Form 8-K Philip Morris Internatio For: Jul 16
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 16, 2015
Philip Morris International Inc.
(Exact name of registrant as specified in its charter)
Virginia | 1-33708 | 13-3435103 | ||
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
120 Park Avenue, New York, New York | 10017-5592 | |
(Address of principal executive offices) | (Zip Code) |
Registrant's telephone number, including area code: (917) 663-2000
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operations and Financial Condition.
On July 16, 2015, Philip Morris International Inc. (the “Company”) issued a press release announcing its financial results for the quarter ended June 30, 2015 and held a live audio webcast to discuss such results. In connection with this webcast, the Company is furnishing to the Securities and Exchange Commission the following documents attached as exhibits to this Current Report on Form 8-K and incorporated herein by reference to this Item 2.02: the earnings release attached as Exhibit 99.1 hereto, the conference call script attached as Exhibit 99.2 hereto and the webcast slides attached as Exhibit 99.3 hereto.
In accordance with General Instruction B.2 of Form 8-K, the information in Item 2.02 of this Current Report on Form 8-K, including Exhibits 99.1, 99.2 and 99.3, shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. The information in Item 2.02 of this Current Report on Form 8-K shall not be incorporated by reference into any filing or other document pursuant to the Securities Act of 1933, as amended, except as may be expressly set forth by specific reference in such filing or document.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
99.1 | Philip Morris International Inc. Press Release dated July 16, 2015 (furnished pursuant to Item 2.02) |
99.2 | Conference Call Script dated July 16, 2015 (furnished pursuant to Item 2.02) |
99.3 | Webcast Slides dated July 16, 2015 (furnished pursuant to Item 2.02) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
PHILIP MORRIS INTERNATIONAL INC. | ||
By: | /s/ JERRY WHITSON | |
Name: | Jerry Whitson | |
Title: | Deputy General Counsel and Corporate Secretary |
DATE: July 16, 2015
EXHIBIT INDEX
Exhibit No. Description
99.1 | Philip Morris International Inc. Press Release dated July 16, 2015 (furnished pursuant to Item 2.02) |
99.2 | Conference Call Script dated July 16, 2015 (furnished pursuant to Item 2.02) |
99.3 | Webcast Slides dated July 16, 2015 (furnished pursuant to Item 2.02) |
Exhibit 99.1
PRESS RELEASE | ||||
Investor Relations: | Media: | |||
New York: +1 (917) 663 2233 | Lausanne: +41 (0)58 242 4500 | |||
Lausanne: +41 (0)58 242 4666 |
PHILIP MORRIS INTERNATIONAL INC. (PMI) REPORTS 2015 SECOND-QUARTER RESULTS;
REAFFIRMS 2015 FULL-YEAR REPORTED DILUTED EPS FORECAST;
EXPECTS TO BE TOWARDS UPPER END OF FULL-YEAR CURRENCY-NEUTRAL ADJUSTED DILUTED EPS GROWTH RATE OF 9%-11%
2015 Second-Quarter
• | Reported diluted earnings per share of $1.21, up by $0.04 or 3.4% versus $1.17 in 2014 |
• | Excluding unfavorable currency of $0.33, reported diluted earnings per share up by $0.37 or 31.6% versus $1.17 in 2014 as detailed in the attached Schedule 13 |
• | Adjusted diluted earnings per share of $1.21, down by $0.20 or 14.2% versus $1.41 in 2014 |
• | Excluding unfavorable currency of $0.33, adjusted diluted earnings per share up by $0.13 or 9.2% versus $1.41 in 2014 as detailed in the attached Schedule 12 |
• | Cigarette shipment volume of 219.8 billion units, down by 1.4% excluding acquisitions |
• | Reported net revenues, excluding excise taxes, of $6.9 billion, down by 12.0% |
• | Excluding unfavorable currency of $1.3 billion and the impact of acquisitions, reported net revenues, excluding excise taxes, up by 4.5% as detailed in the attached Schedule 10 |
• | Reported operating companies income of $3.0 billion, up by 0.6% |
• | Excluding unfavorable currency of $680 million and the impact of acquisitions, reported operating companies income up by 23.6% |
• | Adjusted operating companies income, reflecting the items detailed in the attached Schedule 11, of $3.0 billion, down by 13.7% |
• | Excluding unfavorable currency and the impact of acquisitions, adjusted operating companies income up by 6.1% |
• | Reported operating income of $2.9 billion, up by 0.6% |
2015 Six Months Year-to-Date
• | Reported diluted earnings per share of $2.37, up by $0.02 or 0.9% versus $2.35 in 2014 |
• | Excluding unfavorable currency of $0.64, reported diluted earnings per share up by $0.66 or 28.1% versus $2.35 in 2014 as detailed in the attached Schedule 17 |
• | Adjusted diluted earnings per share of $2.37, down by $0.23 or 8.8% versus $2.60 in 2014 |
• | Excluding unfavorable currency of $0.64, adjusted diluted earnings per share up by $0.41 or 15.8% versus $2.60 in 2014 as detailed in the attached Schedule 16 |
• | Cigarette shipment volume of 418.6 billion units, down by 0.1% excluding acquisitions |
• | Reported net revenues, excluding excise taxes, of $13.5 billion, down by 8.4% |
• | Excluding unfavorable currency of $2.2 billion and the impact of acquisitions, reported net revenues, excluding excise taxes, up by 6.6% as detailed in the attached Schedule 14 |
• | Reported operating companies income of $5.9 billion, down by 0.8% |
• | Excluding unfavorable currency of $1.3 billion and the impact of acquisitions, reported operating companies income up by 20.3% |
• | Adjusted operating companies income, reflecting the items detailed in the attached Schedule 15, of $5.9 billion, down by 8.6% |
• | Excluding unfavorable currency and the impact of acquisitions, adjusted operating companies income up by 10.9% |
• | Reported operating income of $5.8 billion, down by 1.1% |
2015 Full-Year Forecast
• | PMI reaffirms its 2015 full-year reported diluted earnings per share (“EPS”) forecast to be in a range of $4.32 to $4.42, at prevailing exchange rates, versus $4.76 in 2014. |
• | On an adjusted basis, diluted EPS are projected to increase in the range of 9% to 11% versus adjusted diluted EPS of $5.02 in 2014, as detailed in the attached Schedule 20, excluding an unfavorable currency impact, at prevailing exchange rates, of approximately $1.15 per share for the full-year 2015 |
• | PMI anticipates that its currency-neutral 2015 full-year adjusted diluted EPS growth rate will be towards the upper end of its projected range of 9% to 11% |
• | This forecast includes incremental spending versus 2014 for the deployment of PMI's Reduced-Risk Product, iQOS. The spending, which is skewed towards the second half of the year, will support plans for national expansion in Japan and Italy, as well as pilot or national launches in additional markets |
• | This forecast does not include any share repurchases in 2015 |
• | This forecast excludes the impact of any future acquisitions, unanticipated asset impairment and exit cost charges, future changes in currency exchange rates, any potential impact of Canadian tobacco litigation described in the section entitled "Litigation" in this press release, and any unusual events. Factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections |
NEW YORK, July 16, 2015 -- Philip Morris International Inc. (NYSE / Euronext Paris: PM) today announced its 2015 second-quarter results.
"Our second-quarter results were very solid, further reinforcing our great start to the year," said André Calantzopoulos, Chief Executive Officer.
"Our organic volume trends, market share growth and robust pricing, exemplified by our flagship brand Marlboro, are driving excellent operational performance within an improving macroeconomic environment for our business."
"Based on this strong business momentum, we now anticipate we will be towards the upper end of our projected full-year, constant currency adjusted diluted EPS growth rate range of 9% to 11%."
"While currency headwinds remain stubbornly high, we are ever focused on the prudent management of cash flow. We are committed to returning around 100% of our free cash flow to shareholders."
Conference Call
A conference call, hosted by Jacek Olczak, Chief Financial Officer, with members of the investor community and news media, will be webcast at 9:00 a.m., Eastern Time, on July 16, 2015. Access is at www.pmi.com/webcasts.
The audio webcast may also be accessed on iOS or Android devices by downloading PMI’s free Investor Relations Mobile Application at www.pmi.com/irapp.
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Dividends and Share Repurchase Program
During the quarter, PMI declared a regular quarterly dividend of $1.00, representing an annualized rate of $4.00 per common share. Since its spin-off in March 2008, PMI has increased its regular quarterly dividend by 117.4% from the initial annualized rate of $1.84 per common share. PMI did not make any share repurchases in the first six months of 2015.
Business Development
Dissolution of Joint Venture Agreement with Swedish Match AB
PMI announces today the dissolution of its exclusive joint venture agreement with Swedish Match AB (“SWMA”) to commercialize Swedish snus and other smoke-free tobacco products worldwide, outside of Scandinavia and the United States. The dissolution, mutually agreed with SWMA, means that both companies will now focus on independent strategies for the commercialization of these products and the trademarks and intellectual property licensed to the joint venture by the companies will revert to their original owners.
The two companies have concurrently entered into transitional agreements under which SWMA will contract manufacture snus products for PMI for certain markets, including Canada and Russia, and PMI will distribute Swedish Match’s brand General in Canada and Russia.
The dissolution of this agreement will not have a material impact on PMI’s consolidated results of operations, cash flows or financial position.
Extension of Strategic Framework with Altria Group, Inc.
PMI announces today the extension of its strategic framework with Altria Group, Inc. (“Altria”), signed in December 2013, to include a Joint Research, Development and Technology Sharing Agreement. The additional Agreement provides the framework under which PMI and Altria will collaborate to develop the next generation of e-vapor products for commercialization in the United States by Altria and in markets outside the United States by PMI. The collaboration between PMI and Altria in this endeavor is enabled by exclusive technology cross licenses and technical information sharing. The Joint Research, Development and Technology Sharing Agreement also provides for cooperation between PMI and Altria on scientific assessment, regulatory engagement and approval related to e-vapor products.
Under the existing strategic framework Agreements, Altria is making available its e-vapor products exclusively to PMI for commercialization outside the United States and PMI will make available two of its candidate reduced-risk tobacco products exclusively to Altria for commercialization in the United States. It is envisaged that PMI’s candidate products would be regulated in the United States as Modified Risk Tobacco Products (“MRTPs”) and any commercialization would be subject to U.S. Food and Drug Administration (“FDA”) authorization. As previously announced, PMI expects to apply to the FDA during the course of 2016 for one of these two candidate reduced-risk products, its heat-not-burn iQOS product, to be approved as an MRTP.
Litigation
As of the date of this press release, the Québec Court of Appeal has yet to issue its decision regarding a motion, heard by the court on July 9, 2015, to cancel the order of the Superior Court of the District of Montréal, issued on May 27, 2015, that PMI’s Canadian affiliate, Rothmans, Benson & Hedges Inc. (“RBH”), pay an initial deposit of approximately CAD 246 million into a trust account pending the merits appeal of the Québec class actions judgment.
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The trial court had ordered, as part of its judgment, that RBH and the other defendants make initial deposits of a portion of the damages award within 60 days.
Should the Court of Appeal deny the motion for cancellation of the order, PMI expects to incur a pre-tax charge of approximately CAD 246 million (approximately $199 million), or an after-tax charge of $0.09 per share. Depending on developments, this charge would likely be recorded as tobacco litigation-related expenses in the second quarter of 2015. Given that the Court of Appeal's decision has yet to be issued, the Schedules to this press release do not reflect any such charge. In the event of a denial of the motion for cancellation by the court, revised Schedules and any other relevant information will be furnished promptly in a filing with the U.S. Securities and Exchange Commission, to the extent relevant.
The cases are Cécilia Létourneau v. JTI-Macdonald Corp., Imperial Tobacco Canada Ltd., Rothmans, Benson & Hedges Inc., and Conseil Québécois sur le Tabac et la Santé and Jean-Yves Blais v. JTI-Macdonald Corp., Imperial Tobacco Canada Ltd., Rothmans, Benson & Hedges Inc. (Superior Court of the District of Montréal, Province of Québec).
Productivity and Cost Savings Program
In 2015, PMI's productivity and cost savings initiatives will include, but are not limited to, the continued enhancement of production processes, the harmonization of tobacco blends, the streamlining of product specifications and number of brand variants, supply chain improvements and overall spending efficiency across the company. PMI anticipates that these initiatives, combined with savings associated with the manufacturing footprint restructuring implemented in 2014, notably in Australia and the Netherlands, should result in a total company cost base increase, excluding RRPs and currency, of approximately 1%.
2015 SECOND-QUARTER CONSOLIDATED RESULTS
In this press release, “PMI” refers to Philip Morris International Inc. and its subsidiaries. References to total international cigarette market, defined as worldwide cigarette volume excluding the United States, total cigarette market, total market and market shares are PMI tax-paid estimates based on the latest available data from a number of internal and external sources and may, in defined instances, exclude the People's Republic of China and/or PMI's duty free business. North Africa is defined as Algeria, Egypt, Libya, Morocco and Tunisia. "OTP" is defined as other tobacco products. "EEMA" is defined as Eastern Europe, Middle East and Africa and includes PMI's international duty free business. The term “net revenues” refers to operating revenues from the sale of our products, excluding excise taxes and net of sales and promotion incentives. Operating companies income, or “OCI,” is defined as operating income, excluding general corporate expenses and the amortization of intangibles, plus equity (income)/loss in unconsolidated subsidiaries, net. PMI's management evaluates business segment performance and allocates resources based on OCI. “Adjusted EBITDA” is defined as earnings before interest, taxes, depreciation and amortization, excluding asset impairment and exit costs, discrete tax items and unusual items. Management also reviews OCI, OCI margins and earnings per share, or “EPS,” on an adjusted basis (which may exclude the impact of currency and other items such as acquisitions, asset impairment and exit costs, discrete tax items and unusual items), as well as free cash flow, defined as net cash provided by operating activities less capital expenditures, and net debt. PMI believes it is appropriate to disclose these measures as they improve comparability and help investors analyze business performance and trends. Non-GAAP measures used in this release should be neither considered in isolation nor as a substitute for the financial measures prepared in accordance with U.S. GAAP. Comparisons are to the same prior-year period unless otherwise stated. For a reconciliation of non-GAAP measures to corresponding GAAP measures, see the relevant schedules provided with this press release. Reduced-Risk Products (“RRPs”) is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking combustible cigarettes. PMI’s RRPs are in various stages of development and commercialization, and we are conducting extensive and rigorous scientific studies to determine whether we can support claims for such products of reduced exposure to harmful and potentially harmful constituents in smoke, and ultimately claims of reduced disease risk, when compared to smoking combustible cigarettes. Before making any such claims, we will rigorously evaluate the full set of data from the relevant scientific studies to determine whether they substantiate reduced exposure or risk. Any such claims may also be subject to government review and approval, as is the case in the United States today. Trademarks
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and service marks in this press release that are the registered property of, or licensed by, the subsidiaries of PMI, are italicized.
NET REVENUES
PMI Net Revenues | Second-Quarter | Six Months Year-to-Date | |||||||||||||||||||||
(in millions) | Excl. | Excl. | |||||||||||||||||||||
2015 | 2014 | Change | Curr. | 2015 | 2014 | Change | Curr. | ||||||||||||||||
European Union | $ | 1,988 | $ | 2,393 | (16.9 | )% | 3.5 | % | $ | 3,880 | $ | 4,406 | (11.9 | )% | 5.4 | % | |||||||
EEMA | 1,919 | 2,283 | (15.9 | )% | 4.4 | % | 3,762 | 4,292 | (12.3 | )% | 8.8 | % | |||||||||||
Asia | 2,145 | 2,311 | (7.2 | )% | 2.7 | % | 4,300 | 4,493 | (4.3 | )% | 3.7 | % | |||||||||||
Latin America & Canada | 807 | 810 | (0.4 | )% | 13.5 | % | 1,533 | 1,523 | 0.7 | % | 13.8 | % | |||||||||||
Total PMI | $ | 6,859 | $ | 7,797 | (12.0 | )% | 4.6 | % | $ | 13,475 | $ | 14,714 | (8.4 | )% | 6.7 | % |
In the quarter, net revenues of $6.9 billion were down by 12.0%. Excluding unfavorable currency of $1.3 billion, net revenues increased by 4.6%, or by 4.5% excluding currency and the impact of acquisitions, driven by favorable pricing of $514 million from across all Regions, led: in the EU, by Germany and Italy; in EEMA, by Russia and Ukraine; in Asia, by Australia, Indonesia and Korea, principally driven by a gain from inventories built ahead of the announced excise tax increase effective January 2015; and in Latin America & Canada, by Argentina, Brazil, Canada and Mexico. The favorable pricing was partly offset by unfavorable volume/mix of $167 million from across all Regions.
OPERATING COMPANIES INCOME
PMI OCI | Second-Quarter | Six Months Year-to-Date | |||||||||||||||||||||
(in millions) | Excl. | Excl. | |||||||||||||||||||||
2015 | 2014 | Change | Curr. | 2015 | 2014 | Change | Curr. | ||||||||||||||||
European Union | $ | 977 | $ | 711 | 37.4 | % | 76.7 | % | $ | 1,890 | $ | 1,689 | 11.9 | % | 39.7 | % | |||||||
EEMA | 881 | 1,087 | (19.0 | )% | 4.3 | % | 1,761 | 2,014 | (12.6 | )% | 13.5 | % | |||||||||||
Asia | 797 | 900 | (11.4 | )% | (0.7 | )% | 1,731 | 1,815 | (4.6 | )% | 5.1 | % | |||||||||||
Latin America & Canada | 325 | 265 | 22.6 | % | 41.9 | % | 555 | 467 | 18.8 | % | 39.2 | % | |||||||||||
Total PMI | $ | 2,980 | $ | 2,963 | 0.6 | % | 23.5 | % | $ | 5,937 | $ | 5,985 | (0.8 | )% | 20.3 | % |
In the quarter, reported operating companies income of $3.0 billion was up by 0.6%. Excluding unfavorable currency of $680 million and the impact of acquisitions, operating companies income increased by 23.6%, reflecting: favorable pricing and a favorable asset impairment and exit cost comparison with the second quarter of 2014 of $489 million related to the discontinuation of cigarette production in the Netherlands and the factory closure in Australia; partly offset by unfavorable volume/mix of $171 million, and higher costs in EEMA, and Asia, mainly associated with the realignment of production from hand-rolled to machine-made kretek cigarettes in Indonesia.
Adjusted operating companies income is shown in the table below and detailed in Schedule 11. Adjusted operating companies income margin, excluding currency and acquisitions, increased by 0.7 points to 45.0%, as detailed in Schedule 11, reflecting the factors mentioned above.
