In process: PMI - q4 2009 and full year..

February 12, 2010

PHILIP MORRIS INTERNATIONAL INC. (PMI) REPORTS 2009 RESULTS

Philip Morris International Q4 2009 Earnings Call Transcript, Seeking Alpha, 2/11/2010.

PMI’s tobacco product shipments flat
Feb 12, 2010—Philip Morris International’s cigarette shipment volume last year, at 864.0 billion, was down by 0.7 per cent on that of the previous year.

Gains in the company’s Asia region, primarily driven by Indonesia and double-digit growth in Korea, and in its Latin America & Canada region, because of the acquisition of Rothmans, Canada, were more than offset by declines in the EU and its EEMA [Eastern Europe, Middle East and Africa] region, mainly due to the impact of the economic crisis, primarily in the Baltic States, Spain and Ukraine.

Excluding acquisitions, PMI’s cigarette shipment volume was down by 1.5 per cent.

The combination of stubbornly high unemployment levels, lower discretionary incomes and tax induced pricing took their toll on volumes. Most notably in Spain, Ukraine, the Baltics, Romania, Serbia and Columbia. Which all suffered extraordinary double digit contractions.

Total shipments of Marlboro cigarettes, at 302.0 billion, were down by 2.8 per cent, primarily due to market declines in the EU and EEMA, largely as a result of the effects of the economic crisis in Spain and a softening of the premium segment in Russia and Ukraine, offset by strong growth of 4.3 per cent in Asia.

Total shipments of L&M cigarettes, at 90.8 billion, were down by 1.7 per cent, with growth of 8.6 per cent in the EU offset primarily by a decline in Russia.

There was better news for other tobacco products (OTP), total shipments of which, in cigarette equivalent units, grew by 33.2 per cent, primarily fueled by the acquisition of Swedish Match South Africa.

But excluding acquisitions, shipments of OTP were down by 8.1 per cent, primarily due to lower cigarillo volumes in Germany, where the segment has declined, and the impact in Poland of the excise tax alignment of pipe tobacco to roll-your-own products in the first quarter of 2009.

Total shipments of cigarettes and OTP were essentially flat during 2009, but down by 1.6 per cent excluding acquisitions.

PMI’s market share performance registered a stable or growing trend in a number of markets, including Algeria, Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, the Canary Islands, the Dominican Republic, Egypt, Finland, Greece, Hungary, Japan, Korea, Mexico, the Netherlands, the Philippines, Portugal, Romania, Russia, Spain, Turkey, Ukraine and PMI Duty Free.

While the premium segment suffered significant erosion in several markets, and most notably in Spain, Russia and Germany, it held up remarkably well in markets as varied as Turkey and the Ukraine. And in the quarter, actually, sustained its growth momentum in markets such as Argentina, Indonesia, Korea, Poland and Greece.

The disciplined roll out of Marlboro’s new brand, Architecture continued the pace as the year unfolded. While the brand’s overall volume performance suffered from the market contraptions that occurred primarily in the European Union and in Eastern Europe, it faired remarkably well in numerous markets. Volume growth of 4.3% in Asia was particularly note worthy with solid market share performances in Japan, Korea, Indonesia and the Philippians.

In Japan, the government has called for a 70 yen per pack of 20 cigarettes or 40% excise tax increase effective October 2010. And Parliamentary approval is excepted to be secured by the end of March. Apart from taking into account sales taxes and current trade margin levels, implies a minimum price increase of 82 yen per pack of 20 cigarettes, to remain revenue neutral and per stick basis.

PMI’s cigarette shipment volume during the fourth quarter of 2009, at 218.2 billion, was up by 0.5 per cent, reflecting gains in the EEMA region, primarily in Algeria, driven by a higher total market and share gains, in Egypt, fuelled by market share gains, and Turkey, led by the growth of Lark; and in Asia, fueled by double-digit growth in both Indonesia and Korea. The volume gain, however, was partially offset by declines in the EU, mainly due to the economic downturn in the Baltic States and Spain, combined with the impact of tax-driven price increases, and in Latin America & Canada.

Indonesia - fourth quarter volume was up double digit in Indonesia and it was principally driven by the timing of Ramadan which heard our fourth quarter as Hermann had told you at the time. Share continues to be relatively strong, particularly behind the A mild and Marlboro.

