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Investor Day EEMA Region

Lausanne, June 27, 2014


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

Investor Day EEMA Region


Lausanne, June 27, 2014
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
Source: PMI estimates

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


Source: PMI estimates

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

Source: PMI Financials

2013

2010

2013

2010

2013

2010

2013

10

EEMA Region: Contribution to 2013 PMI Results


Cigarette Shipment Volume

34%

Source: PMI Financials

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
Source: PMI Financials

12

EEMA Region: Two Distinct Growth Profiles

Emerging Europe & CIS

Middle East & Africa

Emerging Europe & CIS

Population Forecast

Real GDP Forecast

CAGR 2013-2020

CAGR 2013-2020

0.2%

3.7%
2.2%

Middle East & Africa


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

Emerging Europe & CIS

Emerging Europe & CIS

Middle East & Africa

14

Emerging Europe & CIS: Industry Volume Trend


Industry Volume (units billion)
CAGR: (3.0)%

760

(40)

(18)
(8)

2010

Source: PMI estimates

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
Note: Excluding duty free. Premium includes above premium
Source: PMI estimates

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
Note: Excluding duty free. Premium includes above premium
Source: PMI estimates

+1.3pp

2013
17

Middle East & Africa

Emerging Europe & CIS

Middle East & Africa

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

Note: Excluding duty free


Source: PMI estimates

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 (%)

Note: Excluding duty free


Source: PMI estimates

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


Source: PMI estimates

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
Source: PMI estimates

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
Source: PMI estimates

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!"
Source: PMI estimates

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)

Source: PMI estimates

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

Source: PMI estimates

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

Source: PMI Financials

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

Source: PMI estimates

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
Source: PMI estimates

38

Chesterfield Panther Growing Our Presence in South Africa


3mm Market Share (%)

0.5

October
2013
Source: PMI estimates

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

Source: PMI estimates and Nielsen

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
Source: PMI estimates

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

Source: PMI estimates

44

Russia: PMI Growing Share and Profit


Industry Volume (units billion)

PMI Market Share (%)

(6.7)%

+0.5pp

71.7

26.2

26.7

Q1, 2013

Q1, 2014

66.9

Q1, 2013

Source: PMI estimates and Nielsen

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


Industry Volume (units billion)

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

Source: PMI estimates

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

Source: PMI estimates

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

Source: PMI estimates

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

Source: PMI estimates

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."
Source: PMI estimates

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

Investor Day EEMA Region


Lausanne, June 27, 2014

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