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PMI OCI | Second-Quarter | Six Months Year-to-Date | |||||||||||||||||||||
(in millions) | Excl. | Excl. | |||||||||||||||||||||
2015 | 2014 | Change | Curr. | 2015 | 2014 | Change | Curr. | ||||||||||||||||
Reported OCI | $ | 2,980 | $ | 2,963 | 0.6 | % | 23.5 | % | $ | 5,937 | $ | 5,985 | (0.8 | )% | 20.3 | % | |||||||
Asset impairment & exit costs | — | (489 | ) | — | (512 | ) | |||||||||||||||||
Adjusted OCI | $ | 2,980 | $ | 3,452 | (13.7 | )% | 6.0 | % | $ | 5,937 | $ | 6,497 | (8.6 | )% | 10.9 | % | |||||||
Adjusted OCI Margin* | 43.4 | % | 44.3 | % | (0.9 | ) | 0.6 | 44.1 | % | 44.2 | % | (0.1 | ) | 1.7 | |||||||||
*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes. |
SHIPMENT VOLUME & MARKET SHARE
PMI cigarette shipment volume by Region is shown in the table below.
PMI Cigarette Shipment Volume by Region | Second-Quarter | Six Months Year-to-Date | |||||||||||||
(million units) | |||||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||
European Union | 48,159 | 49,913 | (3.5 | )% | 90,880 | 91,618 | (0.8 | )% | |||||||
EEMA | 73,829 | 74,170 | (0.5 | )% | 138,550 | 136,176 | 1.7 | % | |||||||
Asia | 75,256 | 75,653 | (0.5 | )% | 145,381 | 146,454 | (0.7 | )% | |||||||
Latin America & Canada | 22,589 | 23,065 | (2.1 | )% | 43,779 | 44,514 | (1.7 | )% | |||||||
Total PMI | 219,833 | 222,801 | (1.3 | )% | 418,590 | 418,762 | — | % |
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2015 Second-Quarter and Six Months Year-to-Date
In the quarter, PMI's cigarette shipment volume decreased by 1.3%, or by 1.4% excluding acquisitions. The decline was principally due to the EU, mainly Italy. Estimated net inventory movements in the quarter were favorable, driven mainly by Japan, reflecting a positive comparison with the second quarter of 2014 that was impacted by retail trade inventory reductions following the consumption tax-driven retail price increases of April 1, 2014. Excluding these inventory movements, PMI's total cigarette shipment volume decreased by 1.6%.
PMI cigarette shipment volume by brand is shown in the table below.
PMI Cigarette Shipment Volume by Brand | Second-Quarter | Six Months Year-to-Date | |||||||||||||
(million units) | |||||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||
Marlboro | 72,322 | 73,151 | (1.1 | )% | 139,569 | 139,032 | 0.4 | % | |||||||
L&M | 24,546 | 24,201 | 1.4 | % | 47,224 | 45,154 | 4.6 | % | |||||||
Parliament | 11,514 | 12,394 | (7.1 | )% | 21,084 | 22,307 | (5.5 | )% | |||||||
Bond Street | 11,777 | 11,137 | 5.8 | % | 20,957 | 20,415 | 2.7 | % | |||||||
Chesterfield | 10,611 | 11,797 | (10.1 | )% | 20,151 | 20,583 | (2.1 | )% | |||||||
Philip Morris | 8,831 | 7,779 | 13.5 | % | 16,593 | 15,808 | 5.0 | % | |||||||
Lark | 8,270 | 6,879 | 20.2 | % | 14,714 | 13,706 | 7.4 | % | |||||||
Others | 71,962 | 75,463 | (4.6 | )% | 138,298 | 141,757 | (2.4 | )% | |||||||
Total PMI | 219,833 | 222,801 | (1.3 | )% | 418,590 | 418,762 | — | % |
In the quarter, the decrease in cigarette shipment volume of Marlboro reflected declines in: the EU, notably Italy and the United Kingdom, partly offset by France and Spain; EEMA, notably North Africa and Ukraine, partly offset by Saudi Arabia and Turkey; and Latin America & Canada, mainly Argentina, Brazil and Mexico. Cigarette shipment volume of Marlboro increased in Asia, driven by the Philippines and Vietnam, partly offset by Indonesia and Japan.
The increase in cigarette shipment volume of L&M was driven by growth in EEMA, notably Egypt, Turkey and Ukraine, partly offset by a decline in the EU, mainly Spain, and in Asia, mainly Thailand. The decrease in cigarette shipment volume of Parliament was primarily due to Japan, Korea and Ukraine. The increase in cigarette shipment volume of Bond Street was predominantly driven by Australia and Russia, partly offset by Kazakhstan and Ukraine. The decrease in cigarette shipment volume of Chesterfield was primarily due to the EU, mainly Italy and Spain, and EEMA, mainly Russia, Turkey and Ukraine. The increase in cigarette shipment volume of Philip Morris primarily reflects the morphing from Diana in Italy. The increase in cigarette shipment volume of Lark was predominantly driven by Japan, benefiting from trade inventory movements, partly offset by Korea and Turkey.
Total shipment volume of OTP, in cigarette equivalent units, increased by 3.3%. Total shipment volume for cigarettes and OTP, in cigarette equivalent units, decreased by 1.2%, excluding acquisitions.
PMI's cigarette market share increased in a number of key markets, including Algeria, Argentina, Austria, Belgium, Brazil, Egypt, France, Germany, Hong Kong, Indonesia, Korea, Russia, Saudi Arabia, Singapore, Spain and Switzerland.
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Year-to-date, PMI's cigarette shipment volume was flat, or down by 0.1% excluding acquisitions, with growth in EEMA, driven principally by Russia and Saudi Arabia, offset by declines in: the EU, mainly Italy; Asia, largely due to Korea and the Philippines, partly offset by Indonesia; and Latin America & Canada, mainly due to Argentina. Estimated net inventory movements year-to-date were favorable, driven mainly by Japan. Excluding these inventory movements, PMI's total cigarette shipment volume decreased by 1.0%.
Year-to-date, the increase in cigarette shipment volume of Marlboro reflected growth in: the EU, notably France and Spain, partly offset by Italy; and EEMA, notably Turkey and Saudi Arabia, partly offset by Egypt and Ukraine. Cigarette shipment volume of Marlboro decreased in: Asia, mainly due to Japan and Korea, partly offset by the Philippines; and Latin America & Canada, mainly due to Argentina.
The increase in cigarette shipment volume of L&M was driven by growth in EEMA, notably Egypt, Turkey and Ukraine, partly offset by a decline in the EU, mainly Spain. The decrease in cigarette shipment volume of Parliament was primarily due to Japan, Korea and Ukraine, partly offset by Turkey. The increase in cigarette shipment volume of Bond Street was predominantly driven by Australia and Russia, partly offset by Kazakhstan and Ukraine. The decrease in cigarette shipment volume of Chesterfield was primarily due to EEMA, mainly Russia, Turkey and Ukraine, partly offset by the EU, mainly Italy. The increase in cigarette shipment volume of Philip Morris primarily reflects the morphing from Diana in Italy, partly offset by the morphing to Lark in Japan. The increase in cigarette shipment volume of Lark was predominantly driven by Japan, benefiting from trade inventory movements, partly offset by Korea and Turkey.
Total shipment volume of OTP, in cigarette equivalent units, increased by 2.7%. Total shipment volume for cigarettes and OTP, in cigarette equivalent units, was flat, excluding acquisitions.
PMI's cigarette market share increased in a number of key markets, including Algeria, Argentina, Austria, Belgium, Brazil, Egypt, France, Germany, Hong Kong, Indonesia, Korea, Poland, Russia, Saudi Arabia, Singapore, Spain and Switzerland.
EUROPEAN UNION REGION (EU)
2015 Second-Quarter
Reported net revenues of $2.0 billion decreased by 16.9%. Excluding unfavorable currency of $488 million, net revenues increased by 3.5%, or by 3.3% excluding currency and the impact of acquisitions, reflecting favorable pricing of $139 million across the Region, notably in Germany and Italy, partly offset by unfavorable volume/mix of $60 million, mainly due to unfavorable inventory movements and lower market share in Italy and a lower total market and market share in the United Kingdom.
Reported operating companies income of $977 million increased by 37.4%. Excluding unfavorable currency of $279 million and the impact of acquisitions, operating companies income increased by 76.9%, reflecting higher pricing and a favorable asset impairment and exit cost comparison with the second quarter of 2014 of $488 million related to the discontinuation of cigarette production in the Netherlands, partly offset by unfavorable volume/mix of $53 million.
Adjusted operating companies income is shown in the table below and detailed on Schedule 11. Adjusted operating companies income margin, excluding unfavorable currency and the impact of acquisitions, increased by 0.8 points to 50.9%, as detailed in Schedule 11, reflecting the factors mentioned above.
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EU OCI | Second-Quarter | Six Months Year-to-Date | |||||||||||||||||||||
(in millions) | Excl. | Excl. | |||||||||||||||||||||
2015 | 2014 | Change | Curr. | 2015 | 2014 | Change | Curr. | ||||||||||||||||
Reported OCI | $ | 977 | $ | 711 | 37.4 | % | 76.7 | % | $ | 1,890 | $ | 1,689 | 11.9 | % | 39.7 | % | |||||||
Asset impairment & exit costs | — | (488 | ) | — | (488 | ) | |||||||||||||||||
Adjusted OCI | $ | 977 | $ | 1,199 | (18.5 | )% | 4.8 | % | $ | 1,890 | $ | 2,177 | (13.2 | )% | 8.4 | % | |||||||
Adjusted OCI Margin* | 49.1 | % | 50.1 | % | (1.0 | ) | 0.6 | 48.7 | % | 49.4 | % | (0.7 | ) | 1.4 | |||||||||
*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes. |
2015 Second-Quarter and Six Months Year-to-Date
The total cigarette market in the EU of 117.1 billion units decreased by 3.0% in the quarter and by 2.3% to 221.8 billion units year-to-date. Excluding the impact of estimated trade inventory movements, the total cigarette market declined by 2.3% in the quarter and by 2.5% year-to-date, reflecting, in certain key geographies, improving economies, a moderation in the level of illicit trade, lower out-switching to the fine cut category and a lower prevalence of e-vapor products. In 2015, the total cigarette market in the EU is now forecast to decrease by approximately 3.0% to 3.5%.
The total OTP market in the EU in the quarter of 41.5 billion cigarette equivalent units decreased by 0.5%, reflecting a lower total fine cut market, down by 0.1% to 36.2 billion cigarette equivalent units. Year-to-date, the total OTP market in the EU of 79.2 billion cigarette equivalent units decreased by 1.1%, reflecting a lower total fine cut market, down by 1.0% to 69.2 billion cigarette equivalent units.
Cigarette shipment volume and market share performance by brand are shown in the tables below.
EU Cigarette Shipment Volume by Brand | Second-Quarter | Six Months Year-to-Date | |||||||||||||
(in millions) | |||||||||||||||
2015 | 2014 | Change | 2015 | 2014 | Change | ||||||||||
Marlboro | 23,554 | 23,913 | (1.5 | )% | 44,346 | 44,144 | 0.5 | % | |||||||
L&M | 8,528 | 8,717 | (2.2 | )% | 15,926 | 16,122 | (1.2 | )% | |||||||
Chesterfield | 6,905 | 7,501 | (7.9 | )% | 13,210 | 12,908 | 2.3 | % | |||||||
Philip Morris | 3,634 | 2,590 | 40.3 | % | 6,016 | 4,941 | 21.8 | % | |||||||
Others | 5,538 | 7,192 | (23.0 | )% | 11,382 | 13,503 | (15.7 | )% | |||||||
Total EU | 48,159 | 49,913 | (3.5 | )% | 90,880 | 91,618 | (0.8 | )% |
EU Cigarette Market Shares by Brand | Second-Quarter | Six Months Year-to-Date | ||||||||||||||
Change | Change | |||||||||||||||
2015 | 2014 | p.p. | 2015 | 2014 | p.p. | |||||||||||
Marlboro | 19.6 | % | 19.4 | % | 0.2 | 19.4 | % | 19.3 | % | 0.1 | ||||||
L&M | 7.3 | % | 7.2 | % | 0.1 | 7.2 | % | 7.1 | % | 0.1 | ||||||
Chesterfield | 5.8 | % | 5.7 | % | 0.1 | 5.8 | % | 5.4 | % | 0.4 | ||||||
Philip Morris | 2.5 | % | 2.2 | % | 0.3 | 2.4 | % | 2.1 | % | 0.3 | ||||||
Others | 5.2 | % | 5.9 | % | (0.7 | ) | 5.2 | % | 5.9 | % | (0.7 | ) | ||||
Total EU | 40.4 | % | 40.4 | % | — | 40.0 | % | 39.8 | % | 0.2 |
In the quarter, PMI's cigarette shipment volume of 48.2 billion units decreased by 3.5%, or by 2.9% excluding inventory movements, mainly due to Italy and Spain, partly offset by France. Market share was flat at 40.4%, with gains, mainly in France, Germany and Spain, mainly offset by Italy.
- -9 -
In the quarter, PMI's shipments of OTP of 6.1 billion cigarette equivalent units increased by 3.6%, driven principally by higher market share. PMI's total OTP market share increased by 0.2 points to 14.5%, reflecting a gain in the fine cut category.
Year-to-date, PMI's cigarette shipment volume of 90.9 billion units decreased by 0.8%, or by 1.4% excluding inventory movements, notably due to Italy, partly offset by France and Spain. Market share increased by 0.2 points to 40.0%, driven notably by France, Germany and Spain, partly offset by the United Kingdom.
Year-to-date, PMI's shipments of OTP of 11.6 billion cigarette equivalent units increased by 3.7%, driven principally by higher market share. PMI's total OTP market share increased by 0.2 points to 14.4%, reflecting a slight gain in the fine cut category.
EU Key Market Commentaries
In France, industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
France Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 11.8 | 11.8 | 0.1 | % | 22.4 | 22.3 | 0.3 | % | |||||||||
PMI Shipments (million units) | 5,126 | 4,816 | 6.4 | % | 9,704 | 9,378 | 3.5 | % | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 25.9 | % | 25.5 | % | 0.4 | 25.7 | % | 25.3 | % | 0.4 | |||||||
Philip Morris | 9.6 | % | 9.4 | % | 0.2 | 9.6 | % | 9.4 | % | 0.2 | |||||||
Chesterfield | 3.3 | % | 3.4 | % | (0.1 | ) | 3.3 | % | 3.4 | % | (0.1 | ) | |||||
Others | 3.0 | % | 3.1 | % | (0.1 | ) | 2.9 | % | 3.1 | % | (0.2 | ) | |||||
Total | 41.8 | % | 41.4 | % | 0.4 | 41.5 | % | 41.2 | % | 0.3 |
In the quarter, the total cigarette market was essentially flat, reflecting its general recovery since the second half of 2014 and a lower prevalence of e-vapor products. Excluding the net impact of inventory movements, PMI's cigarette shipment volume increased by 0.9%, reflecting market share growth, notably of premium brands Marlboro and Philip Morris. The total industry fine cut category of 3.7 billion cigarette equivalent units increased by 7.2%. PMI's market share of the category decreased by 1.6 points to 25.0%.
Year-to-date, the increase in the total cigarette market reflected the same dynamics as in the quarter. Excluding the net impact of inventory movements, PMI's cigarette shipment volume increased by 1.2%, reflecting market share growth, notably of premium brands Marlboro and Philip Morris. The total industry fine cut category of 7.0 billion cigarette equivalent units increased by 6.2%. PMI's market share of the category decreased by 1.3 points to 25.0%.
- -10 -
In Germany, industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
Germany Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 19.9 | 20.9 | (5.0 | )% | 38.0 | 39.1 | (2.7 | )% | |||||||||
PMI Shipments (million units) | 7,756 | 7,732 | 0.3 | % | 14,501 | 14,440 | 0.4 | % | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 23.0 | % | 21.8 | % | 1.2 | 22.5 | % | 21.9 | % | 0.6 | |||||||
L&M | 12.7 | % | 11.9 | % | 0.8 | 12.5 | % | 11.8 | % | 0.7 | |||||||
Chesterfield | 1.8 | % | 1.7 | % | 0.1 | 1.7 | % | 1.7 | % | — | |||||||
Others | 1.5 | % | 1.5 | % | — | 1.4 | % | 1.5 | % | (0.1 | ) | ||||||
Total | 39.0 | % | 36.9 | % | 2.1 | 38.1 | % | 36.9 | % | 1.2 |
In the quarter, the decline of the total cigarette market was mainly due to unfavorable trade inventory movements. Excluding these inventory movements, the total cigarette market declined by 2.2%, mainly due to the annualized impact of price increases in the third quarter of 2014, partly offset by a lower prevalence of illicit trade. The increase in PMI's market share was driven by Marlboro, mainly reflecting the positive impact of the new 2.0 Architecture, and L&M, benefiting from a rounded retail price point of €5.00 per pack. While the total industry fine cut category of 10.2 billion cigarette equivalent units decreased by 2.2%, PMI's market share of the category increased by 0.4 points to 13.4%.
Year-to-date, the decline of the total cigarette market was partly due to unfavorable trade inventory movements. Excluding these inventory movements, the total cigarette market declined by 2.1%, reflecting the same dynamics as in the quarter. The increase in PMI's market share was driven by the same factors as in the quarter. While the total industry fine cut category of 19.7 billion cigarette equivalent units decreased by 2.9%, PMI's market share of the category was flat at 13.0%.
- -11 -
In Italy, industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
Italy Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 18.9 | 19.2 | (1.6 | )% | 35.4 | 36.0 | (1.7 | )% | |||||||||
PMI Shipments (million units) | 10,564 | 11,402 | (7.3 | )% | 20,214 | 20,469 | (1.2 | )% | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 24.1 | % | 25.0 | % | (0.9 | ) | 24.2 | % | 25.3 | % | (1.1 | ) | |||||
Chesterfield | 10.8 | % | 10.0 | % | 0.8 | 10.7 | % | 7.7 | % | 3.0 | |||||||
Diana | 6.2 | % | 8.5 | % | (2.3 | ) | 6.9 | % | 9.2 | % | (2.3 | ) | |||||
Others | 12.7 | % | 11.8 | % | 0.9 | 12.1 | % | 12.0 | % | 0.1 | |||||||
Total | 53.8 | % | 55.3 | % | (1.5 | ) | 53.9 | % | 54.2 | % | (0.3 | ) |
In the quarter and year-to-date, the decline in the total cigarette market was mainly due to the tax-driven price increases in January 2015 and out-switching to less expensive other tobacco product categories, particularly fine cut, partly offset by a lower prevalence of illicit trade and e-vapor products. Excluding the net impact of inventory movements, PMI's cigarette shipment volume decreased by 4.0% in the quarter and by 2.2% year-to-date, reflecting market share loss, notably of Marlboro, largely due to its price increase in the first quarter of 2015 to €5.20 per pack from its round retail price point of €5.00 per pack, and low-price Diana, which is currently being morphed into Philip Morris, and which had been impacted by the growth of the super-low price segment, partly offset by Chesterfield, reflecting the annualized impact of the brand's repositioning into the super-low price segment. In the quarter, the total industry fine cut category of 1.6 billion cigarette equivalent units increased by 6.2%. PMI's market share of the category decreased by 0.9 points to 41.3%. Year-to-date, the total industry fine cut category of 3.1 billion cigarette equivalent units increased by 5.2%. PMI's market share of the category decreased by 0.3 points to 41.4%.
