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Revision as of 03:45, 29 April 2018
Philip Morris International (PMI), the world’s largest publicly traded tobacco company, operates in approximately 180 countries and reported 18.31 billion USD (2017 Annual report) in profits in 2017. PMI, a U.S.-based corporation, only sells its products outside the U.S. PMI was separated from its parent company, the Altria Group, in March 2008, in part to protect the company from increased U.S.-based regulation and Litigation. Although PMI and Altria are now legally separate companies, PMI’s leadership remains largely the same as it was under Altria.
Contents
Company Overview
Staffing
Majority of their executive hires are from within who worked with the organisation for a number of years The executive staff and board members only have two female hires (out of 20).
Trends
- Estimated international cigarette and heated tobacco unit volume, excluding China and the United States, of 2.8 trillion, is down by 2.8 percent
- Cigarette and heated tobacco unit shipment volume of 798.2 billion is down by 2.7 percent. Best year-to-date for Reduced-risk products (RRPs)
- Reported net revenues of USD 78.1 billion is up by 4.2 percent
- PMI increased its regular quarterly dividend by 2.9 percent, from USD 1.04 to 1.07, representing an annualized rate of USD 4.28per common share
- 2018 will see a restructure six Regional market segments (from the existing four) to support PMI’s business transformation
- 4.6 million adult consumers around the world have already stopped smoking and made change to IQOS
2018 Forecast
- Further investment in IQOS and planned lifting of the restriction on IQOSdevice sales in key markets
- PMI’s USD 80 million dollar donation to the Foundation for a Smoke-Free World will be fully expensed in Q1/2018
- Anticipation of a strong net revenue (ex-currency) in Q1/2018
- Morphing local brands into international brands and increase efficiency
- Increase in combustible products prices, coupled with a decreased volume of products
- IQOS priority is to go deeper in the existing markets (they weren’t specific on any new
markets they were hoping to explore)
Board members and key executives
Name | Position | Bio | Source |
---|---|---|---|
Louis C. Camilleri | Chairman of the Board | Mr. Calantzopoulos was named Chief Executive Officer and was elected to the Board of Directors on May 8, 2013. He served as Chief Operating Officer from our spin-off on March 28, 2008 to May 8, 2013. Mr. Calantzopoulos was PMI’s President and Chief Executive Officer between 2002 and the date of the spin-off. After joining the company in 1985, he worked extensively across Central Europe, including as Managing Director of PM Poland and President of the Eastern European Region.
Mr. Calantzopoulos holds a degree in electrical engineering from Swiss Federal Institute of Technology in Lausanne and an MBA from INSEAD in France. |
|
Harold Brown | Director | ||
Massimo Ferragamo | Director | ||
Werner Geissler | Director | ||
Jennifer Li | Director | ||
Director | |||
Sergio Marchionne | Director | ||
Kalpana Morparia | Director | ||
Lucio A. Noto | Director | ||
Frederik Paulsen | Director | ||
Robert B. Polet | Director | ||
Stephen M. Wolf | Director | ||
André Calantzopoulos | Director and Chief Executive Officer | ||
Martin King | Chief Financial Officer | ||
Jacek Olczak | Chief Operating Officer | ||
Jaime Suarez | Chief Digital Officer | ||
Paul Riley | President, East Asia & Australia Region | ||
Marco Mariotti | President, Eastern Europe Region | ||
Frederic de Wilde | President, European Union Region | ||
Jeanne Polles | President, Latin America & Canada Region | ||
Stacey Kennedy | President, South & Southeast Asia Region | ||
Drago Azinovic | President, Middle East & Africa & PMI Duty Free | ||
Miroslaw Zielinski | President, Science & Innovation | ||
Marc S. Firestone | President, External Affairs and General Counsel | ||
Jerry Whitson | Deputy General Counsel and Corporate Secretary | ||
Patrick Brunel | Senior Vice President and Chief Information Officer | ||
Werner Barth | Senior Vice President, Commercial | ||
Massimo Andolina | Senior Vice President, Operations | ||
Charles Bendotti | Senior Vice President, People & Culture | ||
Andreas Kurali | Vice President and Controller | ||
Frank de Rooij | Vice President, Treasury And Corporate Finance | ||
Paul Janelle | Vice President, Corporate Planning and Business Development |
Investments in Unconsolidated Subsidiaries ("significant" > 20%):
From an accounting/financial perspective these organisations are treated as investments as the head organisation may have limited or no managerial control..
