PM 2014 Investor Day 2014-06-27-EEMA Region Investor Day Slides (FINAL)

Investor Day EEMA Region
Lausanne, June 27, 2014

Miroslaw Zielinski
President, Eastern Europe, Middle East & Africa Region & PMI Duty Free
Philip Morris International

Video
(Approximately 90-second video)
Agenda
EEMA Overview and PMI Results
Growth Opportunities
Regional Strategic Priorities
Closing Remarks
Questions & Answers
EEMA Region: Key Facts
94 markets
1.8 billion people
1.1 trillion cigarettes(a)
12,000+ PMI employees
PMI results (2013):
- Volume: 296.5 billion units
- Share: 24.2%(a)
- Adjusted OCI: $4.0 billion
(a) Excluding duty free
Source: Global Insight, PMI estimates and PMI Financials
EEMA Region: Recent Volume Pressure

Industry Volume (units billion)
1,180
1,172
1,180
2010
2011
2012
Note: Excluding duty free

Source: PMI estimates
(3.9)%
1,134
2013
EEMA Region: Adult Smokers Up-trading

EEMA Industry Volume by Price Segment (units billion)
1,180
1,172
1,180
Premium
189
198
213
Mid
325
331
329
Low
666
643
2010
2011
Note: Excluding duty free. Premium includes above premium, Low includes super-Low
CAGR
(2010-2013):
1,134
210
3.6 %
322
(0.3)%
638
602
(3.3)%
2012
2013
EEMA Region: Market Share Growth Fueled by Premium Brands

PMI Market Share (%)
PMI Total
22.8
23.2
Premium
Brands
7.9
8.6
2010
2011
Variance
(2013 vs. 2010):
24.0
24.2
+1.4pp
9.0
9.4
+1.5pp
2012
2013
Other
Brands
Note: Excluding duty free. Premium includes above premium

EEMA Region: Pricing

Pricing Variance ($ million)
Average
2010-2013:
767
605
527
466
271
2010
Source: PMI Financials
2011
2012
2013
EEMA Region: PMI Increasing Revenue Generation

PMI Share of
EEMA Industry Net Revenue (%)
+2pp
EEMA Industry
Net Revenue Gain (2010-2013)
35
33
PMI
46%
2010
2013
Note: Based on 26 markets, covering 81% of EEMA 2013 volume, excluding duty free
Source: PMI Financials and PMI estimates
EEMA Region: Strong Profitability Growth

Shipment Volume
Net Revenues
Adjusted OCI
Adjusted OCI Margin
(units billion)
($ million)
($ million)
(%)
CAGR: +0.8%
CAGR: +5.8%
CAGR: +7.8% (ex-currency)
CAGR: +8.7%
CAGR: +12.3% (ex-currency)
Change: +3.6pp
Change: +5.6pp (ex-currency)
289.3
8,766
296.5
46.1
4,043
42.5
7,409
3,152
2010
2013
2010
2013
2010
2013
2010
2013
10
EEMA Region: Contribution to 2013 PMI Results

Cigarette Shipment Volume
34%
Net Revenues
28%
Adjusted OCI
29%
11
EEMA Region: First-Quarter Results

Shipment Volume
Net Revenues
Adjusted OCI
Adjusted OCI Margin
(units billion)
($ million)
($ million)
(%)
-7.2%
-3.0% (ex-inv. movements)(a)
-1.7%
+4.5% (ex-currency)
-0.9%
+7.7% (ex-currency)
+0.3pp
+1.4pp (ex-currency)
66.8
2,043
Q1, 2013
2,009
935
927
Q1, 2014
Q1, 2013
Q1, 2014
45.8
46.1
Q1, 2013
Q1, 2014
62.0
Q1, 2013
Q1, 2014
(a) ex-inv. movements stands for excluding the unfavorable impact of estimated inventory movements
12
EEMA Region: Two Distinct Growth Profiles
Emerging Europe & CIS
Middle East & Africa
Population Forecast
Real GDP Forecast
CAGR 2013-2020
CAGR 2013-2020
0.2%
3.7%
2.2%

World
OECD
4.6%
1.1%
0.5%
Note: Emerging Europe includes Turkey. CIS stands for Commonwealth of Independent States. Detailed market lists are available in the glossary
Source: Global Insight
3.5%
2.4%
13
14
Emerging Europe & CIS: Industry Volume Trend

CAGR: (3.0)%
760
(40)
(18)
(8)
2010
Russia
Ukraine
Other
694
2013
15
Emerging Europe & CIS: Growth Drivers

PMI Share in Emerging Europe & CIS (%)
Pricing opportunities
Up-trading environment
PMI organic share momentum
driven by premium brands
PMI Total
27.4
Premium
Brands
7.3
+1.3pp
28.7
+1.1pp
8.4
Other
Brands
2010
2013
16
Emerging Europe & CIS: Growth Drivers