In Poland, industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
Poland Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 10.6 | 11.1 | (4.7 | )% | 20.3 | 21.6 | (5.7 | )% | |||||||||
PMI Shipments (million units) | 4,266 | 4,489 | (5.0 | )% | 8,023 | 8,159 | (1.7 | )% | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 11.4 | % | 10.9 | % | 0.5 | 11.0 | % | 10.6 | % | 0.4 | |||||||
L&M | 17.9 | % | 17.8 | % | 0.1 | 17.7 | % | 17.1 | % | 0.6 | |||||||
Chesterfield | 8.6 | % | 7.9 | % | 0.7 | 8.3 | % | 7.5 | % | 0.8 | |||||||
Others | 2.4 | % | 3.8 | % | (1.4 | ) | 2.4 | % | 3.6 | % | (1.2 | ) | |||||
Total | 40.3 | % | 40.4 | % | (0.1 | ) | 39.4 | % | 38.8 | % | 0.6 |
- -12 -
In the quarter and year-to-date, the decline in the total cigarette market was mainly due the prevalence of e-vapor products, illicit trade and non-duty paid OTP products. While PMI's cigarette shipment volume in the quarter and year-to-date decreased, reflecting a lower total market, market share was essentially flat in the quarter, and up by 0.6 points year-to-date, with declines from super-low price brands Red & White and RGD offset by Marlboro, partly reflecting the positive impact of the new 2.0 Architecture, L&M, driven by new product launches, and Chesterfield, partly driven by its round corner box super-slims variants. In the quarter, the total industry fine cut category of 1.0 billion cigarette equivalent units increased by 12.7%. PMI's market share of the category decreased by 2.2 points to 33.1%. Year-to-date, the total industry fine cut category of 2.0 billion cigarette equivalent units increased by 5.1%. PMI's market share of the category decreased by 1.7 points to 33.4%.
In Spain, industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
Spain Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 11.8 | 12.3 | (4.1 | )% | 22.3 | 22.8 | (2.4 | )% | |||||||||
PMI Shipments (million units) | 4,121 | 4,337 | (5.0 | )% | 7,688 | 7,524 | 2.2 | % | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 16.8 | % | 15.8 | % | 1.0 | 16.4 | % | 15.5 | % | 0.9 | |||||||
Chesterfield | 9.1 | % | 9.2 | % | (0.1 | ) | 9.3 | % | 9.3 | % | — | ||||||
L&M | 5.9 | % | 6.1 | % | (0.2 | ) | 5.9 | % | 6.2 | % | (0.3 | ) | |||||
Others | 1.4 | % | 0.9 | % | 0.5 | 1.4 | % | 0.7 | % | 0.7 | |||||||
Total | 33.2 | % | 32.0 | % | 1.2 | 33.0 | % | 31.7 | % | 1.3 |
In the quarter and year-to-date, the decline of the total cigarette market was mainly due to unfavorable trade inventory movements. Excluding these inventory movements, the total cigarette market declined by 0.5% in the quarter and by 1.0% year-to-date, mainly due to the impact of price increases in the second half of 2014 and the first quarter of 2015, partly offset by an improving economy, a lower prevalence of illicit trade and e-vapor products, and in-switching from fine cut. Excluding inventory movements, PMI's cigarette shipment volume decreased by 0.4% in the quarter and increased by 1.6% year-to-date. The increase in PMI's market share in the quarter and year-to-date was driven mainly by Marlboro, benefiting from a round price point in the vending channel, the new 2.0 Architecture, and an improving economy. In the quarter, the total industry fine cut category of 2.5 billion cigarette equivalent units decreased by 2.2%. PMI's market share of the fine cut category decreased by 1.2 points to 13.5%. Year-to-date, the total industry fine cut category of 4.7 billion cigarette equivalent units decreased by 1.5%. PMI's market share of the fine cut category decreased by 1.3 points to 13.9%.
- -13 -
EASTERN EUROPE, MIDDLE EAST & AFRICA REGION (EEMA)
2015 Second-Quarter
Reported net revenues of $1.9 billion decreased by 15.9%. Excluding unfavorable currency of $464 million and the impact of acquisitions, net revenues increased by 4.3%, reflecting favorable pricing of $142 million, driven principally by Russia and Ukraine, partly offset by unfavorable volume/mix of $43 million, mainly due to Kazakhstan and Ukraine.
Reported operating companies income of $881 million decreased by 19.0%. Excluding unfavorable currency of $253 million and the impact of acquisitions, operating companies income increased by 4.4%, driven primarily by higher pricing, partly offset by unfavorable volume/mix of $39 million.
Adjusted operating companies income is shown in the table below and detailed on Schedule 11. Adjusted operating companies income margin, excluding unfavorable currency and the impact of acquisitions, was flat at 47.6%, as detailed on Schedule 11, reflecting the factors mentioned above.
EEMA OCI | Second-Quarter | Six Months Year-to-Date | |||||||||||||||||||||
(in millions) | Excl. | Excl. | |||||||||||||||||||||
2015 | 2014 | Change | Curr. | 2015 | 2014 | Change | Curr. | ||||||||||||||||
Reported OCI | $ | 881 | $ | 1,087 | (19.0 | )% | 4.3 | % | $ | 1,761 | $ | 2,014 | (12.6 | )% | 13.5 | % | |||||||
Asset impairment & exit costs | — | — | — | — | |||||||||||||||||||
Adjusted OCI | $ | 881 | $ | 1,087 | (19.0 | )% | 4.3 | % | $ | 1,761 | $ | 2,014 | (12.6 | )% | 13.5 | % | |||||||
Adjusted OCI Margin* | 45.9 | % | 47.6 | % | (1.7 | ) | — | 46.8 | % | 46.9 | % | (0.1 | ) | 2.0 | |||||||||
*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes. |
2015 Second-Quarter and Six Months Year-to-Date
In the quarter, PMI's cigarette shipment volume of 73.8 billion units decreased by 0.5%, or by 0.6% excluding acquisitions. The decline was principally due to Kazakhstan, reflecting a lower total market and share, and Ukraine, partly offset by Russia and the Middle East, notably Saudi Arabia. PMI's cigarette shipment volume of premium brands decreased by 2.5%, mainly due to: Marlboro, down by 3.1% to 21.1 billion units, principally due to Egypt and Ukraine, partly offset by Saudi Arabia, and Turkey; and Parliament, down by 2.1% to 8.8 billion units, mainly due to Ukraine. PMI's cigarette shipment volume of L&M increased by 5.4% to 13.2 billion units, driven by Egypt, Turkey and Ukraine, partially offset by Russia.
Year-to-date, PMI's cigarette shipment volume of 138.6 billion units increased by 1.7%, or by 1.6% excluding acquisitions, mainly driven by Russia and the Middle East, notably Saudi Arabia, partly offset by Kazakhstan and Ukraine. PMI's cigarette shipment volume of premium brands increased by 1.8%, mainly driven by: Marlboro, up by 2.8% to 41.4 billion units, driven notably by Saudi Arabia and Turkey, partly offset by Egypt and Ukraine; and Parliament, up by 0.2% to 16.2 billion units, driven principally by Turkey, partly offset by Ukraine. PMI's cigarette shipment volume of L&M increased by 9.6% to 25.5 billion units, driven by Egypt, Turkey and Ukraine.
- -14 -
EEMA Key Market Commentaries
In North Africa, estimated industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
North Africa Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 34.8 | 36.1 | (3.8 | )% | 67.1 | 70.6 | (4.9 | )% | |||||||||
PMI Shipments (million units) | 8,806 | 9,204 | (4.3 | )% | 18,008 | 17,760 | 1.4 | % | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 13.9 | % | 14.2 | % | (0.3 | ) | 14.3 | % | 14.7 | % | (0.4 | ) | |||||
L&M | 10.6 | % | 8.4 | % | 2.2 | 10.7 | % | 8.2 | % | 2.5 | |||||||
Others | 1.8 | % | 1.8 | % | — | 1.9 | % | 1.8 | % | 0.1 | |||||||
Total | 26.3 | % | 24.4 | % | 1.9 | 26.9 | % | 24.7 | % | 2.2 |
In the quarter, the decline of the estimated total market was principally due to Algeria, Egypt, mainly reflecting the impact of excise tax-driven price increases in July 2014 and February 2015, partly offset by Libya and Tunisia. Year-to-date, the estimated total market decreased by 4.9%, due to Algeria, Egypt, Libya and Morocco, partly offset by Tunisia. The decline in PMI's cigarette shipment volume in the quarter mainly reflected the lower total market, notably in Egypt, partly offset by higher market share. PMI's cigarette shipment volume year-to-date increased by 1.4%. PMI's market share growth in the quarter and year-to-date was driven mainly by L&M in Egypt, reflecting improved territorial coverage, brand building activities and the growth of round corner box versions, partly offset by Marlboro mainly in Egypt.
In Russia, estimated industry size, PMI cigarette shipment volume and May quarter-to-date and year-to-date market share performance, as measured by Nielsen, are shown in the table below.
Russia Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 77.2 | 80.6 | (4.2 | )% | 138.6 | 148.3 | (6.5 | )% | |||||||||
PMI Shipments (million units) | 23,075 | 21,906 | 5.3 | % | 42,084 | 40,495 | 3.9 | % | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 1.4 | % | 1.6 | % | (0.2 | ) | 1.4 | % | 1.6 | % | (0.2 | ) | |||||
Parliament | 3.8 | % | 3.6 | % | 0.2 | 3.9 | % | 3.5 | % | 0.4 | |||||||
Bond Street | 8.1 | % | 7.4 | % | 0.7 | 8.0 | % | 7.2 | % | 0.8 | |||||||
Others | 14.3 | % | 14.2 | % | 0.1 | 14.3 | % | 14.5 | % | (0.2 | ) | ||||||
Total | 27.6 | % | 26.8 | % | 0.8 | 27.6 | % | 26.8 | % | 0.8 |
In the quarter and year-to-date, the decline of the estimated total cigarette market was mainly due to the unfavorable impact of tax-driven prices increases and lower consumer purchasing power as a result of a weak economy. The increase in PMI's cigarette shipment volume in the quarter and year-to-date largely reflected market
- -15 -
share growth. The increase in PMI's market share in the quarter and year-to-date was driven by above premium price Parliament and low-price Bond Street.
In Turkey, estimated industry size, PMI cigarette shipment volume and May quarter-to-date and year-to-date market share performance, as measured by Nielsen, are shown in the table below.
Turkey Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 25.8 | 24.1 | 7.2 | % | 45.8 | 42.2 | 8.5 | % | |||||||||
PMI Shipments (million units) | 12,012 | 12,248 | (1.9 | )% | 21,283 | 21,205 | 0.4 | % | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 9.3 | % | 8.6 | % | 0.7 | 9.1 | % | 8.6 | % | 0.5 | |||||||
Parliament | 11.6 | % | 10.8 | % | 0.8 | 11.5 | % | 10.6 | % | 0.9 | |||||||
Lark | 7.4 | % | 9.9 | % | (2.5 | ) | 7.3 | % | 10.1 | % | (2.8 | ) | |||||
Others | 15.0 | % | 15.6 | % | (0.6 | ) | 15.4 | % | 15.3 | % | 0.1 | ||||||
Total | 43.3 | % | 44.9 | % | (1.6 | ) | 43.3 | % | 44.6 | % | (1.3 | ) |
In the quarter, the increase in the estimated total cigarette market mainly reflected an increase in the adult population and a lower prevalence of illicit trade. Year-to-date, the increase in the total cigarette market reflected the same dynamics as in the quarter, as well as the favorable net impact of estimated trade inventory movements. Excluding these inventory movements, the total cigarette market increased by 6.8%. The decrease in PMI's cigarette shipment volume in the quarter was mainly due to market share loss in the low price segment. PMI's cigarette shipment volume year-to-date increased by 0.4%. In the quarter and year-to-date, the decrease in PMI's market share was primarily due to low-price Lark, reflecting the impact of price repositioning by PMI's principal competitor in May 2014. The decline was partly offset by PMI's premium brands, notably Parliament, reflecting its strengthening brand equity, and by up-trading from the mid-price segment.
In Ukraine, estimated industry size, PMI cigarette shipment volume and May quarter-to-date and year-to-date market share performance, as measured by Nielsen, are shown in the table below.
Ukraine Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 18.9 | 20.4 | (7.5 | )% | 33.6 | 34.7 | (3.1 | )% | |||||||||
PMI Shipments (million units) | 5,070 | 6,176 | (17.9 | )% | 9,678 | 11,287 | (14.3 | )% | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 3.9 | % | 4.9 | % | (1.0 | ) | 4.3 | % | 5.0 | % | (0.7 | ) | |||||
Parliament | 2.8 | % | 2.9 | % | (0.1 | ) | 2.9 | % | 3.0 | % | (0.1 | ) | |||||
Bond Street | 7.9 | % | 9.2 | % | (1.3 | ) | 7.9 | % | 9.3 | % | (1.4 | ) | |||||
Others | 15.8 | % | 15.6 | % | 0.2 | 16.2 | % | 15.6 | % | 0.6 | |||||||
Total | 30.4 | % | 32.6 | % | (2.2 | ) | 31.3 | % | 32.9 | % | (1.6 | ) |
- -16 -
In the quarter and year-to-date, the decline of the estimated total cigarette market was mainly due to lower consumer purchasing power as a result of a weak economy, and continued business disruption due to the political instability in the east of the country, partly offset by a lower prevalence of illicit trade. The decrease in PMI's cigarette shipment volume in the quarter and year-to-date largely reflected a lower total market and market share loss. The decrease in PMI's market share in the quarter and year-to-date was due to Marlboro, reflecting the impact of lower consumer purchasing power, and Bond Street, mainly resulting from competitive price pressure in the low price segment. The year-to-date share growth of "Others" was mainly driven by growth of low-price L&M and super low-price President, partly offset by mid-price Chesterfield and super low-price Optima.
ASIA REGION
2015 Second-Quarter
Reported net revenues of $2.1 billion decreased by 7.2%. Excluding unfavorable currency of $229 million, net revenues increased by 2.7%, driven by favorable pricing of $105 million, mainly in Australia, Indonesia and Korea, principally driven by a gain from inventories built ahead of the announced excise tax increase effective January 2015. The favorable pricing was partially offset by unfavorable volume/mix of $42 million, mainly due to a lower total market and market share in Australia and a lower total market in Indonesia and Korea, partly offset by a higher total market and favorable inventory movements in Japan and a higher estimated total tax-paid market and improved mix in the Philippines.
Reported operating companies income of $797 million decreased by 11.4%. Excluding unfavorable currency of $97 million, operating companies income decreased by 0.7%, reflecting unfavorable volume/mix of $55 million and higher costs, mainly related to: distribution expenses and the realignment of production from hand-rolled to machine-made kretek cigarettes in Indonesia; and the commercialization of the company's Reduced-Risk Product, iQOS, in Japan; partly offset by favorable pricing.
Adjusted operating companies income is shown in the table below and detailed on Schedule 11. Adjusted operating companies income margin, excluding unfavorable currency and the impact of acquisitions, decreased by 1.3 points to 37.7%, as detailed on Schedule 11, reflecting the factors mentioned above.
Asia OCI | Second-Quarter | Six Months Year-to-Date | |||||||||||||||||||||
(in millions) | Excl. | Excl. | |||||||||||||||||||||
2015 | 2014 | Change | Curr. | 2015 | 2014 | Change | Curr. | ||||||||||||||||
Reported OCI | $ | 797 | $ | 900 | (11.4 | )% | (0.7 | )% | $ | 1,731 | $ | 1,815 | (4.6 | )% | 5.1 | % | |||||||
Asset impairment & exit costs | — | (1 | ) | — | (24 | ) | |||||||||||||||||
Adjusted OCI | $ | 797 | $ | 901 | (11.5 | )% | (0.8 | )% | $ | 1,731 | $ | 1,839 | (5.9 | )% | 3.7 | % | |||||||
Adjusted OCI Margin* | 37.2 | % | 39.0 | % | (1.8 | ) | (1.3 | ) | 40.3 | % | 40.9 | % | (0.6 | ) | — | ||||||||
*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes. |
2015 Second-Quarter and Six Months Year-to-Date
In the quarter, PMI's cigarette shipment volume of 75.3 billion units decreased by 0.5%, largely due to Australia, mainly reflecting the lower total market, Indonesia, Korea and the Philippines. The decrease was partly offset by higher cigarette shipment volume in Japan, mainly driven by a higher total market and favorable net trade inventory movements. Excluding these inventory movements, PMI's cigarette shipment volume decreased by 1.8%.
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Cigarette shipment volume of Marlboro of 18.9 billion units increased by 2.2%, predominantly driven by the Philippines and Vietnam, partly offset by Indonesia and Japan. Cigarette shipment volume of Parliament of 2.4 billion units decreased by 21.8%, due to Japan and Korea. Cigarette shipment volume of Lark of 5.7 billion units increased by 53.3%, driven by Japan, benefiting from trade inventory movements.
Year-to-date, PMI's cigarette shipment volume of 145.4 billion units decreased by 0.7%, mainly due to Korea and the Philippines, partly offset by Indonesia. Estimated net inventory movements year-to-date were favorable, driven by Japan. Excluding these inventory movements, PMI's cigarette volume decreased by 1.4%.
Cigarette shipment volume of Marlboro of 36.9 billion units decreased by 1.6%, predominantly due to Japan and Korea, partly offset by the Philippines. Cigarette shipment volume of Parliament of 4.3 billion units decreased by 22.5%, due to Japan and Korea. Cigarette shipment volume of Lark of 10.2 billion units increased by 23.2%, driven by Japan, benefiting from trade inventory movements.
Asia Key Market Commentaries
In Indonesia, estimated industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
Indonesia Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 78.6 | 82.4 | (4.6 | )% | 156.9 | 156.2 | 0.4 | % | |||||||||
PMI Shipments (million units) | 27,659 | 28,598 | (3.3 | )% | 55,343 | 54,133 | 2.2 | % | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Sampoerna A | 15.0 | % | 14.1 | % | 0.9 | 15.0 | % | 14.2 | % | 0.8 | |||||||
Dji Sam Soe | 7.0 | % | 6.2 | % | 0.8 | 7.0 | % | 5.9 | % | 1.1 | |||||||
U Mild | 4.9 | % | 5.6 | % | (0.7 | ) | 5.0 | % | 5.4 | % | (0.4 | ) | |||||
Others | 8.3 | % | 8.8 | % | (0.5 | ) | 8.3 | % | 9.1 | % | (0.8 | ) | |||||
Total | 35.2 | % | 34.7 | % | 0.5 | 35.3 | % | 34.6 | % | 0.7 |
In the quarter, the decline of the estimated total market was mainly due to a soft economic environment. Year-to-date, the estimated total market increased by 0.4%. The decline in PMI's cigarette shipment volume in the quarter mainly reflected U Mild's crossing a critical price point ahead of competition earlier in the year, and the impact of the softer macro-economic environment. The increase in PMI's cigarette shipment volume year-to-date mainly reflected market share growth. PMI's market share growth in the quarter and year-to-date was driven by a strong performance from its machine-made kretek brands, notably Sampoerna A, Dji Sam Soe Magnum and Dji Sam Soe Magnum Blue, partly offset by U Mild and a decline in its hand-rolled kretek portfolio, notably due to Sampoerna Hijau in "Others," down by 0.5 points to 2.9%, largely reflecting the decline of the total segment. While Marlboro's market share decreased slightly by 0.1 point to 5.1%, its share of the “white” cigarettes segment, which represented 6.2% of the total cigarette market, increased by 2.0 points to 81.3%. The machine-made kretek segment, representing 75.0% of the total cigarette market, increased by 1.6 points and PMI's share of the segment increased by 1.1 points to 30.7%. The hand-rolled kretek segment, representing 18.8% of the total cigarette market, decreased by 1.3 points. PMI's share of the segment decreased by 1.1 points to 37.9%.