Subsidiary Name | Country | Interest amount (%) | Interest Type | Notes |
---|---|---|---|---|
Emirati Investors-TA (FZC) ("EITA") | United Arab Emirates | 49% | Equity | |
Société des Tabacs Algéro-Émiratie ("STAEM") | Algiers | 25% | Economic | Algerian joint venture 51% owned by EITA and 49% owned by Algerian state-owned enterprise Société Nationale des Tabacs et Allumettes SpA.Manufactures and distributes under license some of PMI's brands. |
Megapolis Distribution BV | Russia | 23% | Equity | Holding company of CJSC TK Megapolis, PMI's distributor in Russia |
List of Significant Subsidiaries
Subsidiary Name | State or Country of Organization | Region |
---|---|---|
Philip Morris Japan Limited | Japan | East Asia & Australia |
Philip Morris Korea Inc. | Korea, Republic of | East Asia & Australia |
Philip Morris Kazakhstan LLP | Kazakhstan | Eastern Europe |
Limited Liability Company "Philip Morris Sales and Marketing" | Russian Federation | Eastern Europe |
ZAO "Philip Morris Izhora" | Russian Federation | Eastern Europe |
Philip Morris Operations a.d. Nis | Serbia | Eastern Europe |
Limited Liability Company "Philip Morris Sales & Distribution" | Ukraine | Eastern Europe |
Philip Morris Benelux BVBA | Belgium | European Union |
Philip Morris CR a.s. | Czechia | European Union |
Philip Morris Finland Ltd | Finland | European Union |
f6 Cigarettenfabrik GmbH & Co. KG | Germany | European Union |
Philip Morris GmbH | Germany | European Union |
Philip Morris Manufacturing GmbH | Germany | European Union |
Papastratos Cigarettes Manufacturing Company S.A. | Greece | European Union |
Philip Morris Italia S.r.l. | Italy | European Union |
Philip Morris Manufacturing & Technology Bologna S.p.A. | Italy | European Union |
UAB "Philip Morris Lietuva" | Lithuania | European Union |
Philip Morris Holland B.V. | Netherlands | European Union |
Philip Morris Holland Holdings B.V. | Netherlands | European Union |
Philip Morris International Holdings B.V. | Netherlands | European Union |
Philip Morris Investments B.V. | Netherlands | European Union |
PM Tobakk Norge AS | Norway | European Union |
Philip Morris Polska Spolka Akcyjna | Poland | European Union |
Philip Morris Polska Distribution Sp. z.o.o. | Poland | European Union |
Tabaqueira II, S.A. | Portugal | European Union |
Tabaqueira - Empresa Industrial de Tabacos, S.A. | Portugal | European Union |
Philip Morris Romania S.R.L. | Romania | European Union |
Philip Morris Brands Sàrl | Switzerland | European Union |
Philip Morris Exports Sàrl | Switzerland | European Union |
Philip Morris Finance SA | Switzerland | European Union |
Philip Morris International Management SA | Switzerland | European Union |
Philip Morris Products S.A. | Switzerland | European Union |
Philip Morris & Company (UK) Limited | United Kingdom of Great Britain and Northern Ireland | European Union |
Massalin Particulares S.R.L. | Argentina | Latin America & Canada |
Philip Morris Brasil Industria e Comercio Ltda. | Brazil | Latin America & Canada |
Compania Colombiana de Tabaco S.A.S. | Colombia | Latin America & Canada |
Philip Morris Mexico Productos Y Servicios, Sociedad de Responsabilidad Limitada de Capital Variable | Mexico | Latin America & Canada |
Philip Morris Mexico, Sociedad Anónima de Capital Variable | Mexico | Latin America & Canada |
Philip Morris Misr Limited Liability Company | Egypt | Middle East & Africa |
Leonard Dingler (Proprietary) Limited | South Africa | Middle East & Africa |
Philip Morris SA Philip Morris Sabanci Pazarlama ve Satis A.S. | Turkey | Middle East & Africa |
PHILSA Philip Morris Sabanci Sigara ve Tutunculuk Sanayi ve Ticaret A.S. | Turkey | Middle East & Africa |
PT Hanjaya Mandala Sampoerna Tbk. | Indonesia | South & Southeast Asia |
PT Philip Morris Indonesia | Indonesia | South & Southeast Asia |
Philip Morris (Pakistan) Limited | Pakistan | South & Southeast Asia |
Philip Morris Philippines Manufacturing Inc. | Philippines | South & Southeast Asia |
PMFTC Inc. | Philippines | South & Southeast Asia |
