Credit Suisse Investor Visit PM Germany Berlin, May 19, 2010 Raman Berent Managing Director Germany & Austria Philip Morris International
Forward-Looking and Cautionary Statements This presentation and related discussion contain statements that, to the extent they do not relate strictly to historical or current facts, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current plans, estimates and expectations, and are not guarantees of future performance. They are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. PMI undertakes no obligation to publicly update or revise any forward-looking statements, except in the normal course of its public disclosure obligations. The risks and uncertainties relating to the forward-looking statements in this presentation include those described under Item 1A. “Risk Factors” in PMI’s Form 10-Q for the quarter ended March 31, 2010, filed with the Securities and Exchange Commission. 2
Management Raman Berent Managing Director Matthias Knoop Wagner Erne Operations Marketing Ralf-Wolfgang Siegfried Hanke Lothert Human Resources Corporate Affairs Mark Niehaus Lutz Hollemann Finance & IS Other Tobacco Products Arndt Wippert Susanne Hübner Senior Counsel Sales Alexander Ott Austria 3
Agenda ● Germany at a glance ● Tobacco market dynamics ● PMI objectives and strategies ● Concluding remarks ● Questions & Answers 4
Germany at a Glance Economic Indicators (2009) Population: 82 million GDP/capita (nominal): US$ 40,875 GDP growth (real): -5.0% Berlin Unemployment: 8.2% Inflation: 0.4% Budget deficit (% of GDP, est.): 3.3% Dresden Munich Headquarters Factory 5 Source: Federal Bureau of Statistics, International Monetary Fund, DIW January 2010 & April 2010 and PMI’s GCTS
Germany at a Glance Economic Indicators (2009) Population: 82 million GDP/capita (nominal): US$ 40,875 GDP growth (real): -5.0% Berlin Unemployment: 8.2% Inflation: 0.4% Budget deficit (% of GDP, est.): 3.3% Dresden Industry / Demographics (2009) (a) Tax-paid volume: 125 billion units Total adult smoking incidence (b) : 23% Average daily consumption (b)(c) : 15.6 cigs. Munich Headquarter Factory (a) Fine cut converted to cigarettes equivalents based on conversion ratio of between 0.5 and 0.75, depending on the product (b) LA (min.18)-64yos (c) Cigarettes only 6 Source: Federal Bureau of Statistics, International Monetary Fund, DIW January 2010 & April 2010 and PMI’s GCTS
Germany at a Glance Economic Indicators (2009) Population: 82 million GDP/capita (nominal): US$ 40,875 GDP growth (real): -5.0% Berlin Unemployment: 8.2% Inflation: 0.4% Budget deficit (% of GDP, est.): 3.3% Dresden Industry / Demographics (2009) (a) Tax-paid volume: 125 billion units Total adult smoking incidence (b) : 23% Average daily consumption (b)(c) : 15.6 cigs. Philip Morris GmbH Munich 1960 Launch of Marlboro in Germany 1970 Establishment of Philip Morris GmbH 1987 Market leader 1990 Acquisition of f6 Cigarettenfabrik Dresden Headquarter Factory (a) Fine cut converted to cigarettes equivalents based on conversion ratio of between 0.5 and 0.75, depending on the product (b) LA (min.18)-64yos (c) Cigarettes only 7 Source: Federal Bureau of Statistics, International Monetary Fund, DIW January 2010 & April 2010 and PMI’s GCTS
Manufacturing Dresden • Factory founded in 1900 • Acquired by PMI in 1990 • Local heritage brands, such as f6 • Main manufacturing center for OTP • Over 13 billion units equivalent produced in 2009 • About 400 employees 8 Source: PMI
Manufacturing Berlin • Production started in 1972 • One of the three largest PMI manufacturing centers • Supplies German market and exports to other markets, such as Japan and the Middle East • Over 63 billion cigarettes produced in 2009 • About 1,300 employees 9 Source: PMI
Distribution and Retail Channels Manufacturers 800 Cigarette & OTP Wholesalers Tobacconists Gas Stations Vending Food Retailers No. of Outlets 29,100 13,400 410,000 50,600 Cigarette 25% 27% 12% 36% OTP 38% 16% 0% 46% Consumers 10 Source: PMI Market Statistics for whole industry based on USP Full Coverage Panel / RTC. Data is for 2009
Total Consumption 2007 - 2009 (billion units) Variance vs. PY 149.9 144.9 145.5 0.4 % TOTAL (1.7)% Cigarettes 89.3 85.5 86.9 38.6 7.1 % Other Tobacco 39.7 37.1 Products (a) 22.0 (2.6)% Border Sales (b) 20.8 20.3 2007 2008 2009 128.0 124.0 125.2 0.9 % Taxable Consumption (a) Fine cut converted to cigarettes equivalents based on conversion ratio of between 0.5 and 0.75, depending on the product (b) Based on NMA Empty Pack Study and PMI estimates Note: Columns may not add due to rounding 11 Source: PMI Market Statistics based on MSI