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In Japan, industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
Japan Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 46.0 | 41.5 | 11.0 | % | 88.5 | 90.9 | (2.5 | )% | |||||||||
PMI Shipments (million units) | 13,552 | 11,750 | 15.3 | % | 25,398 | 25,237 | 0.6 | % | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 11.3 | % | 11.5 | % | (0.2 | ) | 11.4 | % | 11.7 | % | (0.3 | ) | |||||
Parliament | 2.3 | % | 2.4 | % | (0.1 | ) | 2.3 | % | 2.2 | % | 0.1 | ||||||
Lark | 10.0 | % | 10.4 | % | (0.4 | ) | 10.0 | % | 9.8 | % | 0.2 | ||||||
Others | 1.8 | % | 2.1 | % | (0.3 | ) | 1.8 | % | 2.2 | % | (0.4 | ) | |||||
Total | 25.4 | % | 26.4 | % | (1.0 | ) | 25.5 | % | 25.9 | % | (0.4 | ) |
In the quarter, the increase of the total cigarette market primarily reflected a favorable comparison with the second quarter of 2014 in which the total market decreased by 14.4%, mainly driven by unfavorable estimated retail trade inventory movements following the consumption tax-driven retail price increases of April, 2014. Excluding the impact of these inventory movements, the total cigarette market declined by 1.7%, mainly reflecting the unfavorable impact of price increases. Year-to-date, the total market declined by 2.5% and by 2.6% excluding estimated retail trade inventory movements. The increase of PMI's cigarette shipment volume in the quarter mainly reflected the higher total market and favorable trade inventory movements. PMI's cigarette shipment volume year-to-date increased by 0.6%. Excluding the impact of estimated retail trade inventory movements, PMI's market share in the quarter and year-to-date declined by 0.4 and 0.3 points, respectively.
In Korea, industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
Korea Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 18.1 | 22.4 | (19.2 | )% | 30.7 | 41.8 | (26.6 | )% | |||||||||
PMI Shipments (million units) | 3,732 | 4,404 | (15.3 | )% | 6,190 | 8,230 | (24.8 | )% | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 9.2 | % | 7.6 | % | 1.6 | 9.2 | % | 7.8 | % | 1.4 | |||||||
Parliament | 7.1 | % | 7.2 | % | (0.1 | ) | 6.9 | % | 7.2 | % | (0.3 | ) | |||||
Virginia S. | 3.8 | % | 4.0 | % | (0.2 | ) | 3.8 | % | 4.0 | % | (0.2 | ) | |||||
Others | 0.6 | % | 0.8 | % | (0.2 | ) | 0.5 | % | 0.7 | % | (0.2 | ) | |||||
Total | 20.7 | % | 19.6 | % | 1.1 | 20.4 | % | 19.7 | % | 0.7 |
In the quarter, the decline of total cigarette market reflected the impact of the January 2015 excise tax increase and related retail price increases. Year-to-date, the total market declined by 26.6%, or by 20.2% excluding the impact of estimated inventory movements associated with the timing of the excise tax increase. The decline
- -19 -
in PMI's cigarette shipment volume in the quarter and year-to-date was in line with the lower total market, partly offset by share growth, driven by Marlboro, reflecting the positive impact of line-pricing to PMI's principal domestic competitor's main brands.
In the Philippines, estimated tax-paid industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
Philippines Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 21.2 | 20.0 | 6.0 | % | 39.8 | 38.8 | 2.7 | % | |||||||||
PMI Shipments (million units) | 16,725 | 17,243 | (3.0 | )% | 32,629 | 33,408 | (2.3 | )% | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 20.2 | % | 18.1 | % | 2.1 | 21.1 | % | 18.7 | % | 2.4 | |||||||
Fortune | 32.1 | % | 36.0 | % | (3.9 | ) | 32.5 | % | 34.7 | % | (2.2 | ) | |||||
Jackpot | 13.7 | % | 17.6 | % | (3.9 | ) | 15.2 | % | 17.7 | % | (2.5 | ) | |||||
Others | 12.9 | % | 14.5 | % | (1.6 | ) | 13.2 | % | 15.1 | % | (1.9 | ) | |||||
Total | 78.9 | % | 86.2 | % | (7.3 | ) | 82.0 | % | 86.2 | % | (4.2 | ) |
In the quarter and year-to-date, the increase in the estimated total tax-paid industry cigarette volume reflected higher estimated duty-paid volume by PMI's principal domestic competitor. The decline in PMI's cigarette shipment volume in both periods was mainly due to lower consumption of low and super-low price brands, following consecutive price increases in late 2014 and early 2015, partly offset by the growth of Marlboro, reflecting the narrowing of retail price gaps with brands at the bottom end of the market.
LATIN AMERICA & CANADA REGION
2015 Second-Quarter
Reported net revenues of $807 million decreased by 0.4%. Excluding unfavorable currency of $112 million and the impact of acquisitions, net revenues increased by 13.1%, driven by favorable pricing of $128 million, principally in Argentina, Brazil, Canada and Mexico, partially offset by unfavorable volume/mix of $22 million, principally due to a lower market share in Canada.
Reported operating companies income of $325 million increased by 22.6%. Excluding unfavorable currency of $51 million and the impact of acquisitions, operating companies income increased by 41.1%, principally reflecting favorable pricing, partly offset by unfavorable volume/mix of $24 million.
Adjusted operating companies income is shown in the table below and detailed on Schedule 11. Adjusted operating companies income margin, excluding unfavorable currency and the impact of acquisitions, increased by 8.1 points to 40.8%, as detailed on Schedule 11, reflecting the factors mentioned above.
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Latin America & Canada OCI | Second-Quarter | Six Months Year-to-Date | |||||||||||||||||||||
(in millions) | Excl. | Excl. | |||||||||||||||||||||
2015 | 2014 | Change | Curr. | 2015 | 2014 | Change | Curr. | ||||||||||||||||
Reported OCI | $ | 325 | $ | 265 | 22.6 | % | 41.9 | % | $ | 555 | $ | 467 | 18.8 | % | 39.2 | % | |||||||
Asset impairment & exit costs | — | — | — | — | |||||||||||||||||||
Adjusted OCI | $ | 325 | $ | 265 | 22.6 | % | 41.9 | % | $ | 555 | $ | 467 | 18.8 | % | 39.2 | % | |||||||
Adjusted OCI Margin* | 40.3 | % | 32.7 | % | 7.6 | 8.2 | 36.2 | % | 30.7 | % | 5.5 | 6.8 | |||||||||||
*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes. |
2015 Second-Quarter and Six Months Year-to-Date
In the quarter, PMI's cigarette shipment volume of 22.6 billion units decreased by 2.1%, notably due to Argentina and Mexico. Although shipment volume of Marlboro of 8.8 billion units decreased by 2.1%, its Regional market share increased by 0.2 points to an estimated 14.9%. Market share of Marlboro increased notably in Argentina, Brazil and Colombia, by 0.5, 0.2 and 1.4 points to 24.3%, 9.4% and 9.1%, respectively. Shipment volume of Philip Morris of 4.6 billion units increased by 2.2%, driven notably by Canada.
Year-to-date, PMI's cigarette shipment volume of 43.8 billion units decreased by 1.7%, largely due to Argentina and Canada. Although shipment volume of Marlboro of 17.0 billion units decreased by 1.3%, its Regional market share increased by 0.4 points to an estimated 14.8%. Market share of Marlboro increased notably in Argentina, Brazil and Colombia, by 0.4, 0.7 and 1.4 points to 24.4%, 9.5% and 9.0%, respectively. Shipment volume of Philip Morris of 9.4 billion units increased by 1.6%, driven notably by Canada.
Latin America & Canada Key Market Commentaries
In Argentina, industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
Argentina Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 9.4 | 10.0 | (5.3 | )% | 19.7 | 20.6 | (4.4 | )% | |||||||||
PMI Shipments (million units) | 7,463 | 7,656 | (2.5 | )% | 15,586 | 15,935 | (2.2 | )% | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 24.3 | % | 23.8 | % | 0.5 | 24.4 | % | 24.0 | % | 0.4 | |||||||
Parliament | 2.1 | % | 2.1 | % | — | 2.1 | % | 2.1 | % | — | |||||||
Philip Morris | 45.3 | % | 42.9 | % | 2.4 | 44.9 | % | 43.1 | % | 1.8 | |||||||
Others | 7.1 | % | 7.5 | % | (0.4 | ) | 7.3 | % | 7.5 | % | (0.2 | ) | |||||
Total | 78.8 | % | 76.3 | % | 2.5 | 78.7 | % | 76.7 | % | 2.0 |
In the quarter and year-to-date, the decline of the total cigarette market was mainly due to the cumulative impact of price increases in 2014 and 2015 and a challenging economic environment. The decrease in PMI's shipment volume in the quarter and year-to-date reflected a lower total market, partly offset by market share growth, driven by Marlboro and Philip Morris, reflecting the positive impact of the latter's capsule variants.
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In Canada, industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
Canada Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 7.3 | 7.3 | 0.6 | % | 12.8 | 13.1 | (2.2 | )% | |||||||||
PMI Shipments (million units) | 2,647 | 2,707 | (2.2 | )% | 4,700 | 4,932 | (4.7 | )% | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Belmont | 3.2 | % | 2.9 | % | 0.3 | 3.1 | % | 2.9 | % | 0.2 | |||||||
Canadian Classics | 10.2 | % | 10.3 | % | (0.1 | ) | 10.4 | % | 10.7 | % | (0.3 | ) | |||||
Next | 10.3 | % | 10.7 | % | (0.4 | ) | 10.4 | % | 10.8 | % | (0.4 | ) | |||||
Others | 12.5 | % | 13.3 | % | (0.8 | ) | 12.8 | % | 13.4 | % | (0.6 | ) | |||||
Total | 36.2 | % | 37.2 | % | (1.0 | ) | 36.7 | % | 37.8 | % | (1.1 | ) |
In the quarter, the increase of the total cigarette market was mainly driven by favorable estimated trade inventory movements of competitors' products. Excluding the impact of these inventory movements, the total cigarette market declined by 0.7%. Year-to-date, the total market declined by 2.2% or by 5.3% excluding estimated trade inventory movements, mainly due to the impact of tax-driven price increases in 2014 and 2015. The decrease in PMI's cigarette shipment volume in the quarter was mainly due to market share declines of PMI's low price brands, notably Next and Quebec Classic, partially offset by share growth of premium Belmont and super-low price Philip Morris. The decrease in PMI's cigarette shipment volume year-to-date was mainly due to the same factors as in the quarter, as well as a lower total market.
In Mexico, industry size, PMI cigarette shipment volume and market share performance are shown in the table below.
Mexico Key Market Data | Second-Quarter | Six Months Year-to-Date | |||||||||||||||
Change | Change | ||||||||||||||||
2015 | 2014 | % / p.p. | 2015 | 2014 | % / p.p. | ||||||||||||
Total Cigarette Market (billion units) | 8.6 | 8.4 | 1.9 | % | 16.1 | 15.6 | 3.2 | % | |||||||||
PMI Shipments (million units) | 5,891 | 5,991 | (1.7 | )% | 10,887 | 10,862 | 0.2 | % | |||||||||
PMI Cigarette Market Share | |||||||||||||||||
Marlboro | 47.5 | % | 49.3 | % | (1.8 | ) | 46.5 | % | 48.2 | % | (1.7 | ) | |||||
Delicados | 10.7 | % | 11.5 | % | (0.8 | ) | 10.8 | % | 11.1 | % | (0.3 | ) | |||||
Benson & Hedges | 4.6 | % | 5.2 | % | (0.6 | ) | 4.6 | % | 5.2 | % | (0.6 | ) | |||||
Others | 5.7 | % | 5.0 | % | 0.7 | 5.6 | % | 5.0 | % | 0.6 | |||||||
Total | 68.5 | % | 71.0 | % | (2.5 | ) | 67.5 | % | 69.5 | % | (2.0 | ) |
In the quarter, the increase of the total cigarette market was unfavorably impacted by the timing of estimated trade inventory movements compared to the second quarter of 2014. Excluding the impact of these inventory movements, the total cigarette market increased by 3.2%. Year-to-date, the total market increased by 3.2% or by 1.3% excluding estimated trade inventory movements. The decrease in PMI's cigarette shipment volume in the
- -22 -
quarter was mainly due to market share declines. PMI's cigarette shipment volume year-to-date increased by 0.2%. The decline in PMI's market share in the quarter and year-to-date was mainly due to Marlboro, reflecting adult smoker down-trading and the timing of price increases by PMI's principal competitor in the first quarter of 2015, partly offset by gains for certain low price local trademark brands.
Philip Morris International Inc. Profile
Philip Morris International Inc. (PMI) is the leading international tobacco company, with six of the world's top 15 international brands, including Marlboro, the number one cigarette brand worldwide. PMI's products are sold in more than 180 markets. In 2014, the company held an estimated 15.6% share of the total international cigarette market outside of the U.S., or 28.6% excluding the People's Republic of China and the U.S. For more information, see www.pmi.com.
Forward-Looking and Cautionary Statements
This press release contains projections of future results and other forward-looking statements. Achievement of projected results is subject to risks, uncertainties and inaccurate assumptions. In the event that risks or uncertainties materialize, or underlying assumptions prove inaccurate, actual results could vary materially from those contained in such forward-looking statements. Pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, PMI is identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by PMI.
PMI's business risks include: significant increases in cigarette-related taxes; the imposition of discriminatory excise tax structures; fluctuations in customer inventory levels due to increases in product taxes and prices; increasing marketing and regulatory restrictions, often with the goal of reducing or preventing the use of tobacco products; health concerns relating to the use of tobacco products and exposure to environmental tobacco smoke; litigation related to tobacco use; intense competition; the effects of global and individual country economic, regulatory and political developments; changes in adult smoker behavior; lost revenues as a result of counterfeiting, contraband and cross-border purchases; governmental investigations; unfavorable currency exchange rates and currency devaluations; adverse changes in applicable corporate tax laws; adverse changes in the cost and quality of tobacco and other agricultural products and raw materials; and the integrity of its information systems. PMI's future profitability may also be adversely affected should it be unsuccessful in its attempts to produce products that have the potential to reduce individual risk and population harm; if it is unable to successfully introduce new products, promote brand equity, enter new markets or improve its margins through increased prices and productivity gains; if it is unable to expand its brand portfolio internally or through acquisitions and the development of strategic business relationships; or if it is unable to attract and retain the best global talent.
PMI is further subject to other risks detailed from time to time in its publicly filed documents, including the Form 10-Q for the quarter ended March 31, 2015. PMI cautions that the foregoing list of important factors is not a complete discussion of all potential risks and uncertainties. PMI does not undertake to update any forward-looking statement that it may make from time to time, except in the normal course of its public disclosure obligations.
