2013 Asia Region Investor Field Trip Japan Singapore, June 3, Laurent Boissart President, Japan Philip Morris International

Transcription

1 2013 Asia Region Investor Field Trip Japan Singapore, June 3, 2013 Laurent Boissart President, Japan Philip Morris International

2 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 the risk of smoking-related diseases; 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, 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 2

3 Agenda Japan at a Glance Political and Economic Environment PMI in Japan PMI Objective and Strategies Conclusions Questions & Answers 3

4 Japan Country Profile Economic Indicators (2012) Population: 128 million GDP Growth (real): 2.0% GDP/Capita (nominal): USD 46,733 Consumer Inflation: % Unemployment: 4.3% National Debt (% of GDP, est.): 214% Sapporo Sendai Industry/Demographics (2012) Industry Volume: 197 billion units 5 th largest in the world Total Adult Smoking Incidence: 21.1% Avg. Daily Consumption: 18.1 cigarettes Hiroshima Osaka Nagoya Tokyo Fukuoka Metropolitan areas of Tokyo, Nagoya and Osaka: 50 million adults 48% of cigarette volume Source: Government Statistics, IHS Global Insight, OECD "Economic Outlook 92", Japan Tobacco Smoking Incidence Survey (May 2012) and Tobacco Institute of Japan 4

5 Agenda Japan at a Glance Political and Economic Environment PMI in Japan PMI Objective and Strategies Conclusions Questions & Answers 5

6 Political and Economic Environment LDP and New Komeito coalition holds super-majority in Lower House of the Diet since end of 2012 and enjoys strong public support Upper House of the Diet: - Currently controlled by the opposition - Elections for 50% of the seats scheduled for July 2013 Government following new economic policy ( Abenomics ): - Supplementary budget for economic stimulus (JPY 13.1 trillion) - Calls for monetary easing and 2% inflation target adopted by BOJ - Substantial weakening of the Japanese Yen Note: LDP refers to the Liberal Democratic Party of Japan. BOJ stands for the Bank of Japan 6

7 Agenda Japan at a Glance Political and Economic Environment PMI in Japan PMI Objective and Strategies Conclusions Questions & Answers 7

8 PMI in Japan Leadership Team Laurent Boissart President JACK APPEL Director IS HARUKI KATO Director Field Sales ANDREAS SCHWARTZ Director Operations DOMINIC BARRETT Assistant General Counsel MAARTEN KILA Director Marketing VENKAT SRIDHAR Director New Products & Consumer Engagement Dev t STEFAN BAUER Director Finance & IS MIYUKI NAGAYAMA Director Commercial Approach TAKEHIKO SUTO Director Execution Strategy MARTHA CAMACHO Director HR KOJI NISHIDA Director Key Accounts ARNDT WIPPERT Director Sales SATOSHI INOUE Director Corporate Affairs SOO CHUAN ONG Director Regulatory Strategy YUKIHISA YABUSHITA Director Market Research & Consumer Insights JAMES RYAN Director Marlboro 8

9 PMI in Japan History: : PMKK incorporated : Two sales promotion companies acquired : Philip Morris Japan ( PMJ ) formed : Marlboro license taken back from Japan Tobacco Profile: - Headquarters in Tokyo, 4 regional sales offices - 1,800 dedicated employees 9

10 Product Distribution Flow Manufacturing (mainly Europe) PMPSA PMJ Importation Bonded Warehouse Sojitz Distribution Centers In-Market Distribution Retailers TS Network 274,000 License Holders Source: PMJ Sales 10

11 Moderating Industry Volume Decline (units billion) CAGR : Industry (5.7)%, PMI (2.2)% Source: Tobacco Institute of Japan 11

12 Moderating Industry Volume Decline (units billion) CAGR : Industry (5.7)%, PMI (2.2)% (2.0)% (a) Q1, 2012 Q1, 2013 (a) Excluding the impact of one less selling day, reported (3.2)% Source: Tobacco Institute of Japan 12

13 Consumption Trends Smoking Incidence (%) Average Daily Consumption (units) Source: JT Smoking Incidence Survey and PMI estimates 13

14 Agenda Japan at a Glance Political and Economic Environment PMI in Japan PMI Objective and Strategies Conclusions Questions & Answers 14

15 Objective and Strategies Our objective: Achieve profitable long-term market share growth through successful innovation 15

