Roman Militsyn Managing Director Korea Seoul, 10 March 2010 · 2010-03-10 · brand portfolio in...

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Roman MilitsynManaging Director KoreaSeoul, 10 March 2010

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Forward-Looking and Cautionary Statements

This presentation and related discussion contain statements that, to the extent they do not relate strictly to historical or current facts, constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current plans, estimates and expectations, and are not guarantees of future performance. They are based on management’s expectations that involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. PMI undertakes no obligation to publicly update or revise any forward-looking statements, except in the normal course of its public disclosureobligations. The risks and uncertainties relating to the forward-looking statements in this presentation include those described under Item 1A. “Risk Factors” in PMI’s Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission.

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Management Team

ROMAN MILITSYN Managing Director

DAVID ABBOTTDirector Finance, IS & Planning

BYUNG CHUL KIMDirector Corporate Affairs

SERGE MOROSOWSenior Counsel

JOAO BRIGIDODirector Operations

DOMINIQUE MABRUDirector Marketing

RODNEY VAN DOOREN Director Sales & Distribution

ARSENIO SABADODirector HR & Admin

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Agenda

● Korea at a Glance

● Cigarette Industry

● PMI Objective and Strategies

● Conclusions

● Questions & Answers

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Korea at a Glance

ECONOMIC INDICATORS● GDP: ● GDP/capita: ● Unemployment:● Inflation:

● Population:DEMOGRAPHICS

CIGARETTE INDUSTRY● Market Size: ● Smoking Incidence: ● Daily Average Consumption:

95 billion units25%

16 cigs

$955 billion$17,000

3.6%2.8%

48.3 millionSeoul

Source: PMI estimates Global Insight, CIA Fact Book, National Statistics Office, Hankook Research, PMI Consumer and Segment Tracking

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8892

95 95

50

100

2006 2007 2008 2009

Cigarette Industry

Volume

(billion units)

KRW2,500 = US$2.20Source: Hankook Research

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8892

95 95

50

100

2006 2007 2008 2009

Cigarette Industry

Volume

4.1 4.6 5.4 5.9

69.8 72.6 73.8 75.5

26.122.8 20.8 18.6

0

80

2006 2007 2008 2009

(billion units) PremiumKRW2,500

Below-Prem<KRW2,500Above-Prem>KRW2,500

(%)

Price Segments Share of Market

KRW2,500 = US$2.20Source: Hankook Research

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Competitive Landscape

PMI KT&G BAT JT

AbovePremium

Premium

Below Premium

Virginia Slims

Marlboro Parliament

Cloud 9 Esse

Lark

Dunhill

Vogue

Mild SevenEsseThe One

Seasons

Raison

Bohem

Time This

Simple

Lilac

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7.5

9.0

11.3

13.6

0

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2006 2007 2008 2009

PMI Volume Evolution

20%

24%

21%

(billion units)

Source: Hankook Research

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16.9 17.0 17.1 17.3

3.3 4.06.04.9

8.6 9.911.8

14.4

02006 2007 2008 2009

Market Share Evolution

71.269.1

66.0

62.3

75

KT&G

(%)

BAT

PMI

JT

Source: Hankook Research

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Objective & Strategies

Enhance PMI Enhance PMI brand portfolio in brand portfolio in

line with line with consumer consumer dynamicsdynamics

Optimize point Optimize point of sales of sales

presence to presence to strengthen strengthen

brand equitybrand equity

Efficient, effective Efficient, effective manufacturing and distributionmanufacturing and distributionAgile and selfAgile and self--sustaining organizationsustaining organization

#1 International Tobacco Company

Seek to secure Seek to secure a predictable a predictable

fiscal and fiscal and regulatory regulatory

environmentenvironment

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Objective & Strategies

Enhance PMI Enhance PMI brand portfolio in brand portfolio in

line with line with consumer consumer dynamicsdynamics

Optimize point Optimize point of sales of sales

presence to presence to strengthen strengthen

brand equitybrand equity

Efficient, effective Efficient, effective manufacturing and distributionmanufacturing and distributionAgile and selfAgile and self--sustaining organizationsustaining organization

#1 International Tobacco Company

Seek to secure Seek to secure a predictable a predictable

fiscal and fiscal and regulatory regulatory

environmentenvironment

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1,111 1,1111,565 1,565

889 889

935 935

2003 2004 2005 2006

Fiscal Environment Premium Segment RSP / Pack Industry Volume

KRW2,000

KRW2,500

Tax

Other

97

107

8288

50

120

2003 2004 2005 2006

(billion units)(KRW)

Source: Hankook Research

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Regulatory Environment

● Minimum age law: 19

● Retail licensing

● Health warning: 30% text front and back

● Consumer promotions, internet sales and direct mail prohibited

● Magazine ads, POS ads, and product display allowed

● Smoking in public places restricted (Smoke-free areas: hospitals, public transportation, schools, etc.)