Philip Morris Limited | Australia | #N/A |
Rothmans, Benson & Hedges Inc. | Canada | #N/A |
Philip Morris Global Brands Inc. | United States of America |
Profitability
- PMI’s profitability has followed a steadily declining trend in recent years from 17.43 billion in 2015 to 17.29 billion in 2016
- This year marks the first increase in profits from the previous year since 2012
- The 2017 Tax Cuts and Jobs Act was signed into law in December last year. The tax means a reduction of the U.S. federal corporate tax rate from 35 to 21 percent. The income tax payable is due over an 8-year period beginning in 2018. They expect an effective tax rate of 28 percent
- The 2017 Tax Cuts and Jobs Act was signed into law in December last year. The tax means a reduction of the U.S. federal corporate tax rate from 35 to 21 percent. The income tax payable is due over an 8-year period beginning in 2018. They expect an effective tax rate of 28 percent
Annual trends
Fiscal year (January to December)(in billions USD) | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 |
---|---|---|---|---|---|---|
Revenues or Net Sales | $78.09 | $74.95 | $73.91 | $80.11 | $80.03 | $77.39 |
Gross Profit | $18.31 | $17.29 | $17.43 | $19.33 | $20.81 | $21.00 |
Profits per region (in millions USD)
European Union
European Union | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 |
---|---|---|---|---|---|---|
Net Revenues | $27,129 | $26,563 | $30,517 | |||
Excise taxes on products | $18,967 | $18,495 | $21,370 | |||
Net Revenues, excluding excise taxes on products | $8,162 | $8,068 | $9,147 | |||
Operating companies income | $3,994 | $3,576 | $3,815 |
Eastern Europe, Middle East & Africa
Eastern Europe, Middle East & Africa | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 |
---|---|---|---|---|---|---|
Net Revenues | $18,286 | $18,328 | $20,469 | |||
Excise taxes on products | $11,286 | $10,964 | $11,855 | |||
Net Revenues, excluding excise taxes on products | $7,000 | $7,364 | $8,614 | |||
Operating companies income | $3,016 | $3,425 | $4,033 |
Asia
Asia | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 |
---|---|---|---|---|---|---|
Net Revenues | $20,531 | $19,469 | $19,255 | |||
Excise taxes on products | $11,850 | $11,266 | $10,527 | |||
Net Revenues, excluding excise taxes on products | $8,681 | $8,203 | $8,728 | |||
Operating companies income | $3,196 | $2,886 | $3,187 |
Latin America & Canada
Latin America & Canada | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 |
---|---|---|---|---|---|---|
Net Revenues | $9,007 | $9,548 | $9,865 | |||
Excise taxes on products | $6,165 | $6,389 | $6,587 | |||
Net Revenues, excluding excise taxes on products | $2,842 | $3,159 | $3,278 | |||
Operating companies income | $938 | $1,085 | $1,030 |
Acquisitions
Recent acquisitions | Acquired Organization Name | Acquiring Organization Name | Announced Date | Value |
---|---|---|---|---|
Papastratos Cigarette Manufacturing Company acquired by Philip Morris International | Papastratos Cigarette Manufacturing Company | Philip Morris International | 9/15/2003 | $0.00 |
DIN Fabrika Duvana AD acquired by Philip Morris International | DIN Fabrika Duvana AD | Philip Morris International | 12/18/2003 | $0.00 |
Compania Colombiana de Tabaco S.A.S. acquired by Philip Morris International | Compania Colombiana de Tabaco S.A.S. | Philip Morris International | 8/31/2004 | $310,000,000.00 |
Rocker Production AB acquired by Philip Morris International | Rocker Production AB | Philip Morris International | 9/3/2006 | $0.00 |
Lakson Tobacco Company acquired by Philip Morris International | Lakson Tobacco Company | Philip Morris International | 1/19/2007 | $0.00 |
Rothmans acquired by Philip Morris International | Rothmans | Philip Morris International | 8/1/2008 | $0.00 |
Swedish Match (South Africa) acquired by Philip Morris International | Swedish Match (South Africa) | Philip Morris International | 7/2/2009 | $222,000,000.00 |