16 Objective and Strategies Remain key interlocutor for stakeholders in Japan 16

17 Regulatory Environment Japan Tobacco Inc. Law (1985): - Minimum 1/3 ownership by Ministry of Finance ( MoF ) - MoF approval of all major business decisions Tobacco Business Law (1985): - Exclusive local manufacturing by Japan Tobacco - Domestic leaf purchase requirement by JT - Fixed retail price - Pricing approval by MoF - Retail licensing 17

18 Regulatory Environment Smoking restrictions: - Outdoor ordinances in 160 municipalities (a) - Indoor: No national regulation Reasonable and balanced regulations in 2 prefectures (Kanagawa and Hyogo) Vending machine age verification system (Taspo card) Brand communication permitted at PoS, in smoking rooms and in print media One-to-one consumer contact allowed Rational approach to tobacco regulation (a) As of January 2011, out of a total of 1,742 municipalities in Japan Note: PoS stands for point of sale 18

19 Fiscal Environment Excise taxation: - Fully specific system - PMI advocating moderate and predictable excise tax increases when there is no VAT increase VAT increase bill passed in 2012 with support of the LDP: - From 5% to 8% in April 2014, and to 10% in October 2015, considering economic situation - Subject to passage of implementation bill, including a change to the VAT law - Government decision expected in October 19

20 VAT Impact: Theoretical Pass-On for Marlboro (JPY/ 20) As per VAT Bill Current April 2014 October 2015 Retail Selling Price (a) VAT Excise Tax Trade Margin Net Revenues Nominal VAT Rate 5% 8% 10% (a) Equivalent to USD Exchange rate of 102 JPY/USD Note: Totals may not add due to rounding Source: PMJ estimates 20

21 Price Level vs. Selected OECD Countries 60 Minutes of Work Required to Purchase a Pack of 20 Marlboro Cigarettes Korea Japan Switz. Ger. Spain Fra. Gre. Italy Aust. UK Turkey Pol. Mexico Note: Switz. is Switzerland, Ger. is Germany, Fra. is France, Gre. is Greece, Aust. is Australia and Pol. is Poland Source: Marlboro price based on January 2013 public data. Number of minutes of work based on net hourly pay by country per UBS Prices and Earnings Report (September 2012) 21

22 Objective and Strategies Remain key interlocutor for stakeholders in Japan Drive innovation through consumer-relevant portfolio activities 22

23 Strong Market Share Base for Future Growth (%) JT PMI BAT Q1, 2013 Exit share (Q4, 2011) Source: Tobacco Institute of Japan 23

24 Top 15 Brands Market Share (%) Market Share (2012) JT PMI BAT Source: Tobacco Institute of Japan 24

25 PMI Brand Portfolio The masculine premium brand to grow the high price segment through superior products, functional innovation and emotional benefits The international mainstream brand to compete for the mature Japanese male smoker The aspirational choice for confident and stylish adult female menthol smokers International ultra-lights brand delivering ego eco social benefits The premium, sophisticated, exclusive destination for status seekers 25

26 Competitive Brand Portfolio Premium Above 450 SoM: 2.3% Var: 0.1 pp Philip Morris Japan Tobacco BAT SoS: 75.4%; Var: (4.4)pp SoS: 7.1%; Var: (2.4)pp SoS: %; Var: (0.4)pp High 421 ~ 450 SoM: 34.4% Var: (2.1)pp SoS: 44.1%; Var: 6.7 pp SoS: 42.3%; Var: (9.0)pp SoS: 13.5%; Var: 2.2 pp Mainstream 401 ~ 420 SoM: 58.4% Var: (0.3)pp SoS: 18.3%; Var: 3.1 pp SoS: 69.3%; Var: (4.5)pp SoS: 12.2%; Var: 1.4 pp Note: Variances are for the 2012 vs period and are on a current price basis. SoM stands for share of market. SoS stands for share of segment Source: Tobacco Institute of Japan 26

27 Building Our Portfolio on Consumer Insights Market Segments Trends Adult Smokers Adult Consumer Segments Taste Preference Mapping 27

28 Growing in Strategic Segments Menthol Segment Capsule Segment Market (%) PMJ SoS (%) Market (%) PMJ SoS (%) Source: Tobacco Institute of Japan 28

29 Growing in Strategic Segments 1mg Segment 100mm Segment Market (%) PMJ SoS (%) Market (%) PMJ SoS (%) Source: Tobacco Institute of Japan 29

30 Lark Hybrid 1mg 100 s Regular Taste Crush the Capsule for Menthol Launched February 2012 Adult consumer appeal: - Pleasant, refreshing aftertaste - Smooth taste / satisfying taste - Value for money Product concept: - Dual flavor choice through capsule technology Line extension of Lark Hybrid 6mg King Size Lark Hybrid total market share of 0.8% in Q1, 2013 Source: Tobacco Institute of Japan 30