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Schedule 1 | ||||||||
PHILIP MORRIS INTERNATIONAL INC. | ||||||||
and Subsidiaries | ||||||||
Condensed Statements of Earnings | ||||||||
For the Quarters Ended June 30, | ||||||||
($ in millions, except per share data) | ||||||||
(Unaudited) | ||||||||
2015 | 2014 | % Change | ||||||
Net revenues | $ | 18,763 | $ | 21,051 | (10.9 | )% | ||
Cost of sales | 2,378 | 2,696 | (11.8 | )% | ||||
Excise taxes on products (1) | 11,904 | 13,254 | (10.2 | )% | ||||
Gross profit | 4,481 | 5,101 | (12.2 | )% | ||||
Marketing, administration and research costs | 1,568 | 1,716 | ||||||
Asset impairment and exit costs | — | 489 | ||||||
Amortization of intangibles | 21 | 22 | ||||||
Operating income (2) | 2,892 | 2,874 | 0.6 | % | ||||
Interest expense, net | 259 | 254 | ||||||
Earnings before income taxes | 2,633 | 2,620 | 0.5 | % | ||||
Provision for income taxes | 743 | 752 | (1.2 | )% | ||||
Equity (income)/loss in unconsolidated subsidiaries, net | (26 | ) | (27 | ) | ||||
Net earnings | 1,916 | 1,895 | 1.1 | % | ||||
Net earnings attributable to noncontrolling interests | 29 | 44 | ||||||
Net earnings attributable to PMI | $ | 1,887 | $ | 1,851 | 1.9 | % | ||
Per share data: (3) | ||||||||
Basic earnings per share | $ | 1.21 | $ | 1.17 | 3.4 | % | ||
Diluted earnings per share | $ | 1.21 | $ | 1.17 | 3.4 | % | ||
(1) The segment detail of excise taxes on products sold for the quarters ended June 30, 2015 and 2014 is shown on Schedule 2. | ||||||||
(2) PMI's management evaluates segment performance and allocates resources based on operating companies income, which PMI defines as operating income, excluding general corporate expenses and amortization of intangibles, plus equity (income)/loss in unconsolidated subsidiaries, net. The reconciliation from operating income to operating companies income is as follows: | ||||||||
2015 | 2014 | % Change | ||||||
Operating Income | $ | 2,892 | $ | 2,874 | 0.6 | % | ||
Excluding: | ||||||||
- Amortization of Intangibles | 21 | 22 | ||||||
- General corporate expenses (included in marketing, administration and research costs above) | 41 | 40 | ||||||
Plus: Equity (income)/loss in unconsolidated subsidiaries, net | (26 | ) | (27 | ) | ||||
Operating Companies Income | $ | 2,980 | $ | 2,963 | 0.6 | % | ||
(3) Net earnings and weighted-average shares used in the basic and diluted earnings per share computations for the quarters ended June 30, 2015 and 2014 are shown on Schedule 4, Footnote 1. | ||||||||
Schedule 2 | |||||||||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||||||||||||||
and Subsidiaries | |||||||||||||||||||
Selected Financial Data by Business Segment | |||||||||||||||||||
For the Quarters Ended June 30, | |||||||||||||||||||
($ in millions) | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
Net Revenues excluding Excise Taxes | |||||||||||||||||||
European Union | EEMA | Asia | Latin America & Canada | Total | |||||||||||||||
2015 | Net Revenues (1) | $ | 6,336 | $ | 4,994 | $ | 5,039 | $ | 2,394 | $ | 18,763 | ||||||||
Excise Taxes on Products | (4,348 | ) | (3,075 | ) | (2,894 | ) | (1,587 | ) | (11,904 | ) | |||||||||
Net Revenues excluding Excise Taxes | 1,988 | 1,919 | 2,145 | 807 | 6,859 | ||||||||||||||
2014 | Net Revenues | $ | 7,829 | $ | 5,674 | $ | 5,097 | $ | 2,451 | $ | 21,051 | ||||||||
Excise Taxes on Products | (5,436 | ) | (3,391 | ) | (2,786 | ) | (1,641 | ) | (13,254 | ) | |||||||||
Net Revenues excluding Excise Taxes | 2,393 | 2,283 | 2,311 | 810 | 7,797 | ||||||||||||||
Variance | Currency | (488 | ) | (464 | ) | (229 | ) | (112 | ) | (1,293 | ) | ||||||||
Acquisitions | 4 | 1 | — | 3 | 8 | ||||||||||||||
Operations | 79 | 99 | 63 | 106 | 347 | ||||||||||||||
Variance Total | (405 | ) | (364 | ) | (166 | ) | (3 | ) | (938 | ) | |||||||||
Variance Total (%) | (16.9 | )% | (15.9 | )% | (7.2 | )% | (0.4 | )% | (12.0 | )% | |||||||||
Variance excluding Currency | 83 | 100 | 63 | 109 | 355 | ||||||||||||||
Variance excluding Currency (%) | 3.5 | % | 4.4 | % | 2.7 | % | 13.5 | % | 4.6 | % | |||||||||
Variance excluding Currency & Acquisitions | 79 | 99 | 63 | 106 | 347 | ||||||||||||||
Variance excluding Currency & Acquisitions (%) | 3.3 | % | 4.3 | % | 2.7 | % | 13.1 | % | 4.5 | % | |||||||||
(1) 2015 Currency decreased net revenues as follows: | |||||||||||||||||||
European Union | $ | (1,558 | ) | ||||||||||||||||
EEMA | (1,311 | ) | |||||||||||||||||
Asia | (487 | ) | |||||||||||||||||
Latin America & Canada | (348 | ) | |||||||||||||||||
$ | (3,704 | ) |
Schedule 3 | ||||||||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | ||||||||||||||||||
and Subsidiaries | ||||||||||||||||||
Selected Financial Data by Business Segment | ||||||||||||||||||
For the Quarters Ended June 30, | ||||||||||||||||||
($ in millions) | ||||||||||||||||||
(Unaudited) | ||||||||||||||||||
Operating Companies Income | ||||||||||||||||||
European Union | EEMA | Asia | Latin America & Canada | Total | ||||||||||||||
2015 | $ | 977 | $ | 881 | $ | 797 | $ | 325 | $ | 2,980 | ||||||||
2014 | 711 | 1,087 | 900 | 265 | 2,963 | |||||||||||||
% Change | 37.4 | % | (19.0 | )% | (11.4 | )% | 22.6 | % | 0.6 | % | ||||||||
Reconciliation: | ||||||||||||||||||
For the quarter ended June 30, 2014 | $ | 711 | $ | 1,087 | $ | 900 | $ | 265 | $ | 2,963 | ||||||||
2014 Asset impairment and exit costs | 488 | — | 1 | — | 489 | |||||||||||||
2015 Asset impairment and exit costs | — | — | — | — | — | |||||||||||||
Acquired businesses | (2 | ) | (1 | ) | — | 2 | (1 | ) | ||||||||||
Currency | (279 | ) | (253 | ) | (97 | ) | (51 | ) | (680 | ) | ||||||||
Operations | 59 | 48 | (7 | ) | 109 | 209 | ||||||||||||
For the quarter ended June 30, 2015 | $ | 977 | $ | 881 | $ | 797 | $ | 325 | $ | 2,980 | ||||||||
Schedule 4 | |||||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||||
and Subsidiaries | |||||||||
Diluted Earnings Per Share | |||||||||
For the Quarters Ended June 30, | |||||||||
($ in millions, except per share data) | |||||||||
(Unaudited) | |||||||||
Diluted | |||||||||
E.P.S. | |||||||||
2015 Diluted Earnings Per Share | $ | 1.21 | (1) | ||||||
2014 Diluted Earnings Per Share | $ | 1.17 | (1) | ||||||
Change | $ | 0.04 | |||||||
% Change | 3.4 | % | |||||||
Reconciliation: | |||||||||
2014 Diluted Earnings Per Share | $ | 1.17 | (1) | ||||||
Special Items: | |||||||||
2014 Asset impairment and exit costs | 0.24 | ||||||||
2014 Tax items | — | ||||||||
2015 Asset impairment and exit costs | — | ||||||||
2015 Tax items | — | ||||||||
Currency | (0.33 | ) | |||||||
Interest | (0.02 | ) | |||||||
Change in tax rate | (0.01 | ) | |||||||
Impact of lower shares outstanding and share-based payments | 0.02 | ||||||||
Operations | 0.14 | ||||||||
2015 Diluted Earnings Per Share | $ | 1.21 | (1) | ||||||
(1) Basic and diluted EPS were calculated using the following (in millions): | |||||||||
Q2 2015 | Q2 2014 | ||||||||
Net earnings attributable to PMI | $ | 1,887 | $ | 1,851 | |||||
Less distributed and undistributed earnings attributable | |||||||||
to share-based payment awards | 6 | 9 | |||||||
Net earnings for basic and diluted EPS | $ | 1,881 | $ | 1,842 | |||||
Weighted-average shares for basic and diluted EPS | 1,549 | 1,571 | |||||||
Schedule 5 | |||||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||||
and Subsidiaries | |||||||||
Condensed Statements of Earnings | |||||||||
For the Six Months Ended June 30, | |||||||||
($ in millions, except per share data) | |||||||||
(Unaudited) | |||||||||
2015 | 2014 | % Change | |||||||
Net revenues | $ | 36,115 | $ | 38,830 | (7.0 | )% | |||
Cost of sales | 4,607 | 5,070 | (9.1 | )% | |||||
Excise taxes on products (1) | 22,640 | 24,116 | (6.1 | )% | |||||
Gross profit | 8,868 | 9,644 | (8.0 | )% | |||||
Marketing, administration and research costs | 3,062 | 3,263 | |||||||
Asset impairment and exit costs | — | 512 | |||||||
Amortization of intangibles | 43 | 44 | |||||||
Operating income (2) | 5,763 | 5,825 | (1.1 | )% | |||||
Interest expense, net | 534 | 522 | |||||||
Earnings before income taxes | 5,229 | 5,303 | (1.4 | )% | |||||
Provision for income taxes | 1,528 | 1,528 | — | % | |||||
Equity (income)/loss in unconsolidated subsidiaries, net | (49 | ) | (36 | ) | |||||
Net earnings | 3,750 | 3,811 | (1.6 | )% | |||||
Net earnings attributable to noncontrolling interests | 68 | 85 | |||||||
Net earnings attributable to PMI | $ | 3,682 | $ | 3,726 | (1.2 | )% | |||
Per share data: (3) | |||||||||
Basic earnings per share | $ | 2.37 | $ | 2.35 | 0.9 | % | |||
Diluted earnings per share | $ | 2.37 | $ | 2.35 | 0.9 | % | |||
(1) The segment detail of excise taxes on products sold for the six months ended June 30, 2015 and 2014 is shown on Schedule 6. | |||||||||
(2) PMI's management evaluates segment performance and allocates resources based on operating companies income, which PMI defines as operating income, excluding general corporate expenses and amortization of intangibles, plus equity (income)/loss in unconsolidated subsidiaries, net. The reconciliation from operating income to operating companies income is as follows: | |||||||||
2015 | 2014 | % Change | |||||||
Operating Income | $ | 5,763 | $ | 5,825 | (1.1 | )% | |||
Excluding: | |||||||||
- Amortization of Intangibles | 43 | 44 | |||||||
- General corporate expenses (included in marketing, administration and research costs above) | 82 | 80 | |||||||
Plus: Equity (income)/loss in unconsolidated subsidiaries, net | (49 | ) | (36 | ) | |||||
Operating Companies Income | $ | 5,937 | $ | 5,985 | (0.8 | )% | |||
(3) Net earnings and weighted-average shares used in the basic and diluted earnings per share computations for the six months ended June 30, 2015 and 2014 are shown on Schedule 8, Footnote 1. |
Schedule 6 | |||||||||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||||||||||||||
and Subsidiaries | |||||||||||||||||||
Selected Financial Data by Business Segment | |||||||||||||||||||
For the Six Months Ended June 30, | |||||||||||||||||||
($ in millions) | |||||||||||||||||||
(Unaudited) | |||||||||||||||||||
Net Revenues excluding Excise Taxes | |||||||||||||||||||
European Union | EEMA | Asia | Latin America & Canada | Total | |||||||||||||||
2015 | Net Revenues (1) | $ | 12,276 | $ | 9,423 | $ | 9,803 | $ | 4,613 | $ | 36,115 | ||||||||
Excise Taxes on Products | (8,396 | ) | (5,661 | ) | (5,503 | ) | (3,080 | ) | (22,640 | ) | |||||||||
Net Revenues excluding Excise Taxes | 3,880 | 3,762 | 4,300 | 1,533 | 13,475 | ||||||||||||||
2014 | Net Revenues | $ | 14,448 | $ | 10,236 | $ | 9,572 | $ | 4,574 | $ | 38,830 | ||||||||
Excise Taxes on Products | (10,042 | ) | (5,944 | ) | (5,079 | ) | (3,051 | ) | (24,116 | ) | |||||||||
Net Revenues excluding Excise Taxes | 4,406 | 4,292 | 4,493 | 1,523 | 14,714 | ||||||||||||||
Variance | Currency | (766 | ) | (909 | ) | (357 | ) | (200 | ) | (2,232 | ) | ||||||||
Acquisitions | 11 | 1 | — | 4 | 16 | ||||||||||||||
Operations | 229 | 378 | 164 | 206 | 977 | ||||||||||||||
Variance Total | (526 | ) | (530 | ) | (193 | ) | 10 | (1,239 | ) | ||||||||||
Variance Total (%) | (11.9 | )% | (12.3 | )% | (4.3 | )% | 0.7 | % | (8.4 | )% | |||||||||
Variance excluding Currency | 240 | 379 | 164 | 210 | 993 | ||||||||||||||
Variance excluding Currency (%) | 5.4 | % | 8.8 | % | 3.7 | % | 13.8 | % | 6.7 | % | |||||||||
Variance excluding Currency & Acquisitions | 229 | 378 | 164 | 206 | 977 | ||||||||||||||
Variance excluding Currency & Acquisitions (%) | 5.2 | % | 8.8 | % | 3.7 | % | 13.5 | % | 6.6 | % | |||||||||
(1) 2015 Currency decreased net revenues as follows: | |||||||||||||||||||
European Union | $ | (2,448 | ) | ||||||||||||||||
EEMA | (2,344 | ) | |||||||||||||||||
Asia | (717 | ) | |||||||||||||||||
Latin America & Canada | (636 | ) | |||||||||||||||||
$ | (6,145 | ) |
Schedule 7 | ||||||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | ||||||||||||||||
and Subsidiaries | ||||||||||||||||
Selected Financial Data by Business Segment | ||||||||||||||||
For the Six Months Ended June 30, | ||||||||||||||||
($ in millions) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
Operating Companies Income | ||||||||||||||||
European Union | EEMA | Asia | Latin America & Canada | Total | ||||||||||||
2015 | $ | 1,890 | $ | 1,761 | $ | 1,731 | $ | 555 | $ | 5,937 | ||||||
2014 | 1,689 | 2,014 | 1,815 | 467 | 5,985 | |||||||||||
% Change | 11.9 | % | (12.6 | )% | (4.6 | )% | 18.8 | % | (0.8 | )% | ||||||
Reconciliation: | ||||||||||||||||
For the six months ended June 30, 2014 | $ | 1,689 | $ | 2,014 | $ | 1,815 | $ | 467 | $ | 5,985 | ||||||
2014 Asset impairment and exit costs | 488 | — | 24 | — | 512 | |||||||||||
2015 Asset impairment and exit costs | — | — | — | — | — | |||||||||||
Acquired businesses | (2 | ) | (1 | ) | — | 3 | — | |||||||||
Currency | (470 | ) | (524 | ) | (176 | ) | (95 | ) | (1,265 | ) | ||||||
Operations | 185 | 272 | 68 | 180 | 705 | |||||||||||
For the six months ended June 30, 2015 | $ | 1,890 | $ | 1,761 | $ | 1,731 | $ | 555 | $ | 5,937 | ||||||
Schedule 8 | ||||||||
PHILIP MORRIS INTERNATIONAL INC. | ||||||||
and Subsidiaries | ||||||||
Diluted Earnings Per Share | ||||||||
For the Six Months Ended June 30, | ||||||||
($ in millions, except per share data) | ||||||||
(Unaudited) | ||||||||
Diluted | ||||||||
E.P.S. | ||||||||
2015 Diluted Earnings Per Share | $ | 2.37 | (1) | |||||
2014 Diluted Earnings Per Share | $ | 2.35 | (1) | |||||
Change | $ | 0.02 | ||||||
% Change | 0.9 | % | ||||||
Reconciliation: | ||||||||
2014 Diluted Earnings Per Share | $ | 2.35 | (1) | |||||
Special Items: | ||||||||
2014 Asset impairment and exit costs | 0.25 | |||||||
2014 Tax items | — | |||||||
2015 Asset impairment and exit costs | — | |||||||
2015 Tax items | — | |||||||
Currency | (0.64 | ) | ||||||
Interest | (0.03 | ) | ||||||
Change in tax rate | (0.04 | ) | ||||||
Impact of lower shares outstanding and share-based payments | 0.05 | |||||||
Operations | 0.43 | |||||||
2015 Diluted Earnings Per Share | $ | 2.37 | (1) | |||||
(1) Basic and diluted EPS were calculated using the following (in millions): | ||||||||
YTD June 2015 | YTD June 2014 | |||||||
Net earnings attributable to PMI | $ | 3,682 | $ | 3,726 | ||||
Less distributed and undistributed earnings attributable | ||||||||
to share-based payment awards | 13 | 17 | ||||||
Net earnings for basic and diluted EPS | $ | 3,669 | $ | 3,709 | ||||
Weighted-average shares for basic and diluted EPS | 1,549 | 1,577 |
Schedule 9 | |||||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||||
and Subsidiaries | |||||||||
Condensed Balance Sheets | |||||||||
($ in millions, except ratios) | |||||||||
(Unaudited) | |||||||||
June 30, | December 31, | ||||||||
2015 | 2014 | ||||||||
Assets | |||||||||
Cash and cash equivalents | $ | 1,838 | $ | 1,682 | |||||
All other current assets | 11,934 | 13,802 | |||||||
Property, plant and equipment, net | 5,815 | 6,071 | |||||||
Goodwill | 7,914 | 8,388 | |||||||
Other intangible assets, net | 2,807 | 2,985 | |||||||
Investments in unconsolidated subsidiaries | 1,020 | 1,083 | |||||||
Other assets | 1,385 | 1,176 | |||||||
Total assets | $ | 32,713 | $ | 35,187 | |||||
Liabilities and Stockholders' (Deficit) Equity | |||||||||
Short-term borrowings | $ | 1,710 | $ | 1,208 | |||||
Current portion of long-term debt | 2,926 | 1,318 | |||||||
All other current liabilities | 10,750 | 12,586 | |||||||
Long-term debt | 24,566 | 26,929 | |||||||
Deferred income taxes | 1,799 | 1,549 | |||||||
Other long-term liabilities | 2,760 | 2,800 | |||||||
Total liabilities | 44,511 | 46,390 | |||||||
Total PMI stockholders' deficit | (13,151 | ) | (12,629 | ) | |||||
Noncontrolling interests | 1,353 | 1,426 | |||||||
Total stockholders' deficit | (11,798 | ) | (11,203 | ) | |||||
Total liabilities and stockholders' (deficit) equity | $ | 32,713 | $ | 35,187 | |||||
Total debt | $ | 29,202 | $ | 29,455 | |||||
Total debt to Adjusted EBITDA | 2.34 | (1) | 2.24 | (1) | |||||
Net debt to Adjusted EBITDA | 2.19 | (1) | 2.12 | (1) | |||||
(1) For the calculation of Total Debt to Adjusted EBITDA and Net Debt to Adjusted EBITDA ratios, refer to Schedule 18. |
Schedule 10 | |||||||||||||||||||||||||||||||||||||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||||||||||||||||||||||||||||||||||||||||||
and Subsidiaries | |||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Non-GAAP Measures | |||||||||||||||||||||||||||||||||||||||||||||||
Adjustments for the Impact of Currency and Acquisitions | |||||||||||||||||||||||||||||||||||||||||||||||
For the Quarters Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | % Change in Reported Net Revenues excluding Excise Taxes | |||||||||||||||||||||||||||||||||||||||||||||
Reported Net Revenues | Less Excise Taxes | Reported Net Revenues excluding Excise Taxes | Less Currency | Reported Net Revenues excluding Excise Taxes & Currency | Less Acquisi- tions | Reported Net Revenues excluding Excise Taxes, Currency & Acquisitions | Reported Net Revenues | Less Excise Taxes | Reported Net Revenues excluding Excise Taxes | Reported | Reported excluding Currency | Reported excluding Currency & Acquisitions | |||||||||||||||||||||||||||||||||||
$ | 6,336 | $ | 4,348 | $ | 1,988 | $ | (488 | ) | $ | 2,476 | $ | 4 | $ | 2,472 | European Union | $ | 7,829 | $ | 5,436 | $ | 2,393 | (16.9 | )% | 3.5 | % | 3.3 | % | ||||||||||||||||||||
4,994 | 3,075 | 1,919 | (464 | ) | 2,383 | 1 | 2,382 | EEMA | 5,674 | 3,391 | 2,283 | (15.9 | )% | 4.4 | % | 4.3 | % | ||||||||||||||||||||||||||||||
5,039 | 2,894 | 2,145 | (229 | ) | 2,374 | — | 2,374 | Asia | 5,097 | 2,786 | 2,311 | (7.2 | )% | 2.7 | % | 2.7 | % | ||||||||||||||||||||||||||||||
2,394 | 1,587 | 807 | (112 | ) | 919 | 3 | 916 | Latin America & Canada | 2,451 | 1,641 | 810 | (0.4 | )% | 13.5 | % | 13.1 | % | ||||||||||||||||||||||||||||||
$ | 18,763 | $ | 11,904 | $ | 6,859 | $ | (1,293 | ) | $ | 8,152 | $ | 8 | $ | 8,144 | PMI Total | $ | 21,051 | $ | 13,254 | $ | 7,797 | (12.0 | )% | 4.6 | % | 4.5 | % | ||||||||||||||||||||