Productora Tabacalera de Colombia acquired by Philip Morris International | Productora Tabacalera de Colombia | Philip Morris International | 7/10/2009 | $452,000,000.00 |
Investments
Investments | Organizational Name | Funding Type | Money Raised | Announced Date |
---|---|---|---|---|
Funding Round | Syqe Medical | Funding Round | $20,000,000.00 | 1/19/2016 |
Factory closures
Dividends
During 2017, PMI increased its regular quarterly dividend by 2.9%, from USD 1.04 to 1.07, representing an annualized rate of USD 4.28per common share. Since its spin-off in March 2008, PMI has increased its regular quarterly dividend by 132.6% from the initial annualized rate of USD 1.84 per common share, or a compound annual growth rate of 9.8%.
Volumes
- PMI cites lower industry volume in the Asia-Pacific as one of the reasons for this decline, particularly a steep decline in volume in Pakistan and the Philippines
- The other reason cited is due to product switching from cigarettes to non-combustible products
- Heatsticks volume reached 7.4 billion units in 2016 which is significantly lower that the predicted annual production capacity of 30 billion units, recorded in the 2015 annual report and represents an increase of 396 million units from 2015
- The CEO stated the reason for this decline in volume was capacity restriction and subsequent limitation of IQOS device sales in Japan. One can argue that due to consumable rather than disposable nature of next generation products, and without a firm understanding of consumer behavior with respect to the new products, it is more difficult to understand volume of sales
Volume of Cigarettes by Region
Region | 2016 (Billions) (percent) | 2015 (Billions) |
---|---|---|
European Union | 193,586 (-0.52) | 194,589 |
EMEA | 271,393 (-2.87) | 279,411 |
Asia | 260,029 (-7.58) | 281,350 |
Latin America & Canada | 87,938 (-4.33) | 91,920 |
Total | 812,946 (-4.05) | 847,270 |
Product unit volume
Product Category | 2017 | 2016 | 2015 | 2014 | 2013 | 2012 |
---|---|---|---|---|---|---|
Tobacco Units (in billions) | 762.0 | 813.0 | 847.3 | 855.9 | 880.2 | 927.3 |
Heated tobacco (in billions) | 36.2 | 7.4 | 0.0 | 0.0 | 0.0 | 0.0 |
Total | 798.2 | 820.4 | 847.3 | 855.9 | 880.2 | 927.3 |
Percentage | -2.7 | -3.2 | -1.0 | -2.8 | -5.1 | 0.0 |
Combustibles and non-combustibles
- IQOS and other Reduced Risk Products (RRPs) are consistently described as a potential growth opportunity
- By 2016, PMI launched IQOS in 21 markets across all PMI Regions. Japan is the most developed IQOS launch market in terms of geographic coverage
- The narrative in the 2016 annual reports clearly separates the traditional combustibles from the non-combustibles, supporting the notion for classifying HeatSticks in a new fiscal category, separate from their current offering due to their “risk-reduction” profile. Not only does this protect them from the stigma of traditional products, but allows them to obfuscate the volumes and revenue attributable to these new products
- In recent marketing PMI has begun to co-opt the traditional “quit” message used by governments and tobacco control groups, suggesting a move to non-combustible, smokeless products, such vaping, e-cigarettes, or heated tobacco. In the 2015 annual report, CEO André Calantzopoulos and Chairman of the Board, Louis C. Camilleri outline their goals to “ lead a full-scale effort to ensure that RRPs ultimately replace cigarettes to the benefit of adult smokers, society, our company and our shareholders.” The same message was also presented across the 2016 annual report. PMI keeps on using bold and broad statements such as “2016 was a pivotal year for PMI, reflecting exciting progress in our transformation from a cigarette company to one that is focused on RRPs. While our cigarette portfolio continued to drive our income growth, we began to see clear signs of the enormous potential for our RRP portfolio”. Co-opting and pushing the “quit” message in the media in recent marketing shows how they are strategically aligning their new product segment to work with the more difficult market conditions (regulation/education/social stigma) of more advanced economies. The use passive language to point out statistics suggesting the number of tobacco consumers will remain stagnant is both non-committal to the traditional message of quitting and subtly absolving themselves of responsibility. PMI also points out that in cases where a smoker doesn't quit tobacco, RRPs offer “a viable alternative” for them to continue consuming tobacco as a ‘mid-way point’ or ‘third option’ to quitting.