PMI Share in Emerging Europe & CIS (%)
Pricing opportunities
Up-trading environment
PMI organic share momentum
driven by premium brands
One market share point gain
estimated to yield incremental net
revenues of:
- $275 million (premium)
- $125 million (non-premium)
PMI Total
27.4
Premium
Brands
7.3
28.7
+1.1pp
8.4
Other
Brands
2010
+1.3pp
2013
17
18
Middle East & Africa: Up-Trading in a Growing Industry

Middle East & Africa Industry Volume
(units billion)
CAGR: 1.8%
440
CAGR
(2013 vs. 2008)
402

85
6.4%
123
0.8%
1.0%
Premium
63
Mid
118
Low
221
232
2008
2013
19
Middle East & Africa: Further Volume Growth Opportunity

Middle East & Africa Market Shares (%)

PMI
13.0
International
Competitors
46.1
Local
Competitors
40.9
37.8
2008
2013
+4.2pp
17.2
45.0
20
Geographic Expansion in Africa

Significant PMI Presence (2013 Total Tobacco Market Share > 15%)
2008
Note: Market shares include OTP segment

2013
21
EEMA Region: Growth Outlook

PMI continues to outpace competition
Pricing and mix opportunities in both geographic areas
Emerging Europe & CIS:
- Improved industry volume outlook
- Improving mix and premium segment growth momentum
Middle East & Africa:

- Industry volume growth
- Substantial share opportunity
- Geographic expansion
Target for EEMA Region to deliver annual mid to long-term

low double-digit adjusted OCI growth, ex-currency
Source: PMI forecasts
22
Regional Strategic Priorities

Further strengthen our balanced portfolio
Advocate for reasonable fiscal and regulatory frameworks

Counter illicit trade
Enhance our position in the markets

Seize mid to long-term growth opportunities
23
EEMA Region: Superior PMI Positioning and Balanced Portfolio

2013 Volume by Price Segment (%)
14
Premium
41
30
Marlboro # 1 in segment
Parliament # 3 and fastest growing in
segment
L&M # 2 brand in segment
Chesterfield # 4 brand
23
56
Low
36
Source: PMI Financials and PMI estimates
Premium
Mid
Mid
PMI
Key PMI Brands
Low
Bond Street # 1 international proposition in

segment
Competitors
24
Marlboro Continues to Grow in EEMA

Marlboro Market Share (%)
6.8
6.4
Line
Extensions
0.8
7.0
1.0
Growth
(Q1, 2014 vs. 2010)
7.1
1.0
7.3
0.9pp
1.1
0.4pp
0.7
0.5pp
Core
2010
2011
2012
2013
Q1, 2014
26
Capitalizing on Marlboros Premiumness

3mm Marlboro Market Share
in Saudi Arabia (%)
21.9
21.8
19.3
March
2012
March
2013
March
2014
27
Marlboro: Increasing Relevance in the Smooth Taste Segment

LA (min.18)-24
Smoker Profile in Serbia (%)
40.0
15.0
Gold 100s
Advance XL
Marlboro Market Share in Serbia (%)

11.4
10.0
2012
Note: Translation from Serbian: "Less Odor"
Source: PMI Market Research and PMI estimates
2013
28
Marlboro: Further Strengthening the Brands Appeal

Market Share in Algeria (%)
34.4
18.2
2010
Note: Translation from French: How about you finally express yourself? Music, fashion, art, technology: become an expert in one of your passions!"
2013
29
Marlboro: Expanding its Reach to Virginia Blends

South Africa: Marlboro Beyond
Senegal: Marlboro Blue
0.5% Market Share (Q1, 2014)
2.6% Market Share (Q1, 2014)
30
31
Parliament is the Fastest-Growing Premium Brand

2013 EEMA Region Market Shares (%)
PMI
Growth
vs. 2010
+0.9pp
Competition
+0.7pp
+0.4pp
7.1
+0.2pp
+0.2pp
+0.8pp
3.7
2.8
Parliament
Marlboro
Kent
1.1
1.1
Dunhill
Davidoff
32
Parliament Has Share Growth Momentum Across the Region

Parliament Market Shares (%) and Share Growth
Turkey
Kazakhstan
Russia
GCC
+2.8pp
+3.9pp
+0.6pp
+1.3pp
10.0
7.9
7.2
4.0
2.8
3.4
1.8
0.5
2010
2013
Note: GCC stands for Gulf Cooperation Council

Source: PMI estimates and Nielsen
2010
2013
2010
2013
2010
2013
33
Note: Translation from Russian: "Quality evolution - Famous Recessed Filter from the Makers of Parliament"
L&M Initiatives Deliver Solid Volume Growth in EEMA

