Bond Street Share Performance
Share of Market (%)
Q1, 2011 Q1, 2012 12.8 11.1
7.8 7.0 6.7 6.3 5.7 5.9
Kazakhstan Ukraine Serbia Russia
Source: Nielsen 37 Total Tax Incidence: Marlboro (% of Recommended Retail Price)
Increase vs. 2010
80.3 75.9 69.6 67.5 60.4 55.2 47.9 37.3 35.1 24.6
Turkey Rom.(a) Serbia Morocco Egypt Ukraine S.Afr. Saudi(a) Russia(b) Kazak.
(a) Reduction in total tax incidence not shown (b) Assumes July 2012 tax Note: Total tax is excise plus VAT. Data is as of June 2012, compared to April 2010. Rom. is Romania, S.Afr. is South Africa, Saudi is Saudi Arabia and Kazak. is Kazakhstan Source: PMI estimates 38 Turkey: Excise Tax Reform
Jan 2010 Oct 2011 Nov 2011 Ad Valorem (% of RSP) 63% 69% 65% Minimum (TRL/pack) 2.65 2.90 2.90
Marlboro (TRL/pack) 7.00 9.00 8.00 Lark (TRL/pack) 4.50 6.50 5.50
● Excise tax reform announced
Source: Turkey Ministry of Finance and PMI estimates 39 Ukraine: Excise Tax Increases Have Moderated
2009YE 2010YE 2011YE Current Specific (UAH/000 cigarettes) 60.00 90.00 96.21 110.64 Ad Valorem (% of RSP net of VAT)(a) 20% 25% 25% 25%
Marlboro (UAH/pack) 8.00 11.00 12.00 12.50
(a) Expressed as % of RSP net of VAT as of 2009. Prior to that, % of RSP net of excise and VAT Source: State Tax Administration and PMI estimates 40 Russia: Multi-year Excise Tax Legislation
Jan Jul 2010 2011 2012 2012 2013 2014 Ad Valorem (% of MRSP) 6.5% 7.0% 7.5% 7.5% 8.0% 8.5% Specific (RUB/000 cigarettes) 205 280 360 390 550 800 Minimum (RUB/000 cigarettes) 250 360 460 510 730 1,040
(a) Marlboro (RUB/pack) 48.0 55.0 60.0 63.0 Bond Street (RUB/pack) 23.0 28.0 31.0 34.0(a)
(a) Effective June 2012 Note: Retail sales prices are as of year-end Source: Russia Ministry of Finance and PMI estimates 41 Price Gaps Continue to Narrow
Marlboro Price Gap vs. Leading Low-Price Brand (%)
Russia Ukraine Turkey
321
155 140 109 71 60
Dec 2008 Mar 2012 Dec 2008 Mar 2012 Dec 2008 Mar 2012
Source: PMI estimates 42 Upside Potential: Reduce Illicit Trade
Romania: Illicit Trade SoM (%) ● Romania: a public / private success story 22.3
12.6 11.6 12.5
Q2 2009 Q4 2009 Q2 2010 Q4 2010 Q2 2011 Q4 2011
Turkey: Illicit Trade SoM (%) ● Turkey: currently engaging 19.8 20.0 with government 17.1
4.8
Q4 2009 Q2 2010 Q4 2010 Q2 2011 Q4 2011 Q1 2012
Source: Romania: Nielsen; Turkey: Empty Pack Survey 43 Turkey: Overview
Total Industry Volume ● Industry volume stabilizing (units billion) 108 108 ● Illicit trade moderating
93 91 ● Record PMI share on gains across all key price segments 2008 2009 2010 2011
PMI Share of Market ● PMI performance driven by (%)
speed to market and best- 44.8 45.0 in-class retail programs 42.1
2010 2011 YTD May 2012 Source: PMI estimates, Turkish Tobacco Board and Nielsen 44 Turkey: Retail Execution
● 2,000 people in field force New Product Launch: cover 145,000 points of sale Retail Distribution
● 6 hours to implement a 90% price change nationwide 86% 76% ● 4 days for 90% distribution of new products
45%
Day 1Day 2Day 3Day 4
Source: Nielsen 45 Turkey: PMI Brand Shares
Share of Market(a) (%)
11.4
9.3 Marlboro 8.3 Parliament 7.6
JanJan-09 2009 Jul Jul-09 2009 Jan Jan-10 2010 Jul Jul- 201010 Jan Jan-11 2011 Jul Jul-11 2011 Jan Jan-12 2012
