Difference between revisions of "Philip Morris International"

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==Marketing==
 
==Marketing==
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===News===
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Philip Morris International (PM) Upgraded at Citigroup
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Stock News Times
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3/24/2018
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https://stocknewstimes.com/2018/03/22/philip-morris-international-pm-upgraded-to-buy-by-citigroup.html
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Tobacco stocks Citigroup upgraded shares of Philip Morris International (NYSE:PM) from a neutral rating to a buy rating in a report released on Wednesday, February 28th.
  
 
===Language around nicotine, combustible, innovative and non-combustible products===
 
===Language around nicotine, combustible, innovative and non-combustible products===

Revision as of 03:52, 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.

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

Market Share

  • 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

News

Philip Morris International (PM) Upgraded at Citigroup Stock News Times 3/24/2018 https://stocknewstimes.com/2018/03/22/philip-morris-international-pm-upgraded-to-buy-by-citigroup.html Tobacco stocks Citigroup upgraded shares of Philip Morris International (NYSE:PM) from a neutral rating to a buy rating in a report released on Wednesday, February 28th.

Language around nicotine, combustible, innovative and non-combustible products

Notes Link Event or report Date
... https://www.pmi.com/investor-relations/overview/event-details?EventId=5267394 CAGNY 21/02/2018
... https://www.pmi.com/investor-relations/overview/event-details?EventId=5267394 CAGNY 21/02/2019
... https://www.pmi.com/investor-relations/overview/event-details?EventId=5267394 CAGNY 21/02/2020

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.

Tobacco Litigation

Political Spending

Partners and Allies

Audit and Accounting

Banking and Finance

Consulting

Marketing and Public Relations

Investors of interest