2015 | 2014 | % Change in Reported Operating Companies Income | |||||||||||||||||||||||||||||||||||||||||||||
Reported Operating Companies Income | Less Currency | Reported Operating Companies Income excluding Currency | Less Acquisi- tions | Reported Operating Companies Income excluding Currency & Acquisitions | Reported Operating Companies Income | Reported | Reported excluding Currency | Reported excluding Currency & Acquisitions | |||||||||||||||||||||||||||||||||||||||
$ | 977 | $ | (279 | ) | $ | 1,256 | $ | (2 | ) | $ | 1,258 | European Union | $ | 711 | 37.4 | % | 76.7 | % | 76.9 | % | |||||||||||||||||||||||||||
881 | (253 | ) | 1,134 | (1 | ) | 1,135 | EEMA | 1,087 | (19.0 | )% | 4.3 | % | 4.4 | % | |||||||||||||||||||||||||||||||||
797 | (97 | ) | 894 | — | 894 | Asia | 900 | (11.4 | )% | (0.7 | )% | (0.7 | )% | ||||||||||||||||||||||||||||||||||
325 | (51 | ) | 376 | 2 | 374 | Latin America & Canada | 265 | 22.6 | % | 41.9 | % | 41.1 | % | ||||||||||||||||||||||||||||||||||
$ | 2,980 | $ | (680 | ) | $ | 3,660 | $ | (1 | ) | $ | 3,661 | PMI Total | $ | 2,963 | 0.6 | % | 23.5 | % | 23.6 | % |
Schedule 11 | |||||||||||||||||||||||||||||||||||||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||||||||||||||||||||||||||||||||||||||||||
and Subsidiaries | |||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Non-GAAP Measures | |||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income & | |||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions | |||||||||||||||||||||||||||||||||||||||||||||||
For the Quarters Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | % Change in Adjusted Operating Companies Income | |||||||||||||||||||||||||||||||||||||||||||||
Reported Operating Companies Income | Less Asset Impairment & Exit Costs | Adjusted Operating Companies Income | Less Currency | Adjusted Operating Companies Income excluding Currency | Less Acquisi- tions | Adjusted Operating Companies Income excluding Currency & Acquisitions | Reported Operating Companies Income | Less Asset Impairment & Exit Costs | Adjusted Operating Companies Income | Adjusted | Adjusted excluding Currency | Adjusted excluding Currency & Acquisitions | |||||||||||||||||||||||||||||||||||
$ | 977 | $ | — | $ | 977 | $ | (279 | ) | $ | 1,256 | $ | (2 | ) | $ | 1,258 | European Union | $ | 711 | $ | (488 | ) | $ | 1,199 | (18.5 | )% | 4.8 | % | 4.9 | % | ||||||||||||||||||
881 | — | 881 | (253 | ) | 1,134 | (1 | ) | 1,135 | EEMA | 1,087 | — | 1,087 | (19.0 | )% | 4.3 | % | 4.4 | % | |||||||||||||||||||||||||||||
797 | — | 797 | (97 | ) | 894 | — | 894 | Asia | 900 | (1 | ) | 901 | (11.5 | )% | (0.8 | )% | (0.8 | )% | |||||||||||||||||||||||||||||
325 | — | 325 | (51 | ) | 376 | 2 | 374 | Latin America & Canada | 265 | — | 265 | 22.6 | % | 41.9 | % | 41.1 | % | ||||||||||||||||||||||||||||||
$ | 2,980 | $ | — | $ | 2,980 | $ | (680 | ) | $ | 3,660 | $ | (1 | ) | $ | 3,661 | PMI Total | $ | 2,963 | $ | (489 | ) | $ | 3,452 | (13.7 | )% | 6.0 | % | 6.1 | % | ||||||||||||||||||
2015 | 2014 | % Points Change | |||||||||||||||||||||||||||||||||||||||||||||
Adjusted Operating Companies Income excluding Currency | Net Revenues excluding Excise Taxes & Currency(1) | Adjusted Operating Companies Income Margin excluding Currency | Adjusted Operating Companies Income excluding Currency & Acquisitions | Net Revenues excluding Excise Taxes, Currency & Acquisitions(1) | Adjusted Operating Companies Income Margin excluding Currency & Acquisitions | Adjusted Operating Companies Income | Net Revenues excluding Excise Taxes(1) | Adjusted Operating Companies Income Margin | Adjusted Operating Companies Income Margin excluding Currency | Adjusted Operating Companies Income Margin excluding Currency & Acquisitions | |||||||||||||||||||||||||||||||||||||
$ | 1,256 | $ | 2,476 | 50.7 | % | $ | 1,258 | $ | 2,472 | 50.9 | % | European Union | $ | 1,199 | $ | 2,393 | 50.1 | % | 0.6 | 0.8 | |||||||||||||||||||||||||||
1,134 | 2,383 | 47.6 | % | 1,135 | 2,382 | 47.6 | % | EEMA | 1,087 | 2,283 | 47.6 | % | — | — | |||||||||||||||||||||||||||||||||
894 | 2,374 | 37.7 | % | 894 | 2,374 | 37.7 | % | Asia | 901 | 2,311 | 39.0 | % | (1.3 | ) | (1.3 | ) | |||||||||||||||||||||||||||||||
376 | 919 | 40.9 | % | 374 | 916 | 40.8 | % | Latin America & Canada | 265 | 810 | 32.7 | % | 8.2 | 8.1 | |||||||||||||||||||||||||||||||||
$ | 3,660 | $ | 8,152 | 44.9 | % | $ | 3,661 | $ | 8,144 | 45.0 | % | PMI Total | $ | 3,452 | $ | 7,797 | 44.3 | % | 0.6 | 0.7 | |||||||||||||||||||||||||||
(1) For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to Schedule 10. | |||||||||||||||||||||||||||||||||||||||||||||||
Schedule 12 | |||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||||||||
and Subsidiaries | |||||||||||||
Reconciliation of Non-GAAP Measures | |||||||||||||
Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency | |||||||||||||
For the Quarters Ended June 30, | |||||||||||||
(Unaudited) | |||||||||||||
2015 | 2014 | % Change | |||||||||||
Reported Diluted EPS | $ | 1.21 | $ | 1.17 | 3.4 | % | |||||||
Adjustments: | |||||||||||||
Asset impairment and exit costs | — | 0.24 | |||||||||||
Tax items | — | — | |||||||||||
Adjusted Diluted EPS | $ | 1.21 | $ | 1.41 | (14.2 | )% | |||||||
Less: | |||||||||||||
Currency impact | (0.33 | ) | |||||||||||
Adjusted Diluted EPS, excluding Currency | $ | 1.54 | $ | 1.41 | 9.2 | % |
Schedule 13 | ||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | ||||||||||||
and Subsidiaries | ||||||||||||
Reconciliation of Non-GAAP Measures | ||||||||||||
Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency | ||||||||||||
For the Quarters Ended June 30, | ||||||||||||
(Unaudited) | ||||||||||||
2015 | 2014 | % Change | ||||||||||
Reported Diluted EPS | $ | 1.21 | $ | 1.17 | 3.4 | % | ||||||
Less: | ||||||||||||
Currency impact | (0.33 | ) | ||||||||||
Reported Diluted EPS, excluding Currency | $ | 1.54 | $ | 1.17 | 31.6 | % | ||||||
Schedule 14 | |||||||||||||||||||||||||||||||||||||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||||||||||||||||||||||||||||||||||||||||||
and Subsidiaries | |||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Non-GAAP Measures | |||||||||||||||||||||||||||||||||||||||||||||||
Adjustments for the Impact of Currency and Acquisitions | |||||||||||||||||||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | % Change in Reported Net Revenues excluding Excise Taxes | |||||||||||||||||||||||||||||||||||||||||||||
Reported Net Revenues | Less Excise Taxes | Reported Net Revenues excluding Excise Taxes | Less Currency | Reported Net Revenues excluding Excise Taxes & Currency | Less Acquisi- tions | Reported Net Revenues excluding Excise Taxes, Currency & Acquisitions | Reported Net Revenues | Less Excise Taxes | Reported Net Revenues excluding Excise Taxes | Reported | Reported excluding Currency | Reported excluding Currency & Acquisitions | |||||||||||||||||||||||||||||||||||
$ | 12,276 | $ | 8,396 | $ | 3,880 | $ | (766 | ) | $ | 4,646 | $ | 11 | $ | 4,635 | European Union | $ | 14,448 | $ | 10,042 | $ | 4,406 | (11.9 | )% | 5.4 | % | 5.2 | % | ||||||||||||||||||||
9,423 | 5,661 | 3,762 | (909 | ) | 4,671 | 1 | 4,670 | EEMA | 10,236 | 5,944 | 4,292 | (12.3 | )% | 8.8 | % | 8.8 | % | ||||||||||||||||||||||||||||||
9,803 | 5,503 | 4,300 | (357 | ) | 4,657 | — | 4,657 | Asia | 9,572 | 5,079 | 4,493 | (4.3 | )% | 3.7 | % | 3.7 | % | ||||||||||||||||||||||||||||||
4,613 | 3,080 | 1,533 | (200 | ) | 1,733 | 4 | 1,729 | Latin America & Canada | 4,574 | 3,051 | 1,523 | 0.7 | % | 13.8 | % | 13.5 | % | ||||||||||||||||||||||||||||||
$ | 36,115 | $ | 22,640 | $ | 13,475 | $ | (2,232 | ) | $ | 15,707 | $ | 16 | $ | 15,691 | PMI Total | $ | 38,830 | $ | 24,116 | $ | 14,714 | (8.4 | )% | 6.7 | % | 6.6 | % | ||||||||||||||||||||
2015 | 2014 | % Change in Reported Operating Companies Income | |||||||||||||||||||||||||||||||||||||||||||||
Reported Operating Companies Income | Less Currency | Reported Operating Companies Income excluding Currency | Less Acquisi- tions | Reported Operating Companies Income excluding Currency & Acquisitions | Reported Operating Companies Income | Reported | Reported excluding Currency | Reported excluding Currency & Acquisitions | |||||||||||||||||||||||||||||||||||||||
$ | 1,890 | $ | (470 | ) | $ | 2,360 | $ | (2 | ) | $ | 2,362 | European Union | $ | 1,689 | 11.9 | % | 39.7 | % | 39.8 | % | |||||||||||||||||||||||||||
1,761 | (524 | ) | 2,285 | (1 | ) | 2,286 | EEMA | 2,014 | (12.6 | )% | 13.5 | % | 13.5 | % | |||||||||||||||||||||||||||||||||
1,731 | (176 | ) | 1,907 | — | 1,907 | Asia | 1,815 | (4.6 | )% | 5.1 | % | 5.1 | % | ||||||||||||||||||||||||||||||||||
555 | (95 | ) | 650 | 3 | 647 | Latin America & Canada | 467 | 18.8 | % | 39.2 | % | 38.5 | % | ||||||||||||||||||||||||||||||||||
$ | 5,937 | $ | (1,265 | ) | $ | 7,202 | $ | — | $ | 7,202 | PMI Total | $ | 5,985 | (0.8 | )% | 20.3 | % | 20.3 | % | ||||||||||||||||||||||||||||
Schedule 15 | |||||||||||||||||||||||||||||||||||||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||||||||||||||||||||||||||||||||||||||||||
and Subsidiaries | |||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Non-GAAP Measures | |||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income & | |||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions | |||||||||||||||||||||||||||||||||||||||||||||||
For the Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
($ in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
(Unaudited) | |||||||||||||||||||||||||||||||||||||||||||||||
2015 | 2014 | % Change in Adjusted Operating Companies Income | |||||||||||||||||||||||||||||||||||||||||||||
Reported Operating Companies Income | Less Asset Impairment & Exit Costs | Adjusted Operating Companies Income | Less Currency | Adjusted Operating Companies Income excluding Currency | Less Acquisi- tions | Adjusted Operating Companies Income excluding Currency & Acquisitions | Reported Operating Companies Income | Less Asset Impairment & Exit Costs | Adjusted Operating Companies Income | Adjusted | Adjusted excluding Currency | Adjusted excluding Currency & Acquisitions | |||||||||||||||||||||||||||||||||||
$ | 1,890 | $ | — | $ | 1,890 | $ | (470 | ) | $ | 2,360 | $ | (2 | ) | $ | 2,362 | European Union | $ | 1,689 | $ | (488 | ) | $ | 2,177 | (13.2 | )% | 8.4 | % | 8.5 | % | ||||||||||||||||||
1,761 | — | 1,761 | (524 | ) | 2,285 | (1 | ) | 2,286 | EEMA | 2,014 | — | 2,014 | (12.6 | )% | 13.5 | % | 13.5 | % | |||||||||||||||||||||||||||||
1,731 | — | 1,731 | (176 | ) | 1,907 | — | 1,907 | Asia | 1,815 | (24 | ) | 1,839 | (5.9 | )% | 3.7 | % | 3.7 | % | |||||||||||||||||||||||||||||
555 | — | 555 | (95 | ) | 650 | 3 | 647 | Latin America & Canada | 467 | — | 467 | 18.8 | % | 39.2 | % | 38.5 | % | ||||||||||||||||||||||||||||||
$ | 5,937 | $ | — | $ | 5,937 | $ | (1,265 | ) | $ | 7,202 | $ | — | $ | 7,202 | PMI Total | $ | 5,985 | $ | (512 | ) | $ | 6,497 | (8.6 | )% | 10.9 | % | 10.9 | % | |||||||||||||||||||
2015 | 2014 | % Points Change | |||||||||||||||||||||||||||||||||||||||||||||
Adjusted Operating Companies Income excluding Currency | Net Revenues excluding Excise Taxes & Currency(1) | Adjusted Operating Companies Income Margin excluding Currency | Adjusted Operating Companies Income excluding Currency & Acquisitions | Net Revenues excluding Excise Taxes, Currency & Acquisitions(1) | Adjusted Operating Companies Income Margin excluding Currency & Acquisitions | Adjusted Operating Companies Income | Net Revenues excluding Excise Taxes(1) | Adjusted Operating Companies Income Margin | Adjusted Operating Companies Income Margin excluding Currency | Adjusted Operating Companies Income Margin excluding Currency & Acquisitions | |||||||||||||||||||||||||||||||||||||
$ | 2,360 | $ | 4,646 | 50.8 | % | $ | 2,362 | $ | 4,635 | 51.0 | % | European Union | $ | 2,177 | $ | 4,406 | 49.4 | % | 1.4 | 1.6 | |||||||||||||||||||||||||||
2,285 | 4,671 | 48.9 | % | 2,286 | 4,670 | 49.0 | % | EEMA | 2,014 | 4,292 | 46.9 | % | 2.0 | 2.1 | |||||||||||||||||||||||||||||||||
1,907 | 4,657 | 40.9 | % | 1,907 | 4,657 | 40.9 | % | Asia | 1,839 | 4,493 | 40.9 | % | — | — | |||||||||||||||||||||||||||||||||
650 | 1,733 | 37.5 | % | 647 | 1,729 | 37.4 | % | Latin America & Canada | 467 | 1,523 | 30.7 | % | 6.8 | 6.7 | |||||||||||||||||||||||||||||||||
$ | 7,202 | $ | 15,707 | 45.9 | % | $ | 7,202 | $ | 15,691 | 45.9 | % | PMI Total | $ | 6,497 | $ | 14,714 | 44.2 | % | 1.7 | 1.7 | |||||||||||||||||||||||||||
(1) For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to Schedule 14. | |||||||||||||||||||||||||||||||||||||||||||||||
Schedule 16 | ||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | ||||||||||||
and Subsidiaries | ||||||||||||
Reconciliation of Non-GAAP Measures | ||||||||||||
Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency | ||||||||||||
For the Six Months Ended June 30, | ||||||||||||
(Unaudited) | ||||||||||||
2015 | 2014 | % Change | ||||||||||
Reported Diluted EPS | $ | 2.37 | $ | 2.35 | 0.9 | % | ||||||
Adjustments: | ||||||||||||
Asset impairment and exit costs | — | 0.25 | ||||||||||
Tax items | — | — | ||||||||||
Adjusted Diluted EPS | $ | 2.37 | $ | 2.60 | (8.8 | )% | ||||||
Less: | ||||||||||||
Currency impact | (0.64 | ) | ||||||||||
Adjusted Diluted EPS, excluding Currency | $ | 3.01 | $ | 2.60 | 15.8 | % | ||||||
Schedule 17 | |||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||||||||
and Subsidiaries | |||||||||||||
Reconciliation of Non-GAAP Measures | |||||||||||||
Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency | |||||||||||||
For the Six Months Ended June 30, | |||||||||||||
(Unaudited) | |||||||||||||
2015 | 2014 | % Change | |||||||||||
Reported Diluted EPS | $ | 2.37 | $ | 2.35 | 0.9 | % | |||||||
Less: | |||||||||||||
Currency impact | (0.64 | ) | |||||||||||
Reported Diluted EPS, excluding Currency | $ | 3.01 | $ | 2.35 | 28.1 | % | |||||||
Schedule 18 | ||||||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | ||||||||||||||||
and Subsidiaries | ||||||||||||||||
Reconciliation of Non-GAAP Measures | ||||||||||||||||
Calculation of Total Debt to Adjusted EBITDA and Net Debt to Adjusted EBITDA Ratios | ||||||||||||||||
($ in millions, except ratios) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
For the Year Ended | For the Year Ended | |||||||||||||||
June 30, | December 31, | |||||||||||||||
2015 | 2014 | |||||||||||||||
July ~ December | January ~ June | 12 months | ||||||||||||||
2014 | 2015 | rolling | ||||||||||||||
Earnings before income taxes | $ | 5,347 | $ | 5,229 | $ | 10,576 | $ | 10,650 | ||||||||
Interest expense, net | 530 | 534 | 1,064 | 1,052 | ||||||||||||
Depreciation and amortization | 462 | 377 | 839 | 889 | ||||||||||||
Extraordinary, unusual or non-recurring expenses, net (1) | 23 | — | 23 | 535 | ||||||||||||
Adjusted EBITDA | $ | 6,362 | $ | 6,140 | $ | 12,502 | $ | 13,126 | ||||||||
June 30, | December 31, | |||||||||||||||
2015 | 2014 | |||||||||||||||
Short-term borrowings | $ | 1,710 | $ | 1,208 | ||||||||||||
Current portion of long-term debt | 2,926 | 1,318 | ||||||||||||||
Long-term debt | 24,566 | 26,929 | ||||||||||||||
Total Debt | $ | 29,202 | $ | 29,455 | ||||||||||||
Less: Cash and cash equivalents | 1,838 | 1,682 | ||||||||||||||
Net Debt | $ | 27,364 | $ | 27,773 | ||||||||||||
Ratios | ||||||||||||||||
Total Debt to Adjusted EBITDA | 2.34 | 2.24 | ||||||||||||||
Net Debt to Adjusted EBITDA | 2.19 | 2.12 | ||||||||||||||
(1) Asset Impairment and Exit Costs at Operating Income level. | ||||||||||||||||
Schedule 19 | ||||||||||||||||||||||||
PHILIP MORRIS INTERNATIONAL INC. | ||||||||||||||||||||||||
and Subsidiaries | ||||||||||||||||||||||||
Reconciliation of Non-GAAP Measures | ||||||||||||||||||||||||
Reconciliation of Operating Cash Flow to Free Cash Flow and Free Cash Flow, excluding Currency | ||||||||||||||||||||||||
Reconciliation of Operating Cash Flow to Operating Cash Flow, excluding Currency | ||||||||||||||||||||||||
For the Quarters and Six Months Ended June 30, | ||||||||||||||||||||||||
($ in millions) | ||||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||
For the Quarters Ended | For the Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||||||
Net cash provided by operating activities(a) | $ | 3,675 | $ | 2,705 | 35.9 | % | $ | 3,300 | $ | 3,420 | (3.5 | )% | ||||||||||||
Less: | ||||||||||||||||||||||||
Capital expenditures | 210 | 252 | 413 | 508 | ||||||||||||||||||||
Free cash flow | $ | 3,465 | $ | 2,453 | 41.3 | % | $ | 2,887 | $ | 2,912 | (0.9 | )% | ||||||||||||
Less: | ||||||||||||||||||||||||
Currency impact | (598 | ) | (1,554 | ) | ||||||||||||||||||||
Free cash flow, excluding currency | $ | 4,063 | $ | 2,453 | 65.6 | % | $ | 4,441 | $ | 2,912 | 52.5 | % | ||||||||||||
For the Quarters Ended | For the Six Months Ended | |||||||||||||||||||||||
June 30, | June 30, | |||||||||||||||||||||||
2015 | 2014 | % Change | 2015 | 2014 | % Change | |||||||||||||||||||
Net cash provided by operating activities(a) | $ | 3,675 | $ | 2,705 | 35.9 | % | $ | 3,300 | $ | 3,420 | (3.5 | )% | ||||||||||||
Less: | ||||||||||||||||||||||||
Currency impact | (639 | ) | (1,625 | ) | ||||||||||||||||||||
Net cash provided by operating activities, excluding currency | $ | 4,314 | $ | 2,705 | 59.5 | % | $ | 4,925 | $ | 3,420 | 44.0 | % | ||||||||||||
(a) Operating cash flow. |
Schedule 20 | |||||||
PHILIP MORRIS INTERNATIONAL INC. | |||||||
and Subsidiaries | |||||||
Reconciliation of Non-GAAP Measures | |||||||
Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS | |||||||
For the Year Ended December 31, | |||||||
(Unaudited) | |||||||
2014 | |||||||
Reported Diluted EPS | $ | 4.76 | |||||
Adjustments: | |||||||
Asset impairment and exit costs | 0.26 | ||||||
Tax items | — | ||||||
Adjusted Diluted EPS | $ | 5.02 | |||||
Exhibit 99.2
Philip Morris International Inc.