(a) 12 months moving average Source: Nielsen 46 Turkey: PMI Brand Shares
Share of Market(a) (%)
11.4
9.3 Marlboro 8.3 Parliament 7.6
6.3 Muratti 5.3
JanJan-09 2009 Jul Jul-09 2009 Jan Jan-10 2010 Jul Jul- 201010 Jan Jan-11 2011 Jul Jul-11 2011 Jan Jan-12 2012
(a) 12 months moving average Source: Nielsen 47 Turkey: PMI Brand Shares
Share of Market(a) (%)
11.9 Lark 11.4
9.3 Marlboro 8.6 L&M 8.3 Parliament 7.6 7.2 7.2 6.3 Muratti 5.3
JanJan-09 2009 Jul Jul-09 2009 Jan Jan-10 2010 Jul Jul- 201010 Jan Jan-11 2011 Jul Jul-11 2011 Jan Jan-12 2012
(a) 12 months moving average Source: Nielsen 48 Turkey: PMI Volume Growth (units billion)
+9.7% 9.9 9.0 +17% Parliament
Marlboro +4%
Muratti +15%
L&M +7%
Lark +11%
Q1, 2011 Q1, 2012
Source: PMI Financials 49 Ukraine: Overview
Share of Market – Q1, 2012 (%) ● PMI #1 share position IMT BAT 21.7 ● Parliament and Marlboro 15.8 volume and market share 25.0 Others JT gains driving OCI growth 32.2
● 5 of top 10 international brands are PMI’s PMI PMI Premium Shipments (units billion) 1.6 1.5 +6.1%
Q1, 2011 Q1, 2012 Source: Nielsen and PMI Financials 50 Ukraine: Strong, Broad PMI Portfolio
Share of Market by Price Segment (%) – Q1, 2012 Low Mid Premium
PMI 32.2
JT 25.0
IMT 21.7
BAT 15.8
Source: Nielsen 51 Saudi Arabia Marlboro LA (min. 18) – 29 ● Shifting adult smoker Smoker Share (%) preferences 40
● Marlboro new architecture 32 is gaining momentum
H1 H2 H1 H2 ● Innovative formats 2010 2011 ● Q1, 2012: - In-market Sales up 7% - Shipments up 17%
Source: PMI Market Research and PMI Financials 52 Russia: Overview
● Economy is improving and PMI Share of Market (%) adult smokers are trading 26.2 up 25.8 ● Record PMI market share 25.5 25.5
● Q1, 2012: 2009 2010 2011 Q1, 2012 - In-market Sales up 4.1% - Shipments up 0.5% PMI In-market Sales (units billion) 21 - OCI up 10%
+4.1% 19.5
18.7
18 Q1, 2011 Q1, 2012 Source: PMI Financials and Nielsen 53 Russia: Parliament
● Core upgraded in 2011
● Q1, 2012 volume up 10.5%
● Fastest growing premium brand in Moscow and nationwide in Q1, 2012
Market Shares (%) Russia Moscow 8.0 3.1 7.6 2.8
Q1, 2011 Q1, 2012 Q1, 2011 Q1, 2012 Source: PMI Financials and Nielsen 54 Russia: L&M Volume Turnaround
Volume Variance vs. Prior Year Quarter (%)
2010 2011 2012 Q1 Q2Q3 Q4 Q1 Q2 Q3 Q4 Q1
18 12
(3) (8)
(19) (18) (17) (24) (22)
Source: PMI Financials 55 Russia: Bond Street
● Record market share Share of Market (%)
6.2 6.3 ● Opening new channels 5.6 and venues for adult consumer activation 4.5
● New, unisex slims line extensions 2009 2010 2011 Q1, 2012
Source: Nielsen 56 Russia: Next
● Modern, affordable Share of Market (%) 2.9 2.7 brand 2.4 2.2 1.5 Standard 1.6 1.8 ● Gains on slimmer 1.9 variants 1.1 1.4 Slims 0.3 0.6 2009 2010 2011 Q1, 2012
Source: Nielsen 57 Russia: PMI Growth Brands by Region
North
1.3pp Center
Moscow Region 1.3pp
St. Petersburg
Moscow -pp Yekaterinburg Rostov-on-Don
Novosibirsk South East
0.7pp 0.4pp
Note: Variance is Q1, 2012 vs. Q1, 2011 Source: Nielsen 58 Russia: Marlboro
Marlboro Share of Market (%)
2.6%
1.9%
LTN
Full Flavor
Jan 2009 Jul 2009 Jan 2010 Jul 2010 Jan 2011 Jul 2011 Jan 2012
