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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