Total Consumption 2007 - 2009 (%) Upper Price Industry 28.4 30.6 31.6 Cigarettes (a) 52.6% 52.0% Lower Price Industry 23.6 21.0 22.7 Cigarettes (b) Private Label 6.8 7.0 6.8 Cigarettes Other Tobacco 25.8 27.3 25.6 Products (c) Border Sales (d) 14.6 14.3 13.9 2007 2008 2009 (a) Upper Price: mainly Marlboro , Gauloises Blondes , Lucky Strike, HB and Camel (b) Lower Price: mainly L&M , JPS , Pall Mall and West (c) Fine cut converted to cigarettes equivalents based on conversion ratio of between 0.5 and 0.75, depending on the product (d) Based on NMA Empty Pack Study and PMI estimates 12 Source: PMI Market Statistics based on MSI
Excise Taxation Cigarette ● Ad valorem (% of RSP) 24.66 % ● Specific (€ / 000) 82.70 ● Minimum excise tax (€ / 000) 139.30 - 143.70 ● Retail prices (€ per 19) 3.70 - 4.70 Fine Cut ● Ad valorem (% of RSP) 18.57 % ● Specific (€ / kg) 34.06 ● Minimum excise tax (€ / kg) 53.28 ● Retail prices (€ per 19 equiv.) 1.00 - 1.90 13 Source: German Tobacco Excise Tax Law (PMI calculation, May 2010)
Cigarette Retail Prices (May 2010) Retail Selling Price € / 19 Index Upper Price Industry (e.g. Marlboro ) 4.70 100 Lower Price Industry (e.g. L&M ) 4.25 90 Private Label (e.g. Goldfield ) 3.70 79 14 Source: PMI Market Statistics based on MSI
PMI Key Objectives & Strategies Sustainable profitable growth Ensure a Develop Further sustainable cigarette reinforce fiscal and portfolio to PMI’s position regulatory secure future in OTP environment growth Continuously develop an agile and winning organization 15
Regulatory Framework ● Reasonable public smoking restrictions ● Outdoor, cinema, POS and one-to-one marketing permitted ● Our objective is to maintain a reasonable regulatory environment, with a particular focus on our ability to communicate with adult smokers 16
Excise Taxation ● Objective: all tobacco products should be taxed in a fair manner and product definitions should be consistent with EU directive ● Strategy: PMI is working with key stakeholders to reduce the excise tax gap between cigarettes and OTP, and reinforce the Minimum Excise Tax 17
PMI Key Objectives & Strategies Sustainable profitable growth Ensure a Develop Further sustainable cigarette reinforce fiscal and portfolio to PMI’s position regulatory secure future in OTP environment growth Continuously develop an agile and winning organization 18
Cigarette Market Shares by Competitor (%) 40 36.9 PMI 36.5 36.5 30 27.5 IMT (a) 27.1 27.1 BAT 18.4 18.4 18.0 20 Private 11.7 11.5 11.3 Label 10 JT 5.0 5.0 5.0 0 2007 2008 2009 (a) Gauloises Blondes shown under IMT 19 Source: PMI Market Statistics based on MSI
Cigarette Retail Prices (2009) May June August € 4.00 / 17 € 4.20 / 17 € 4.70 / 19 Marlboro € 3.60 / 17 € 3.80 / 17 € 4.25 / 19 L&M 20 Source: PMI
Cigarette Market Shares by Competitor (%) 40 36.9 36.5 36.5 35.2 PMI 30 27.5 IMT (a) 27.1 27.1 27.1 BAT 18.4 18.4 18.3 18.0 20 Private 12.8 Label 11.7 11.5 11.3 10 JT 5.0 5.0 5.0 5.0 0 2007 2008 2009 YTD Mar 2010 (a) Gauloises Blondes shown under IMT 21 Source: PMI Market Statistics based on MSI and PMI estimates
Key Brands (% Segment Share; Q1, 2010) PMI Competition Upper Price Segment Shares: 47% 12% 10% 5% 22 Source: PMI Market Statistics based on MSI and PMI estimates
Key Brands (% Segment Share; Q1, 2010) PMI Competition Upper Price Segment Shares: 47% 12% 10% 5% Lower Price Segment Shares: 22% 7% 22% 20% 13% 23 Source: PMI Market Statistics based on MSI and PMI estimates
Marlboro Market Share (%) 30 25.3 24.2 23.0 21.3 0 2007 2008 2009 YTD Mar 2010 24 Source: PMI Market Statistics based on MSI
Marlboro Architecture Marlboro Marlboro Expanded reach through three separate pillars Flavor Family Gold Family Fresh Family Volume split (a) : 64% 33% 3% (a) Q1, 2010 25 Source: PMI Market Statistics based on MSI
Marlboro Flavor Family 26
Marlboro Break Free Promotion 27
Marlboro Gold Family 28
Marlboro Smoker Shares LA(min.18) – 24 yos (a) (%) 30 21 Marlboro 20 18 16 10 0 2007 2008 2009 (a) 6mma (6 months moving average) 29 Source: PMI General Consumer Tracking Survey or “GCTS”
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