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Objective & Strategies

Enhance PMI Enhance PMI brand portfolio in brand portfolio in

line with line with consumer consumer dynamicsdynamics

Optimize point Optimize point of sales of sales

presence to presence to strengthen strengthen

brand equitybrand equity

Efficient, effective Efficient, effective manufacturing and distributionmanufacturing and distributionAgile and selfAgile and self--sustaining organizationsustaining organization

#1 International Tobacco Company

Seek to secure Seek to secure a predictable a predictable

fiscal and fiscal and regulatory regulatory

environmentenvironment

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Consumer Trends and Dynamics

individualismself-expressionfreedomchallenge

successworking hardchallengesatisfaction

recognitionfamily orientation stability appreciation

Legal Age (min.19) Older

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Consumer Trends and Dynamics

● Up-trading market with increasing preference for differentiated international brands

● Dynamic switching trend, especially among younger Legal Age (min.19) adult smokers

● Different consumption patterns, taste and circumference preferences between younger Legal Age (min.19) and older adult smokers

● Mild market with high representation of low tar products

individualismself-expressionfreedomchallenge

successworking hardchallengesatisfaction

recognitionfamily orientation stability appreciation

Legal Age (min.19) Older

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Marlboro

2006 2007 2008 2009

(Q4.2009)6.3%

(Q1.2006)3.3%

Flavor PlusLaunch

Pack Upgrade

Quality Campaign

Source: Hankook Research

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Marlboro Product Innovation

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Marlboro Communication

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15.7

28.5

5.1

22.7

12.9

25.4 24.7

13.7

6.4 5.8

0

40

Marlboro Dunhill Mild Seven This Raison

2006 2009

(%)

Legal Age (min.19)-24 Shares

Source: PMI General Consumer Tracking Study 2006 & Consumer and Segment Tracking 2009

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Parliament

2006 2007 2008 2009

Mild Launch

(Q1.2006)0.8%

(Q4.2009)4.9%

Source: Hankook Research

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Parliament Communication

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Virginia Slims

(Q1, 2006)2.7%

1mg Launch

Quality Campaign

(Q4, 2009)3.2%

2006 2007 2008 2009

Pack Upgrade

Source: Hankook Research

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Virginia Slims Communication

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3032

34 3436 37 37

39

47

41

36

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MildSeven

Dunhill Raison Bohem Seasons Time This The One Esse

Median Age by Major Brand Family

PMI KT&G BAT JTSource: PMI Consumer and Segment Tracking

Marlboro Parliament Lark VirginiaSlims

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Objective & Strategies

Enhance PMI Enhance PMI brand portfolio in brand portfolio in

line with line with consumer consumer dynamicsdynamics

Optimize point Optimize point of sales of sales

presence to presence to strengthen strengthen

brand equitybrand equity

Efficient, effective Efficient, effective manufacturing and distributionmanufacturing and distributionAgile and selfAgile and self--sustaining organizationsustaining organization

#1 International Tobacco Company

Seek to secure Seek to secure a predictable a predictable

fiscal and fiscal and regulatory regulatory

environmentenvironment

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● Prioritized Key Account chains

7-Eleven

Point of Sales Presence

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● Prioritized Key Account chains

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65 59.256.5

52.947.1

BAT22.7 22.8 22.6 22.8

PMI

JT13.2

5.0

14.8

5.8

17.6

6.9

21.3

8.8

2006 2007 2008 2009

KT&G

(%)

Source: A.C. Nielsen

Point of Sales Presence

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● Prioritized Key Account chains● Independent outlets in strategic locations

Point of Sales Presence

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Objective & Strategies

Enhance PMI Enhance PMI brand portfolio in brand portfolio in

line with line with consumer consumer dynamicsdynamics

Optimize point Optimize point of sales of sales

presence to presence to strengthen strengthen

brand equitybrand equity

Efficient, effective Efficient, effective manufacturing and distributionmanufacturing and distributionAgile and selfAgile and self--sustaining organizationsustaining organization

#1 International Tobacco Company

Seek to secure Seek to secure a predictable a predictable

fiscal and fiscal and regulatory regulatory

environmentenvironment

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Manufacturing

Yangsan Factory

Seoul

Busan

Yangsan

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Distribution

Key Accounts (36%)Independents (64%)

4 Distributors (100%)

Philip Morris Korea Inc. (100%)

81,000 outlets 13,000 outlets

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4

486

1989 2009

● 98% Korean nationals

● Experienced PMI management

● Development plans, international assignments

● Succession planning

● Retention above FMCG norms

● “Best company to work for” award 2007-9(a)

Organization

(a) Hankyoreh Economy21 and the Korea Economic magazines

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Conclusion

● Sizeable, up-trading and dynamic market● Reasonable fiscal and regulatory environment expected● PMI’s tremendous growth momentum in last three years

- Volume up by 81%- Share up by 5.8 pts. to 14.4%

● Strong and balanced portfolio addressing varied adult consumer preferences:- Marlboro: No.1 brand in Legal Age (min.19) to 24- Parliament: fastest growing brand in the market- Virginia Slims: 50% share of Above Premium segment

● Enhancing presence in expanding channels- Fastest growing and No.1 international company in Key Accounts

● PMI has the scale, flexibility and talent for continued profitable growth in Korea

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Questions & Answers