Total industry shipments in Indonesia were up 5% which is a pretty attractive number and we would anticipate that those consumption levels would continue. The economy of Indonesia is doing well. There has been excise tax reform which I believe will be favorable going forward. Today we are seeing quite a lot of growth in the low-price segment, and if you recall, there is an excise tax benefit for manufacturers that manufacture cigarettes below a certain threshold. And I think over time, that loophole will be closed and that will be a benefit for us and the bigger players. Let's not forget there are over more than 700 manufacturers, small manufacturers of products that enjoy these excise tax benefits which clearly potentially help employment, but damage government revenues. And I think the trend that we've seen in terms of the surge in the volume of that segment will attenuate as the excise tax reforms take place. What's the timing on the excise tax reform?

Louis C. Camilleri There is a plan which I think is a three-year plan and it's already started to be implemented as of January.
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Excluding acquisitions, PMI’s cigarette shipments were up by 0.4 per cent, favorably impacted by the timing of shipments in Indonesia.

Total shipments of Marlboro cigarettes during the fourth quarter, at 75.8 billion units were down by 3.4 per cent, primarily due to market declines in the EU, largely reflecting the impact of the economic crisis in Spain; in the EEMA region, due to a

softening of the premium segment in Russia; in Asia, mainly due to a lower total market and an unfavorable comparison with the fourth-quarter 2008 related to the change in sourcing from the US in Japan, more than offsetting growth in Indonesia, Korea and the Philippines; and in Latin America & Canada, primarily due to lower total markets in Brazil and Mexico.

Total shipment volume of OTP during the fourth quarter, in cigarette equivalent units, grew by 63.9 per cent, primarily fueled by the acquisition of Swedish Match South Africa.

Excluding acquisitions, shipment volume of OTP was down by 19.4 per cent, primarily due to lower volume in Poland.

Total shipment volume for cigarettes and OTP during the fourth quarter was up by 1.6 per cent, and up by 0.1 per cent excluding acquisitions.

“Our robust fourth-quarter and annual results bear striking witness to the resiliency of our strong, broad and evolving brand portfolio and the diverse geographic scope of our business,” said chairman and CEO, Louis Camilleri, announcing PMI’s results on Thursday.

“Our judicious pricing actions, widespread market share growth and productivity initiatives, largely offset the significant market contractions and consumer down-trading that we witnessed in those countries that suffered the most from the global economic downturn.

“The fragility of the economic recovery, particularly with regard to employment levels and currency volatility, naturally warrants a cautious outlook for 2010. However, we enjoy solid momentum and remain confident that we will again post strong financial results this year.

“Our new $12 billion, three-year share repurchase program underscores our optimism going forward.”

Net revenues for the full year, at $25.0 billion, were down by 2.6 per cent due to unfavorable currency factors amounting to $2.6 billion. Excluding currency factors, net revenues increased by 7.5 per cent, driven by favourable pricing of $2.0 billion across all business segments, and the favorable impact of the 2008 Rothmans acquisition, partly offset by unfavorable volume/mix of $620 million, primarily in the EU and EEMA (Eastern Europe, Middle East and Africa) regions. Excluding currency and acquisitions, net revenues increased by 5.3 per cent.

In the fourth-quarter, net revenues of $6.7 billion were up by 9.7 percent, including favourable currency factors amounting to $111 million. Excluding currency, net revenues increased by 7.9 per cent, primarily driven by favorable pricing of $487 million across all business segments that more than offset unfavorable volume/mix of $48 million, mainly in the EU Region. Excluding currency and acquisitions, net revenues increased by 7.2 percent.

Pam Yuk - Financial Times

And are there plans to expand PM's presence in the non-cigarette market? Because in 2009 we've seen the PM did quite a number of deals and joint ventures in the non-cigarette areas. Are we going to see more of that in 2010?

Louis C. Camilleri

In terms of other tobacco products? Clearly that's an area where it makes sense and where the segment is lucrative we will continue to pursue organic entry or entry through acquisitions just as we've done in the past, yes.

Pam Yuk - Financial Times

Okay. When you talk about doing I organically or through acquisition, would that include potentially having a look at Swedish Match?

Louis C. Camilleri

As you know we have an international joint venture with Swedish Match which we're very pleased with and hopefully this year you will see some signs of activity. The organization is in place, we're working on the products, and we're very satisfied with our relationship with it which is an exclusive relationship for the international market outside of the US and Scandinavia clearly. So we have a 50-50 joint venture for smokeless tobacco with Swedish Match for the international market and that's clearly our priority and what we're interested in.