2015 Second-Quarter Results Conference Call
July 16, 2015
NICK ROLLI
(SLIDE 1.) |
Welcome. Thank you for joining us. Earlier today, we issued a press release containing detailed information on our 2015 second-quarter results. You may access the release on our website at www.pmi.com.
(SLIDE 2.) |
During our call today, we will be talking about results for the second quarter of 2015 and comparing them to the same period in 2014, unless otherwise stated.
A glossary of terms, data tables showing adjustments to net revenues and OCI for currency and acquisitions, asset impairment, exit and other costs, free cash flow calculations, and adjustments to earnings per share, or “EPS,” as well as reconciliations to U.S. GAAP measures, are at the end of today’s webcast slides, which are posted on our website. Reduced-Risk Products, or “RRPs,” is the term we use to refer to products with the potential to reduce individual risk and population harm in comparison to smoking combustible cigarettes.
(SLIDE 3.) |
Today’s remarks contain forward-looking statements and projections of future results. I direct your attention to the Forward-Looking and Cautionary Statements disclosure in today’s presentation and press release for a review of the various factors that could cause actual results to differ materially from projections or forward-looking statements.
It’s now my pleasure to introduce Jacek Olczak, our Chief Financial Officer.
Jacek.
1
JACEK OLCZAK
(SLIDE 4.) |
Thank you Nick, and welcome ladies and gentlemen.
Our excellent start to the year was reinforced in the second quarter. Organic cigarette volume was strong, declining by a modest 1.4% due to lower cigarette industry volume across all Regions, partly offset by market share gains in the Asia, EEMA and Latin America & Canada Regions.
On a June year-to-date basis, our organic cigarette volume was essentially flat, or down by approximately 1% excluding inventory movements. For 2015, we forecast an organic cigarette volume decline in the range of 1.0% to 1.5%.
(SLIDE 5.) |
Net revenues and adjusted OCI in the quarter were up by 4.5% and 6.1%, respectively, excluding currency and acquisitions. This growth was driven by strong pricing across all Regions, partially offset by lower volume largely in the Asia and EU Regions. Adjusted diluted EPS, excluding currency, grew by 9.2% to $1.54.
June year-to-date adjusted diluted EPS grew by 15.8%, excluding currency. This growth benefited from a gain in Korea related to inventories built ahead of the excise tax increase effective January 2015.
(SLIDE 6.) |
As announced in our earnings release this morning, we are reaffirming our 2015 reported diluted EPS guidance, at prevailing exchange rates, to be in a range of $4.32 to $4.42.
Our guidance includes a full-year unfavorable currency impact of approximately $1.15 per share at prevailing exchange rates. Excluding currency, our 2015 guidance continues to represent a growth rate of 9% to 11% compared to our adjusted diluted EPS of $5.02 in 2014. Given our better-than-anticipated volume and market share performance, we now expect to be towards the upper end of this range.
As previously communicated, our guidance includes incremental investment during the second half of the year to support the deployment of iQOS in Japan, Italy and additional 2015 launch markets. Our guidance now also includes accelerated spending in the fourth quarter behind planned iQOS launches in 2016, as well as incremental marketing investments in the second half to further reinforce the favorable momentum of our combustible business.
As discussed in today’s press release, our guidance excludes the potential impact of a motion that is currently before the Québec Court of Appeal related to a judgment involving two class actions against our Canadian affiliate, Rothmans, Benson & Hedges. Should the Court of Appeal deny the motion, PMI
2
expects to incur an after-tax charge of approximately $0.09 per share in the second quarter, which would have a corresponding impact on our 2015 reported diluted EPS guidance. Separately, RBH's appeal on the merits of the case is pending before the appellate court.
(SLIDE 7.) |
Although the total estimated unfavorable currency impact on our current guidance remains unchanged versus our April guidance, there has been a shift since then in its composition. As you can see on this chart, the positive impact of the Euro has been offset notably by the unfavorable impact of the Russian Ruble.
(SLIDE 8.) |
Strong pricing remains the key driver of our financial performance. In the second quarter we recorded a variance of $514 million, reflecting higher pricing across all four Regions. We increased retail prices during the quarter in key markets such as Argentina, Germany, Indonesia and Russia.
Our June year-to-date pricing variance of $1.1 billion leaves us well-positioned to achieve full-year pricing broadly in line with our historical annual average of approximately $1.8 billion. As a reminder, our first-half pricing variance includes the gain in Korea that I discussed earlier.
(SLIDE 9.) |
Our results in the quarter were underpinned by continued market share gains. Share in our top-30 OCI markets grew by 0.1 point to 37.5%, with our share up or essentially flat in 17 of these markets.
Our share performance was supported by the strength of our leading brand portfolio, which continues to benefit from the roll-out of our new commercial approach. The integration of marketing and sales expertise, increased consumer focus and field sales force empowerment are proving to be a competitive advantage.
(SLIDE 10.) |
Importantly, Marlboro was a key contributor to our share growth. The brand's international share, excluding China and the U.S., increased by 0.3 points to 9.5%. This performance was broad-based, with share up in all four Regions.
Marlboro's share benefited from the further roll-out of the new 2.0 Architecture, which we introduced in some 20 additional markets during the quarter, predominantly in the EEMA Region. By year-end, we expect to have rolled out Marlboro 2.0 in approximately 100 markets.
3
(SLIDE 11.) |
I will now provide an update on selected geographies, beginning with the EU Region.
Cigarette industry volume in the second quarter declined by 3.0%, or 2.3% excluding trade inventory movements. Consequently, we now expect a decline of 3.0% to 3.5% for the full year, versus our previous forecast of approximately 4%.
Our new forecast reflects improving macroeconomic conditions, a moderation in the level of illicit trade, less out-switching to fine cut products and a lower prevalence of e-vapor products.
The moderation in the level of illicit trade in the quarter is consistent with the findings of an annual study published by KPMG in May. It concluded that the consumption of counterfeit and contraband products declined in 2014 across most EU markets, with France and the U.K. being notable exceptions.
(SLIDE 12.) |
While our cigarette market share for the EU Region was stable at 40.4% in the second quarter, our top three brands -- Marlboro, L&M and Chesterfield -- all gained share.
Marlboro's cigarette share was up in four of the top six largest markets by industry volume, with particularly strong growth in Germany and Spain. However, Marlboro's share declined in Italy, following the brand's move above the five Euro per pack retail price point during the first quarter.
Adjusted OCI grew by 4.9% in the quarter, excluding currency and acquisitions, driven by strong pricing, which more than offset our cigarette volume decline due to a lower total market.
(SLIDE 13.) |
Turning now to Russia, the decline in cigarette industry volume decelerated to 4.2% in the quarter, resulting in a June year-to-date decrease of 6.5%. We now expect a full-year decline towards the lower end of our 8% to 10% forecast range. However, the economic environment remains fragile and we are witnessing some signs of down-trading to the low-price segment.
Our excellent performance in this important market continued in the quarter. We recorded a May quarter-to-date share gain of 0.8 points to reach 27.6%, driven notably by above premium Parliament, as well as low-price Bond Street and super-low Next, both of which also benefited from wider distribution in the eastern part of the country. Our cigarette volume grew by 5.3% in the quarter.
The combination of the volume increase and higher unit margins, driven by significant retail price increases, resulted in strong double-digit OCI growth in the quarter, excluding currency.
4
(SLIDE 14.) |
I will now cover selected markets in our Asia Region, beginning with Indonesia.
Cigarette industry volume declined by 4.6% in the quarter, following strong first-quarter growth of 6.0%. On a June year-to-date basis, industry volume increased by 0.4%.
The shift in adult smoker preferences from hand-rolled to machine-made kretek cigarettes continued in the second quarter, with the expansion of the overall machine-made kretek segment driven by the accelerated share growth of full-flavor products. The segment share of lighter-tasting products declined slightly.
Our market share increased by 0.5 points to 35.2%, despite our relatively high exposure to the declining hand-rolled kretek segment. This share growth was led by Dji Sam Soe Magnum, which helped drive a 2.5 point increase in our share of the machine-made full-flavor kretek segment, and Sampoerna A, our leading machine-made lighter-tasting kretek brand.
During the quarter, we further realigned our production from hand-rolled to machine-made kretek cigarettes. While this had an adverse impact on the Asia Region's costs in the quarter, it should provide an operational foundation better suited for long-term growth.
Over the mid to long-term, we expect cigarette industry volume to increase within a range of 1% to 3% annually, driven by the growing adult population and rising income levels. We forecast growth towards the lower end of this range in 2015, due to the recent softening of the economic environment.
As announced last month, Sampoerna will explore options to comply with the Indonesian Stock Exchange’s mandatory requirement of a 7.5% minimum public shareholding by January 30, 2016. These include potential capital market transactions.
(SLIDE 15.) |
In Japan, cigarette industry volume increased by 11.0% in the quarter, due to the timing of retail trade inventory movements related to the April 2014 tax-driven price increases. However, industry volume declined by 1.7%, excluding this distortion, and by 2.6% on a June year-to-date basis, consistent with our forecast for a full-year decline of 2.5% to 3.0%.
Our market share declined by 1.0 point in the quarter to 25.4%, though it was down by a more modest 0.4 points after adjusting for inventory movements. We continue to invest behind our brands and for 2015 expect our share to be broadly in line with last year's level. We are supporting the Marlboro 2.0 Architecture, which we began rolling out at the end of March, and are also investing behind our strong pipeline of innovations, as highlighted by the recent launch of two Lark variants in the rapidly growing new taste menthol segment.
5
(SLIDE 16.) |
In the Philippines, the competitive environment continued to improve during the quarter, benefiting from the introduction of tax stamps.
Smoking prevalence remained stable in the quarter. However, average daily consumption declined due to higher retail prices, although it did not deteriorate on a sequential basis compared to the first quarter. This indicates that adult smokers have largely adjusted to higher prices at the bottom of the market.
While our market share declined due to higher estimated duty-paid volume by our principal local competitor, Marlboro's share increased by 2.1 points to 20.2%. The brand benefited from improved price gaps, which helped drive a volume increase of 18.1%.
As a result of the improved competitive environment and the excellent performance of Marlboro, we are increasingly optimistic about the OCI outlook for the Philippines and are expecting strong growth this year, excluding currency.
(SLIDE 17.) |
Turning now to our RRP portfolio, we will commence the national expansion of iQOS in Japan this September. Building on the success of our pilot launch in Nagoya, iQOS will be rolled out in key regions at a price of 9,980 Yen, or approximately $80. The roll-out will feature an upgraded version of iQOS in new colors and textures to broaden its appeal among adult smokers.
Our expansion plan for Italy also remains on track, with additional city launches commencing later this year.
(SLIDE 18.) |
I am extremely pleased to announce the launch of iQOS in Switzerland this August. The launch will focus on five major cities with retail distribution in approximately 250 outlets by the end of October.
The iQOS kit will feature the upgraded version of iQOS, while Marlboro HeatSticks will be available in regular, smooth and menthol variants. On our e-commerce platform, the kit will have a retail price of 80 Swiss Francs, or approximately $85, and HeatSticks will retail with a premium positioning at 8.00 Swiss Francs per pack of twenty.
(SLIDE 19.) |
We generated free cash flow of $2.9 billion in the first half of the year. This was in line with our free cash flow for the first half of 2014, despite an adverse currency impact of $1.6 billion. Our resilient cash flow performance was supported by prudent cash flow management, particularly with regard to working capital and capital expenditures.
6
For 2015, we forecast free cash flow to be broadly in line with last year’s level, despite the significant currency headwind.
(SLIDE 20.) |
In conclusion, our excellent start to the year was reinforced in the second quarter, with a modest organic cigarette volume decline and strong currency-neutral financial results driven by robust business fundamentals.
In the combustible business, our superior brand portfolio, supported by a superb commercial organization, is driving strong pricing and continued market share gains. Meanwhile, our iQOS pilot launches are performing well, we are on track with further roll-outs in Japan and Italy, and will soon be launching in Switzerland.
We remain committed to returning around 100% of our free cash flow to shareholders. As of last Friday's market close, our dividend yield of 4.9% was significantly above that of our Tobacco Peer Group and 10-year U.S. Treasury Notes.
On a currency-neutral basis, our 2015 EPS guidance reflects a growth rate of 9% to 11% versus 2014 adjusted diluted EPS of $5.02. Given our better-than-anticipated performance, we now expect to be towards the upper end of this range.
(SLIDE 21.) |
Thank you. I will now be happy to answer your questions.
NICK ROLLI
That concludes our call today. Thank you for joining us. If you have any follow-up questions, please contact the Investor Relations team, who are currently in Switzerland.
Thank you again and have a nice day.