L&M Volume (units billion)
CAGR: 4.8%
50.3
48.0
43.7
44.2
2010
2011
2012
2013
35
L&M Growing Share in Egypt

L&M Market Share in Egypt (%)
13.1
8.8
2010
2013
36
37
Chesterfield Driving Share Growth in Croatia
Market Share (%)

5.7
2.0
1.8
1.5
January
March
_
May
July
September
November
2013
38
Chesterfield Panther Growing Our Presence in South Africa

3mm Market Share (%)
0.5
October
2013
April
2014
39
40
Bond Streets Strong Performance

Bond Street Market Shares (%) and Share Growth
Kazakhstan
Ukraine
Serbia
Russia
+5.1pp
+1.6pp
+2.9pp
+0.9pp
22.5
17.4
8.8
8.4
7.2
5.6
5.5
2010
2013
2010
2013
2010
2013
2010
6.5
2013
41
Advocate for Reasonable Regulatory and Fiscal Frameworks

Regulatory environment continues to be manageable
Governments shifting toward more rational tax structures:

- Multi-year programs
- Higher specific component
42
Predominance of High Specific Excise Tax Structures

Specific-to-Total Excise Tax Ratio on Marlboro (%)
100.0
100.0
100.0
69.4
68.0
67.7
35.9
13.7
2.1
Kazak.
S.Afr.
Algeria
Russia
Note: Data are as of April 2014. Kazak. is Kazakhstan and S.Afr. is South Africa
Romania
Ukraine
Serbia
Egypt
Turkey
43
Counter Illicit Trade

Estimated to represent over 130 billion units in EEMA
Regional initiatives:
- Expanding resources
- Supporting law enforcement

- Creating awareness among adult smokers and other stakeholders
- Engaging regulators
44
Russia: PMI Growing Share and Profit

PMI Market Share (%)
(6.7)%
+0.5pp
71.7
26.2
26.7
Q1, 2013
Q1, 2014
66.9
Q1, 2013
Q1, 2014
45
Russia: Commercial Approach Driving Results

Q1, 2014 PMI Market Shares (%)
and Growth vs. PY (pp)
31.0%
+0.2pp
n
North
Moscow
25.6%
27.2%
+1.0pp
+0.2pp
Center
23.8%
+0.3pp
South
25.9%
East
n
+1.2pp
Source: Nielsen
46
Russia: Growing in Premium

PMI Share of Premium Segment (%)
36.3
Source: Nielsen
38.1
23.6
26.2
Parliament
12.7
11.9
Marlboro
Q1, 2013
Q1, 2014
47
Russia: L&M Share Momentum

L&M Market Share (%)
3.1
2.5
Jan
2012
Note: Translation from Russian: "Quality evolution - Famous Recessed Filter from the Makers of Parliament"
Source: Nielsen
Jan
2013
Jan Mar
2014
48
Russia: Bond Street Compact Accelerating the Brands Growth

Bond Street Market Share (%)
7.0
6.2
-
6.5
-
6.5
0.2
1.0
Compact
5.6
Other
2010
Source: Nielsen
2011
2012
2013
Q1, 2014
49
Russia: Megapolis Investment
Long-term sustainability of
distribution
Attractive financial return
Increased coverage in rural areas
More efficient route to market
50
Russia: Growth Outlook

Industry volume decline expected to moderate:
- Excise tax developments
Key Movements in Excise Tax(a)
2014
2015
2016
Specific Excise Increase vs. Prior Year
45%
20%
25%
Ad Valorem Excise (% of MRSP)
8.5%
9.0%
9.5%
- Reduction in relative price gaps
(a) As per current legislation

Note: MRSP stands for Maximum Retail Selling Price
Source: PMI forecasts and Russia Ministry of Finance
51
Turkey: PMI Competing Successfully Across Price Points

Industry decline of 7.6% in 2013,
with signs of stabilization in 2014
PMI leading brand portfolio that
covers all price points
Q1, 2014 PMI volume growth of
9.7% versus prior year, driven by
Parliament, Marlboro and
Chesterfield
Source: PMI estimates and PMI Financials
52
Turkey: Parliaments Stellar Performance

3mm Parliament Market Share (%)
10.5
8.4
March
2012
Note: mm stands for months moving
Source: Nielsen
March
2013
March
2014
53
Turkey: Chesterfields Growth Momentum

3mm Chesterfield Market Share (%)
2.2
0.1
May
Jun
Jul
Aug
Sept
2013
Source: Nielsen
Oct
Nov
Dec
Jan
Feb
Mar
2014
54
North Africa: PMIs Expansion in a Growing Market

PMI Volume (units billion)
CAGR: 1.0%
CAGR: 15.8%
132
139
37
18
2008
Source: PMI estimates and PMI Financials
2013
2008
2013
55
North Africa: Marlboro and L&M Drivers of Growth