- There is one clear distinction between traditional cigarettes and heated-tobacco and that is their difference in target markets. Heated products have higher consumer friction, requiring a heating device and energy, an IQOS can cost anywhere between USD100 and USD200, a significant investment which will prove a barrier of entry to those of lower economic means. Designed and marketed in similar way to other consumer electronics, most notably mobiles, the size, shape and materials would not be out of place amongst mobiles in a department store, it is clear who their target market is. They are purposefully positioning these products as luxury devices to appeal to the Western-European, US, Canadian, Japanese and Australian markets, which have seen steady year on year declines in cigarette volumes across the last decade, mainly due to a combination of consumer education, effective government regulation and social stigma and de-normalisation from active tobacco control campaigns
- PMI’s net sales have been declining overall in the past five years
- Volumes of cigarettes have been down in the recent years, but this hides volume of tobacco used in “next-generation” products
- Marlboro is still PMI’s best-selling international cigarette with 34-35 percent shipment volume between 2015-16
- The total volume of cigarettes has decreased in all regions. We can see increases in shipment during both years in Saudi Arabia, Turkey, France and Spain. Since 2015, there has been a decline in shipment volumes of cigarettes in Italy, Greece, Pakistan, the Philippines and Argentina
- When reporting on market share, PMI emphasizes stability within its operating companies, despite a slight decline. In 2016, PMI’s cigarette market share increased in a number of markets, including Brazil, Canada, Colombia, the Czech Republic, France, Kuwait, Mexico, the Netherlands, Norway, Poland, Saudi Arabia, Spain, Switzerland, Turkey and the United Arab Emirates
Revenue and performance
- Estimated international cigarette and heated tobacco unit volume, excluding China and the United States, of 2.8 trillion, is down by 2.8 percent
- Cigarette and heated tobacco unit shipment volume of 798.2 billion is down by 2.7 percent. Best year-to-date for Reduced-risk products (RRPs)
- Reported net revenues of USD 78.1 billion is up by 4.2 percent
- PMI increased its regular quarterly dividend by 2.9 percent, from USD1.04 to 1.07, representing an annualized rate of USD 4.28per common share
- 2018 will see a restructure six Regional market segments (from the existing four) to support PMI’s business transformation
- 4.6 million adult consumers around the world have already stopped smoking and made change to IQOS
Emerging Market trends
- Research shows that tobacco companies specifically target and market to lower socio-economic groups, and those countries with a more favourable regulatory landscape. It’s clear that their marketing strategy focuses on two main demographics. Aggressively pursuing larger volumes of combustibles, mainly cigarettes, to lower socio-economic groups around the world, particularly EMMA and Asia Pacific. And convincing those in developed economies to switch from combustibles to heated-tobacco products at a much higher price-point, whilst touting ‘reduced risks’ to lure over more educated and health conscious consumers
- According to Euromonitor International, in 2008, PMI had a market share of over 50% in 13 markets and a market share of over 30% in 36 markets.