31 Marlboro Black Menthol Edge Super-Slims 8mg and 1mg The boldest slim. Piercing, intense menthol Launched May 2012 Adult consumer appeal: - High cooling / refreshing taste - Contemporary / innovative brand Product concept: - A unique, bold format that delivers intense menthol taste Share of 10% in growing super-slims segment in Q1, 2013 Marlboro Black Menthol total market share of 1.5% in Q1, 2013 Source: Tobacco Institute of Japan 31

32 Marlboro Ice Blast 5mg and 1mg Ultimate Cooling Launched July 2012 Adult consumer appeal: - Strong menthol / pleasant aftertaste - Contemporary / innovative brand Product concept: - Crushing the ice ball in the filter delivers 50% more icy cooling taste Increasing Marlboro Ice Blast franchise market share by 0.4 points to 1.8% in Q1, 2013 Source: Tobacco Institute of Japan 32

33 Virginia S. Ice Pearl 5mg and 1mg 100 s Crush the Capsule for Icy Magic Launched October 2012 Adult consumer appeal: - High cooling - Stylish innovation Product concept: - The only high cooling slims cigarette with a mint capsule for icy taste on demand Virginia S. Ice Pearl franchise market share of 0.4% in Q1, 2013 Source: Tobacco Institute of Japan 33

34 Lark Ice Mint 5mg and 1mg 100 s Launched March 2013 Adult consumer appeal: - High cooling taste - Pleasant aftertaste - Longer lasting smoking experience - Value for money Product concept: - Crush the capsule for icy cooling natural mint taste Lark Ice Mint total market share of 0.6% in Mar/Apr 2013 Source: Tobacco Institute of Japan 34

35 Marlboro W-Burst 5mg Launched May 2013 Adult consumer appeal: Taste customization Contemporary / innovative brand Product concept: - Menthol and mint fused to enhance refreshing taste sensations after crushing - World s first double-capsule - W represents double in Japanese 35

36 Freely change the taste based on your feeling. Mint x Menthol. World s first double capsule.

37 Favorable Demographic Profiles Philip Morris Japan (2012) Marlboro (2012) SoM SoS LA (min. 20) 29 SoM SoS LA (min. 20) 29 Note: The term LA refers to Legal Age (minimum 20); SoS stands for smoker share Source: Tobacco Institute of Japan and PMJ Market Research 37

38 Successful Innovation (%) New Launches - Share of Market (a) JT (48.5%) PMI (38.9%) BAT (12.6%) 0.0 Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun (a) For all new products launched since January 2012 Source: Tobacco Institute of Japan 38

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40 Adult Consumer Engagement 40

41 Objective and Strategies Remain key interlocutor for stakeholders in Japan Drive innovation through consumer-relevant portfolio activities Reinforce our brand equity through an optimized trade channel approach 41

42 Retail Universe 64 Other Vending Machines C-stores 63 % PoS % Industry Volume Source: PMJ estimates (2012) 42

43 Convenience Stores Platform 75 Permanent visibility in C-stores (% of stores) Forecast Source: PMJ estimates 43

44 General Accounts 44

45 Objective and Strategies Remain key interlocutor for stakeholders in Japan Drive innovation through consumer-relevant portfolio activities Reinforce our brand equity through an optimized trade channel approach Continuously develop an agile and winning organization 45

46 Agile and Winning Organization Continuous optimization of the commercial functions: - Integration of marketing & sales - Development of differentiated programs and tools to support the right brand at the right place for the right adult consumer profile - Empowerment of the sales force through authority at local level Driving efficiencies to increase impact: - Focus on high value-adding activities - Introduction of new sales force automation system - State-of-the-art technology adult consumer engagement 46

47 Conclusions Moderate total industry decline Regulatory and fiscal regimes remain reasonable Pricing freedom remains key to profit growth: - Price levels in Japan are affordable - Planned VAT increases offer the potential for unit margin improvements Our market share is 3 points higher than in 2010 Successful innovation and new product pipeline based on solid consumer insights should enable future share growth Business and organization well-positioned across the country in order to support growth Ability and resources to ensure sustainable long-term profitable growth Source: Tobacco Institute of Japan 47

48 2013 Asia Region Investor Field Trip Japan Singapore, June 3, 2013 Laurent Boissart President, Japan Philip Morris International QUESTIONS AND ANSWERS

49 2013 Asia Region Investor Field Trip Japan Singapore, June 3, 2013 Laurent Boissart President, Japan Philip Morris International