7
2015 Second-Quarter Results July 16, 2015 Exhibit 99.3
2 Introduction ● Unless otherwise stated, we will be talking about results for the second quarter of 2015 and comparing them to the same period in 2014 ● A glossary of terms, data tables showing adjustments to net revenues and OCI for currency and acquisitions, asset impairment, exit and other costs, free cash flow calculations, adjustments to EPS, and reconciliations to U.S. GAAP measures, are at the end of today’s webcast slides, which are also posted on our website ● Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking combustible cigarettes. PMI’s RRPs are in various stages of development and commercialization, and we are conducting extensive and rigorous scientific studies to determine whether we can support claims for such products of reduced exposure to harmful and potentially harmful constituents in smoke, and ultimately claims of reduced disease risk, when compared to smoking combustible cigarettes. Before making any such claims, we will rigorously evaluate the full set of data from the relevant scientific studies to determine whether they substantiate reduced exposure or risk. Any such claims may also be subject to government review and approval, as is the case in the U.S. today
3 Forward-Looking and Cautionary Statements ● This presentation and related discussion contain forward-looking statements. Achievement of projected results is subject to risks, uncertainties and inaccurate assumptions, and PMI is identifying important factors that, individually or in the aggregate, could cause actual results to differ materially from those contained in any forward-looking statements made by PMI ● PMI’s business risks include: significant increases in cigarette-related taxes; the imposition of discriminatory excise tax structures; fluctuations in customer inventory levels due to increases in product taxes and prices; increasing marketing and regulatory restrictions, often with the goal of reducing or preventing the use of tobacco products; health concerns relating to the use of tobacco products and exposure to environmental tobacco smoke; litigation related to tobacco use; intense competition; the effects of global and individual country economic, regulatory and political developments; changes in adult smoker behavior; lost revenues as a result of counterfeiting, contraband and cross-border purchases; governmental investigations; unfavorable currency exchange rates and currency devaluations; adverse changes in applicable corporate tax laws; adverse changes in the cost and quality of tobacco and other agricultural products and raw materials; and the integrity of its information systems. PMI’s future profitability may also be adversely affected should it be unsuccessful in its attempts to produce products with the potential to reduce exposure to harmful constituents in smoke, individual risk and population harm; if it is unable to successfully introduce new products, promote brand equity, enter new markets or improve its margins through increased prices and productivity gains; if it is unable to expand its brand portfolio internally or through acquisitions and the development of strategic business relationships; or if it is unable to attract and retain the best global talent ● PMI is further subject to other risks detailed from time to time in its publicly filed documents, including the Form 10-Q for the quarter ended March 31, 2015. PMI cautions that the foregoing list of important factors is not a complete discussion of all potential risks and uncertainties. PMI does not undertake to update any forward-looking statement that it may make from time to time, except in the normal course of its public disclosure obligations
4 Q2, 2015: Strong PMI Volume Performance ● Organic cigarette volume down by a modest 1.4%, due to: - Lower cigarette industry volume across all Regions - Partly offset by market share gains in the Asia, EEMA and LA&C Regions ● Organic cigarette volume essentially flat in H1, 2015, or down by approximately 1% excluding inventory movements ● Forecast full-year 2015 organic cigarette volume decline of 1.0% to 1.5% Source: PMI Financials or estimates
5 (a) Excluding currency and acquisitions (b) Excluding currency Source: PMI Financials or estimates 4.5% 6.1% 9.2% Net Revenues Adjusted OCI Adjusted Diluted EPS Q2, 2015: Strong Currency-Neutral Financial Results Growth (Q2, 2015 vs. PY) (a) (a) (b)
6 2015 EPS Guidance Reaffirmed ● Reaffirming 2015 reported diluted EPS guidance of $4.32 to $4.42, at prevailing exchange rates ● Guidance includes approximately $1.15 of unfavorable currency at prevailing exchange rates ● Excluding currency, guidance represents a growth rate of 9% to 11% compared to adjusted diluted EPS of $5.02 in 2014 ● Expect to be towards the upper end of this range, given better-than-anticipated volume and market share performance Source: PMI Financials or estimates
7 (a) Australian Dollar, British Pound, Canadian Dollar, Danish Krone, Hong Kong Dollar, Israeli Shekel, New Zealand Dollar, Norwegian Krone, Singapore Dollar, South Korean Won, Swedish Krona, Swiss Franc and U.S. Dollar (b) Includes notably the Argentine Peso, Brazilian Real, Kazakhstan Tenge, Mexican Peso, Polish Zloty, Turkish Lira and Ukrainian Hryvnia Note: List of emerging markets based on Dow Jones Source: PMI Financials or estimates Currency: Impact on PMI EPS Guidance ($ per share) Currency Variance Impact on PMI EPS Guidance (vs. PY) February 2015 Guidance April 2015 Guidance July 2015 Guidance July vs. April Guidance Japanese Yen (0.13) (0.14) (0.14) - Euro (0.15) (0.19) (0.15) 0.04 Other Developed(a) (0.15) (0.09) (0.10) (0.01) Russian Ruble (0.48) (0.35) (0.38) (0.03) Indonesian Rupiah (0.06) (0.08) (0.08) - Other Emerging(b) (0.18) (0.30) (0.30) - Total Currency Impact (1.15) (1.15) (1.15) -
8 Strong Pricing: The Key Driver of Our Financial Performance ● Pricing variance of $514 million in Q2, 2015, reflecting higher pricing across all four Regions ● Q2, 2015 retail price increases in key markets such as Argentina, Germany, Indonesia and Russia ● Cumulative pricing variance of $1.1 billion in H1, 2015 406 552 494 514 900 1,066 H1, 2014 H1, 2015 Pricing Variance ($ million) Source: PMI Financials or estimates Q1 Q2
9 Top-30 OCI Markets: Continued Market Share Gains Note: Excluding duty free Source: PMI Financials or estimates 37.4% 37.5% Q2, 2014 Q2, 2015 +0.1pp PMI Market Share in Top-30 OCI Markets
10 Marlboro: Key Contributor to Market Share Growth ● Marlboro gained share in all four Regions in Q2, 2015 ● In Q2, 2015, introduced Marlboro 2.0 in some 20 additional markets, predominantly in the EEMA Region ● By year-end 2015, expect to have rolled out Marlboro 2.0 in approximately 100 markets 9.2% 9.5% Q2, 2014 Q2, 2015 Marlboro Share of International Market(a) (a) Excluding China and the U.S. Source: PMI Financials or estimates +0.3pp
11Source: PMI Financials or estimates EU Region: Improving Cigarette Industry Volume Trend ● Cigarette industry volume down by an estimated 2.3% in Q2, 2015, excluding trade inventory movements ● Expect 2015 cigarette industry volume decline of 3.0% to 3.5% (vs. previous forecast of approximately 4%): - Improving macroeconomic conditions - Moderation in the level of illicit trade - Less out-switching to fine cut products - Lower prevalence of e-vapor products
12 Q2, 2015 Source: PMI Financials or estimates EU Region: Strong Brands Driving OCI Growth, Ex-Currency ● Regional cigarette share stable at 40.4% in Q2, 2015 ● Marlboro cigarette share was up in four of the top six largest EU Region markets by industry volume in Q2, 2015, with particularly strong growth in Germany and Spain ● Adjusted OCI growth of 4.9%, ex- currency and acquisitions, in Q2, 2015, driven by strong pricing 0.1pp 0.1pp 0.2pp SoM 19.6% 7.3% 5.8% Industry Rank #1 #2 #3 Cigarette Market Share Growth (Q2, 2015 vs. PY)
13 Note: Next market share includes Next by Dubliss Source: PMI Financials or estimates and Nielsen ● Cigarette industry volume decreased by 6.5% in H1, 2015 ● Forecast 2015 cigarette industry volume decline towards the lower end of our 8% to 10% range ● Economic environment remains fragile with some signs of down-trading ● PMI cigarette volume growth of 5.3% in Q2, 2015 ● Strong double-digit OCI growth, ex- currency, in Q2, 2015, driven by significant retail price increases Russia: Excellent Performance 3.4 4.2 7.4 8.1 3.6 3.8 26.8 27.6 QTD May 2014 QTD May 2015 Next Other +0.8pp Parliament Bond Street PMI Market Share (%)
14 Notre: FF stands for Full Flavor. LTLN stands for Low Tar/Low Nicotine Source: PMI Financials or estimates Indonesia: Growing Share Driven by Machine-Made Kretek Brands ● Cigarette industry volume increased by 0.4% in H1, 2015 ● Market share grew by 0.5 points to 35.2% in Q2, 2015, led by Dji Sam Soe Magnum and Sampoerna A ● Further realigned our production from hand-rolled to machine-made kretek cigarettes in Q2, 2015 ● Cigarette industry volume growth forecast: - Mid to long-term: 1% to 3% annually - 2015: towards lower end of the range 41.1 41.6 41.8 41.9 41.6 41.2 31.4 31.8 32.0 32.2 33.0 33.8 20.9 20.1 19.8 19.7 19.2 18.8 6.6 6.5 6.4 6.2 6.2 6.2 Q1 Q2 Q3 Q4 Q1 Q2 Hand-Rolled Kretek Machine-Made FF Kretek Non-Kretek 2015 Machine-Made LTLN Kretek Industry Category Segmentation (%) 2014
15 (a) Adjusted for inventory movements Source: PMI Financials or estimates and Tobacco Institute of Japan Japan: Investing in Our Brands ● Cigarette industry volume decreased by 2.6%(a) in H1, 2015 ● Forecast 2015 cigarette industry volume decline of 2.5% to 3.0% ● Expect full-year 2015 share to be broadly in line with 2014 level: - Marlboro 2.0 Architecture roll-out - Strong pipeline of innovations: recent launch of two Lark variants in the rapidly growing new taste menthol segment 25.8 26.4 25.4 Q2, 2014 Q2, 2015 Marlboro 2.0 Architecture Adjusted for Inventory Movements PMI Market Share (%)
16 (a) Stick price points are as of May 2015 Note: Stick price points represent recommended retail selling price or estimates. Pack designs are for illustrative purposes only Source: PMI Financials or estimates Philippines: Expecting Strong OCI Growth, Ex-Currency ● Competitive environment benefiting from introduction of tax stamps ● Moderating sequential decline in adult average daily consumption ● Marlboro cigarette volume grew by 18.1% in Q2, 2015, driven by improved price gaps ● Expecting strong OCI growth, ex-currency, in 2015 Q2, 2014 Q2, 2015(a) 1.00-1.25 1.75 1.50 Price Gap 1.25 2.00 3.00 1.75 Price Gap 3.00 2.00 1.75-2.00 Stick Price Points (PHP/stick)
17 Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products with the potential to reduce individual risk and population harm in comparison to smoking combustible cigarette. Translation from Japanese: "iQOS. Satisfying tastes that you can choose. Marlboro HeatStick series. Regular: Deep and Rich Taste. NEW Balanced Regular: Balanced, Sophisticated Taste. NEW Mint: Light, Refreshing Taste. Menthol: Strong, Refreshing taste". iQOS: National Expansion in Japan and Italy Japan: ● National expansion to commence in September: - Roll-out across key regions - Upgraded version of iQOS priced at JPY 9,980 Italy: ● On track with expansion plan for later this year
18 iQOS: Launch in Switzerland ● Launch: August 2015 ● Five major cities with retail distribution in approximately 250 outlets by end of October ● Marlboro HeatSticks available in regular, smooth and menthol variants Basel Bern Geneva Lausanne Zurich iQOS Kit CHF 80(a) Marlboro HeatSticks CHF 8/pack(a) (a) Retail selling price on www.iqos.ch, subject to change Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products with the potential to reduce individual risk and population harm in comparison to smoking combustible cigarettes. Visuals are for illustrative purposes only. 20 HeatStick tobacco sticks per pack
19 Free Cash Flow: Resilient Performance in H1, 2015 ● H1, 2015 free cash flow in line with prior year ● Prudent cash flow management, particularly with regard to working capital and capital expenditures ● Forecast 2015 free cash flow to be broadly in line with 2014, despite significant currency headwind 2,912 2,887 H1, 2014 H1, 2015 PMI Free Cash Flow ($ million) Source: PMI Financials or estimates
20 Note: Reduced-Risk Products ("RRPs") is the term we use to refer to products with the potential to reduce individual risk and population harm in comparison to smoking combustible cigarettes. Dividend yield represents the annualized dividend on July 10, 2015, over the closing share price on that date. The current annualized dividend rate for PMI is $4.00. The closing share price for PMI was $82.16 on July 10, 2015 Source: PMI Financials or estimates Conclusion: Strong Outlook for 2015 ● Modest organic cigarette volume decline and strong currency-neutral financial results, driven by robust business fundamentals ● Superior brands, supported by a superb commercial organization, driving strong pricing and continued market share gains ● iQOS on track in Japan and Italy. Launch in Switzerland in August ● Committed to returning around 100% of free cash flow to shareholders ● Attractive dividend yield of 4.9% ● 2015 EPS guidance, ex-currency, reflects a growth rate of 9% to 11% versus 2014 adjusted diluted EPS of $5.02 ● Expect to be towards the upper end of our guidance range
2015 Second-Quarter Results Questions & Answers Download PMI’s Investor Relations App iOS Android
Glossary and Reconciliation of Non-GAAP Measures
23 Glossary: General Terms ● PMI stands for Philip Morris International Inc. and its subsidiaries ● Until March 28, 2008, PMI was a wholly owned subsidiary of Altria Group, Inc. ("Altria"). Since that time the company has been independent and is listed on the New York Stock Exchange (ticker symbol "PM") ● Unless otherwise stated, results are compared to those of the same period in the preceding year ● PMI volumes refer to PMI cigarette shipment data, unless otherwise stated ● Organic volume refers to volume excluding acquisitions ● References to total international cigarette market, total cigarette market, total market and market shares reflect our best estimates based on a number of internal and external sources ● Trademarks are italicized
24 Glossary: Financial Terms ● Net revenues exclude excise taxes ● Operating Companies Income, or "OCI", is defined as operating income, excluding general corporate expenses and the amortization of intangibles, plus equity (income) or loss in unconsolidated subsidiaries, net ● Adjusted OCI is defined as reported OCI adjusted for asset impairment, exit and other costs ● OCI growth rates are on an adjusted basis ● EPS stands for Earnings per Share ● Free cash flow is defined as net cash provided by operating activities less capital expenditures
25 Glossary: Industry/Market Terms ● EEMA refers to the Eastern Europe, Middle East & Africa Region ● EU refers to the European Union Region ● FF stands for full flavor ● Fine cut includes Make Your Own (MYO), MYO volume tobacco and Roll Your Own ● Illicit trade refers to domestic non-tax paid products ● LA&C refers to the Latin America & Canada Region ● LTLN stands for low tar/low nicotine ● Smoking prevalence refers to the percentage of the adult population that regularly smoke factory-made cigarettes in a given time period ● SoM stands for Share of Market
26 Glossary: Reduced-Risk Products ● E-vapor products are products that generate nicotine containing aerosols ● HeatStick tobacco sticks are novel patented tobacco products specifically designed by PMI for use with PMI’s iQOS system. The tobacco in the HeatStick is heated by our iQOS technology to provide adult smokers with real tobacco taste and satisfaction without combustion ● iQOS is the new brand name under which PMI has chosen to commercialize the Platform 1 electronic system ● Reduced-Risk Products ("RRPs") is the term the company uses to refer to products with the potential to reduce individual risk and population harm in comparison to smoking combustible cigarettes. PMI’s RRPs are in various stages of development and commercialization, and we are conducting extensive and rigorous scientific studies to determine whether we can support claims for such products of reduced exposure to harmful and potentially harmful constituents in smoke, and ultimately claims of reduced disease risk, when compared to smoking combustible cigarettes. Before making any such claims, we will rigorously evaluate the full set of data from the relevant scientific studies to determine whether they substantiate reduced exposure or risk. Any such claims may also be subject to government review and approval, as is the case in the U.S. today
27 PMI Peer Groups (a) Effective until September 30, 2012 (b) Effective as of October 1, 2012 - BAT - Bayer - Coca-Cola - Diageo - GlaxoSmithKline - Heineken - Imperial Tobacco - Johnson & Johnson - Kraft(a) - McDonald’s - Mondelēz International(b) - Nestlé - Novartis - PepsiCo - Pfizer - Roche - Unilever - Vodafone - Altria - BAT - Imperial Tobacco - Japan Tobacco - Lorillard - Reynolds American Compensation Survey Group Tobacco Peer Group
28 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Quarters Ended June 30, ($ in millions) (Unaudited) Reported Net Revenues Less Excise Taxes Reported Net Revenues excluding Excise Taxes Less Currency Reported Net Revenues excluding Excise Taxes & Currency Less Acquisi- tions Reported Net Revenues excluding Excise Taxes, Currency & Acquisitions Reported Net Revenues Less Excise Taxes Reported Net Revenues excluding Excise Taxes Reported Reported excluding Currency Reported excluding Currency & Acquisitions 6,336$ 4,348$ 1,988$ (488)$ 2,476$ 4$ 2,472$ European Union 7,829$ 5,436$ 2,393$ (16.9)% 3.5% 3.3% 4,994 3,075 1,919 (464) 2,383 1 2,382 EEMA 5,674 3,391 2,283 (15.9)% 4.4% 4.3% 5,039 2,894 2,145 (229) 2,374 - 2,374 Asia 5,097 2,786 2,311 (7.2)% 2.7% 2.7% 2,394 1,587 807 (112) 919 3 916 Latin America & Canada 2,451 1,641 810 (0.4)% 13.5% 13.1% 18,763$ 11,904$ 6,859$ (1,293)$ 8,152$ 8$ 8,144$ PMI Total 21,051$ 13,254$ 7,797$ (12.0)% 4.6% 4.5% Reported Operating Companies I come Less Currency Reported Operating Companies Income excluding Currency Less Acquisi- tions Reported Operating Companies Income excluding Currency & Acquisitions Reported Operating Companies Income Reported Reported excluding Currency Reported excluding Currency & Acquisitions 977$ (279)$ 1,256$ (2)$ 1,258$ European Union 711$ 37.4% 76.7% 76.9% 881 (253) 1,134 (1) 1,135 EEMA 1,087 (19.0)% 4.3% 4.4% 797 (97) 894 - 894 Asia 900 (11.4)% (0.7)% (0.7)% 325 (51) 376 2 374 Latin America & Canada 265 22.6% 41.9% 41.1% 2,980$ (680)$ 3,660$ (1)$ 3,661$ PMI Total 2,963$ 0.6% 23.5% 23.6% 2015 2014 % Change in Reported Operating Companies Income 2015 2014 % Change in Reported Net Revenues excluding Excise Taxes
29(a) For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to previous slide PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income & Reconciliation of Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions For the Quarters Ended June 30, ($ in millions) (Unaudited) Reported Operating Companies Income Less Asset Impairment & Exit Costs Adjusted Operating Companies Income Less Currency Adjusted Operating Companies Income excluding Currency Less Acquisi- tions Adjusted Operating Companies Income excluding Currency & Acquisitions Reported Operating Companies Income Less Asset Impairment & Exit Costs Adjusted Operating Companies Income Adjusted Adjusted excluding Currency Adjusted excluding Currency & Acquisitions 977$ -$ 977$ (279)$ 1,256$ (2)$ 1,258$ European Union 711$ (488)$ 1,199$ (18.5)% 4.8% 4.9% 881 - 881 (253) 1,134 (1) 1,135 EEMA 1,087 - 1,087 (19.0)% 4.3% 4.4% 797 - 797 (97) 894 - 894 Asia 900 (1) 901 (11.5)% (0.8)% (0.8)% 325 - 325 (51) 376 2 374 Latin America & Canada 265 - 265 22.6% 41.9% 41.1% 2,980$ -$ 2,980$ (680)$ 3,660$ (1)$ 3,661$ PMI Total 2,963$ (489)$ 3,452$ (13.7)% 6.0% 6.1% % Points Change Adjusted Operating Companies Income excluding Currency Net Revenues excluding Excise Taxes & Currency(a) Adjusted Operating Companies Income Margin excluding Currency Adjusted Operating Companies Income excluding Currency & Acquisitions Net Revenues excluding Excise Taxes, Currency & Acquisitions(a) Adjusted Operating Companies Income Margin excluding Currency & Acquisitions Adjusted Operating Companies Income Net Revenues excluding Excise Taxes(a) Adjusted Operating Companies Income Margin Adjusted Operating Companies Income Margin excluding Currency Adjusted Operating Companies Income Margin excluding Currency & Acquisitions 1,256$ 2,476$ 50.7% 1,258$ 2,472$ 50.9% European Union 1,199$ 2,393$ 50.1% 0.6 0.8 1,134 2,383 47.6% 1,135 2,382 47.6% EEMA 1,087 2,283 47.6% - - 894 2,374 37.7% 894 2,374 37.7% Asia 901 2,311 39.0% (1.3) (1.3) 376 919 40.9% 374 916 40.8% Latin America & Canada 265 810 32.7% 8.2 8.1 3,660$ 8,152$ 44.9% 3,661$ 8,144$ 45.0% PMI Total 3,452$ 7,797$ 44.3% 0.6 0.7 2015 2014 2015 2014 % Change in Adjusted Operating Companies Income
30 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Quarters Ended June 30, (Unaudited) 2015 2014 % Change Reported Diluted EPS 1.21$ 1.17$ 3.4% Adjustments: Asset impairment and exit costs - 0.24 Tax items - - Adjuste iluted EPS 1.21$ 1.41$ (14.2)% Less: Currency impact (0.33) Adjusted Diluted EPS, excluding Currency 1.54$ 1.41$ 9.2%
31 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Quarters Ended June 30, (Unaudited) 2015 2014 % Change Reported Diluted EPS 1.21$ 1.17$ 3.4% Less: Currency impact (0.33) Reporte Diluted EPS, excluding Currency 1.54$ 1.17$ 31.6%
32 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Six Months Ended June 30, (Unaudited) 2015 2014 % Change Reported Diluted EPS 2.37$ 2.35$ 0.9% Adjustments: Asset impairment and exit costs - 0.25 Tax items - - Adjuste iluted EPS 2.37$ 2.60$ (8.8)% Less: Currency impact (0.64) Adjusted Diluted EPS, excluding Currency 3.01$ 2.60$ 15.8%
33 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Six Months Ended June 30, (Unaudited) 2015 2014 % Change Reported Diluted EPS 2.37$ 2.35$ 0.9% Less: Currency impact (0.64) Reporte Diluted EPS, excluding Currency 3.01$ 2.35$ 28.1%
34 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS For the Year Ended December 31, (Unaudited) 2014 Reported Diluted EPS 4.76$ Adjustments: Asset impairment and exit costs 0.26 Tax items - Adjuste Diluted EPS 5.02$
35 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Cash Flow to Free Cash Flow and Free Cash Flow, excluding Currency For the Quarters and Six Months Ended June 30, ($ in millions) (Unaudited) (a) Operating Cash Flow For the Quarters Ended For the Six Months Ended June 30, June 30, 2015 2014 % Change 2015 2014 % Change Net cash provided by operating activities(a) 3,675$ 2,705$ 35.9% 3,300$ 3,420$ (3.5)% Less: Capital expenditures 210 252 413 508 Free C Flow 3,465$ 2,453$ 41.3% 2,887$ 2,912$ (0.9)% Less: Currency impact (598) (1,554) Free Cash Flow, excluding Currency 4,063$ 2,453$ 65.6% 4,441$ 2,912$ 52.5%
2015 Second-Quarter Results July 16, 2015
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