PMI Market Share in North Africa (%)
26.5
Other
22.6
18.8
20.1
9.1
L&M
15.3
Marlboro
7.6
6.5
7.5
9.1
2010
11.9
13.2
2011
2012
2013
56
North Africa: PMI Reinforcing Its Competitive Position

Enhance participation in
market profits pool
Direct presence in Egypt
Acquired 49% in Arab
Investors-TA (Algeria)
2013 Industry Volume (units billion)

and Market Share
Industry Volume
PMI
80
31
23%
14
12
18%
15%
8%
41%
Other
7%
Opportunity is substantial
23%
Local
Competitors
82%
77%
Morocco
Tunisia
70%
36%
Egypt
Algeria
57
Saudi Arabia: PMIs Strength in an Expanding Market

Industry Volume (units billion) and Market Shares
28
24
26
45%
47%
29
46%
PMI
47%
Other
2010
2011
2012
2013
58
Saudi Arabia: Growing in Premium

PMI Share of Premium Segment (%)
57.4
57.1
55.9
57.6
3.8
60.4
4.3
Other
Parliament
Marlboro
0.9
1.4
2.3
48.5
48.8
47.6
48.7
51.8
2010
2011
2012
2013
Q1, 2014
59
Saudi Arabia: L&M Reaches Record Share

L&M Market Share (%)
+1.3pp
21.8
20.5
2010
Note: Translation from Arabic: "On average, the commute home offers the same old view. Defy Average."
2013
60
EEMA Region: Seizing Mid to Long-Term Growth Opportunities

Strong momentum of business expansion
Focused on building foundation for further growth:

- Adapt to geopolitical challenges
- Further strengthen our position in established markets

- Accelerate our growth momentum in the Middle East and Africa
- Initiate the commercialization 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
61
Conclusion: PMIs Growth Outlook in EEMA

Expected growth of industry profit pool
Superior brand portfolio

Strong organizational capabilities
Continued industry outperformance
Significant contribution to PMIs superior results
62

Reconciliation of non-GAAP measures included in this presentation

to the most comparable GAAP measures are provided on our
website at: www.pmi.com/2014InvestorDay/RecSlides
Glossary of Terms: www.pmi.com/2014InvestorDay/Glossary

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Investor Day EEMA Region

Lausanne, June 27, 2014

Investor Day EEMA Region

(Approximately 90-second video)

EEMA Region: Key Facts

EEMA Region: Recent Volume Pressure

Note: Excluding duty free

EEMA Region: Adult Smokers Up-trading

EEMA Region: Market Share Growth Fueled by Premium Brands

Note: Excluding duty free. Premium includes above premium

EEMA Region: Pricing

Source: PMI Financials

EEMA Region: PMI Increasing Revenue Generation

EEMA Region: Strong Profitability Growth

Adjusted OCI Margin

Source: PMI Financials

EEMA Region: Contribution to 2013 PMI Results

Source: PMI Financials

EEMA Region: First-Quarter Results

Adjusted OCI Margin

EEMA Region: Two Distinct Growth Profiles

Emerging Europe & CIS

Middle East & Africa

Emerging Europe & CIS

Real GDP Forecast

Middle East & Africa

Emerging Europe & CIS

Emerging Europe & CIS

Middle East & Africa

Emerging Europe & CIS: Industry Volume Trend

Source: PMI estimates

Emerging Europe & CIS: Growth Drivers

Emerging Europe & CIS: Growth Drivers

Middle East & Africa

Emerging Europe & CIS

Middle East & Africa

Middle East & Africa: Up-Trading in a Growing Industry

Note: Excluding duty free

Middle East & Africa: Further Volume Growth Opportunity

Note: Excluding duty free

Geographic Expansion in Africa

Note: Market shares include OTP segment

EEMA Region: Growth Outlook

Middle East & Africa:

Target for EEMA Region to deliver annual mid to long-term

Regional Strategic Priorities

Advocate for reasonable fiscal and regulatory frameworks

Enhance our position in the markets

EEMA Region: Superior PMI Positioning and Balanced Portfolio

Source: PMI Financials and PMI estimates

Key PMI Brands

Bond Street # 1 international proposition in

Marlboro Continues to Grow in EEMA

Capitalizing on Marlboros Premiumness

Marlboro: Increasing Relevance in the Smooth Taste Segment

Marlboro Market Share in Serbia (%)

Marlboro: Further Strengthening the Brands Appeal

Marlboro: Expanding its Reach to Virginia Blends

Senegal: Marlboro Blue

0.5% Market Share (Q1, 2014)

2.6% Market Share (Q1, 2014)

Source: PMI estimates

Parliament is the Fastest-Growing Premium Brand