Source: Nielsen 59 Consumer and Trade Activation Project
● Pilot program, 2011 in Yekaterinburg (population 1.4 million)
● Focus on Marlboro
● Harnessing new / emerging consumer trends
● New PMI sales / marketing tool kit validated
● Immediate operating improvements
Moscow
Yekaterinburg
60 Yekaterinburg Project: Key Results (%) Smokers’ Share LA (min. 18) – 24
7.7
5.8 6.0 5.2
3.9 2.1
Mar-11 May-11 Jul-11 Sep-11
Source: PMI Market Research 61 Yekaterinburg Project: Key Results (%) Harsh Taste Perception Smokers’ Share LA (min. 18) – 24 LA (min. 18) – 34
7.7
6.0 5.8 11 5.2
7 3.9 2.1
Mar-11 May-11 Jul-11 Sep-11 Mar-11 Sep-11
Source: PMI Market Research 62 Marlboro ClearTaste: the New Marlboro in Russia
63 Marlboro ClearTaste: the New Marlboro in Russia
● “Clarity of taste” vs. “Clarity of choice”
● No more compromise (“Don’t be a Maybe”)
Note: English translations: “May be it’s time to find your own taste. New clarity of taste”; “May be it’s time to find clarity of taste.” “May be the most convenient format. New clarity of taste” 64 Marlboro ClearTaste: the New Marlboro in Russia
Note: English translations: “May be it’s time to say “YES”. Be Marlboro”; “May be think less, live brighter. Be Marlboro.”, “May be it’s time to decide. Be Marlboro” 65 Business Development Opportunities
EEMA Total: 1.2 trillion units Market Size (units billion) PMI not Markets where present PMI SoM >20% 130 80 billion units 54 Markets 272 where PMI 22 billion 20 15 15 14 units SoM <20%
Egypt Iran S.Afr. Bel. Uzb. Mor. Iraq
Note: S.Afr. is South Africa, Bel. is Belarus, Uzb. is Uzbekistan and Mor. is Morocco Source: PMI estimates 66 Business Development: South Africa
● 2009 acquisition of Swedish Match South Africa
● Marlboro Blue Ice launch
Marlboro Volume (units million) Other Marlboro variants Menthol Blue Ice
700 175 24% 13%
300 75 2009 2010 2011 Q1, 2011 Q1, 2012 Source: PMI Financials 67 Business Development: South Africa
● Marlboro Beyond launch
● Virginia product, charcoal filter, menthol capsule
● Start in Johannesburg
● Expand nationally
68 Business Development: Iraq
PMI Volume (units billion) PMI Share of Market (2011) 3 Dohuk 2.6 North 15% Erbil
Sulaymaniah
Salah-Adin 1.2 Al-Anbar Baghdad 0.9 Center
Al-Najaf 8% 0.2
0 Al-Basra 2008 2009 2010 2011 South 4%
Source: PMI estimates, PMI Financials, Retail Zoom, Distributor, Status: February 2012 69 Business Development: North Africa
PMI Shipments (units billion)
30 +8% +21%
+22%
+25% Marlboro
L&M
Other 0 2007 2008 2009 2010 2011
Note: North Africa is Algeria, Egypt, Libya, Morocco and Tunisia Source: PMI Financials 70 Conclusions
● Growing economies, favorable demographics ● PMI is growing fast in EEMA ● Excise taxation / regulation manageable ● Superior brand portfolio ● Opportunities to expand geographically ● Talented, agile, highly motivated organization focused on growth
Continued robust, sustainable OCI growth
71 Investor Day – EEMA Region Lausanne, June 21, 2012
Questions & Answers Reconciliations of non-GAAP measures included in this presentation to the most comparable GAAP measures are provided on our website at: www.pmi.com/2012InvestorDay/RecSlides