- Twenty-one of the 35 markets are emerging markets.
- PMI also had a share of over 20% in 12 additional markets including Russia and Japan.
Products
- There has been a continued increased demand for Heatsticks products, in markets where it has been introduced, with this anticipated to increase further Q1/2018. Reportedly, 4.6 million adult consumers around the world have already stopped smoking and made change to IQOS. South Korea and Japan show high numbers of switching to RRPs.
- There has been a reduction of combustible product inventory levels, mainly in: the EU, notably Italy and Spain; and EEMA, notably North Africa, Russia and Saudi Arabia. In most of the markets it was due to price and tax changes, however in Japan and Korea reflecting out switching to heated tobacco products. Shipment of volumes of other brands also decreased, including L&M and Chesterfield.
Key Portfolio
Marlboro
PMI's cigarette shipment volume of Marlboro decreased in: the EU, mainly due to Greece, Italy and Spain; EEMA, predominantly due to Saudi Arabia, reflecting the impact of the new excise tax implemented in June 2017 that resulted in the doubling of the retail price of Marlboro from SAR 12 to SAR 24 per pack, partly offset by North Africa, notably Algeria and Egypt, and Turkey; Asia, mainly due to Japan and Korea, principally reflecting out switching to heated tobacco products, partly offset by Indonesia and the Philippines; and Latin America & Canada, mainly due to Argentina and Brazil.
L&M
PMI's cigarette shipment volume of the following brands decreased: L&M, mainly due to Russia, Saudi Arabia and Turkey, partly offset by Algeria, Argentina, Colombia and Kazakhstan; Parliament, mainly due to Japan, Russia and Saudi Arabia, partly offset by Kazakhstan; Bond Street, mainly due to Kazakhstan, Russia and Ukraine; Lark, principally due to Japan; and "Others," mainly due to low-price brands in Indonesia, Pakistan, the Philippines, Russia and Ukraine.
Chesterfield
PMI's cigarette shipment volume of the following brands increased: Chesterfield, notably driven by Argentina, Brazil, Colombia, Saudi Arabia, Turkey and Venezuela, partly offset by Italy and Russia; and Philip Morris, mainly driven by Russia and Ukraine, notably reflecting successful portfolio consolidation of local, low-price brands in "Others," partly offset by Argentina and Italy.
Innovative product portfolio
Manufacturing practices
Marketing
Language around nicotine, combustible, innovative and non-combustible products
CSR
- In 2016, PMI launched PMI IMPACT, a private fund aiming to support third-party projects dedicated to fighting illegal trade and related crimes such as corruption, organized criminal networks and money laundering which continues to be a major risk to their business. The organisation has pledged to donate USD 100 million to fund individual projects
- PMI also helped launch the Foundation for a Smoke Free World but did not mention in their annual reports
- PMI will release the raw data from their non-clinical and clinical RRP studies later this year and make them available to the public
Research and development
Advertisements and bad acts review
Reporting and regulation
- The language used in PMI’s annual reports suggests that while they accept regulation of their products, they also note they are able to operate in highly restrictive environments. Jurisdictions worldwide are still coming to terms with how to regulate next-generation products, which PMI and other tobacco giants are using to their advantage by trying to side-step traditional tobacco regulations.